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In Finance, what is Float Time?

H. Bliss
H. Bliss

In finance, float time is the amount of time between when a check is written and when the value of the check is taken from the check writer's available account balance and deposited into the account of the check recipient. Some people use check float time as a temporary loan and write a check for merchandise or services for which they do not yet have the funds, planning to have the money in the account at the time the check clears. In general, the use of check float time as a method of delaying payment has declined in recent years as many merchants use immediate, electronic methods of cashing checks. The duration of float time for a check depends on travel time through the mail, processing time by the recipient, and the amount of time it takes a bank to deposit checks.

Technological advances make the use of float time as a means of temporary money much more difficult than it was in the past. Many retail stores use systems that automatically withdraw from the account associated with a check written to the store. Others rely on companies that compile returned check data and keep track of people who have had unpaid returned checks. Cashiers at stores that use check verification services are required to deny the acceptance of a check if it was scanned and turned down by the verification system.

A checkbook.
A checkbook.

Electronic checks mean faster processing and less float time. The use of electronic check debiting when a physical check is issued became possible in the United States in October 2004, when the Check Clearing for the 21st Century Act, also called Check 21, made it possible and legal for a bank to scan a check and process the electronic check scan as a physical check. Since the processing of a physical check is no longer required, a bank can process checks almost immediately after they are received.

Using float time as temporary money is discouraged because it can be risky. While an account holder may expect to receive funds before the check hits his account, delayed payments or slow bank deposit processing can put him at risk for insufficient funds fees. Delayed payments can happen if a direct bank deposit fails to go through in time or if a received payment cannot clear. The person or company that deposited the bounced check may also charge the check writer penalties and fees associated with a returned check. Floating checks can also place the writer at risk of criminal penalties because some companies prosecute bounced check writers.

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    • A checkbook.
      A checkbook.