What is definition of a cash float in accounting?
If you’re in a position where you must pay to create something before you sell it and your customer pays you 45 days later, then you have 45 days where you have spent money that you aren’t getting back. This is called “cash float.” If your business is steady, your float is equal to two or three months of income. For example, if your company makes $120,000 each year ($10,000 per month), the cash float is probably $20,000 to $30,000. When success comes your way and sales increase from $240,000 to $1.2 million per year, your float also increases from $40,000+ to $200,000+, and that money has to come from somewhere. Part of it can come from profit, but unless your profits are extremely high, they are probably insufficient to enable such growth. People will tell you that this is a “nice problem to have” – not if it causes you to go bankrupt. So here are 4 ways to deal with this cash float problem.
