Picture the moment you open your banking app and see a comfortable five-figure balance. Then you remember tomorrow's payroll, next week's inventory order, and a pending client invoice are all racing toward the same pot of cash. That uneasy pause comes down to cash float: the money you keep available to run day-to-day operations and the delay between when dollars move on paper and when they actually clear your account.
The gap between what your balance shows and what you can actually spend catches many small business owners off guard. In this guide, you'll learn how different types of float work, why they matter, and practical ways to size, track, and protect them. Whether you're counting change at a food truck or juggling six-figure receivables, understanding cash float turns that uneasy pause into a confident next step.
This guide focuses primarily on operational float—the tangible, physical cash management most businesses handle daily. We'll cover timing float as a critical complement to help you manage the full picture of your working capital.
What is cash float?
Cash float refers to liquid funds your business keeps readily available. The term covers two distinct concepts that, while related, serve different purposes and require different management approaches.
Operational float is physical cash you keep on-hand for daily transactions. This is the $200 in mixed bills at your retail counter or the $50 in your plumbing van for tolls and supplies. You use it when cards don't work, when you need to make change, or when grabbing something quickly beats processing a purchase order.
Timing float (also called financial float) measures the gap between when payments move on paper and when funds actually clear. Consider the stretch between paying your supplier on Net-30 terms and collecting from your customer on Net-60. During that 30-day window, the cash is out the door even though both transactions show as complete in your books.
How operational float differs from petty cash
Petty cash stays fixed at a set amount. You lock $300 in a box, issue vouchers for every withdrawal, and replenish it back to $300 during reconciliation.
Operational float adjusts to business needs. One day you need heavy fives for a farmers market rush. The next day you need twenties for a supply run. The amount may shift based on what's happening, but you always know the starting balance and can account for what moved.
Don't confuse either with cash reserves. Reserves represent your safety net for unexpected expenses or revenue gaps. While operational float handles planned daily transactions, reserves protect against emergencies like equipment failures or delayed client payments. Most advisors recommend keeping three to six months of operating expenses in reserve, separate from any float.
Calculating your cash float needs
Start with your average daily cash requirements for operational float. Pull three months of transactions from your accounting system. Add up all the physical cash you typically spend in a day: supplies, small vendor payments, change for customers, emergency purchases. Divide your total spend by the number of business days.
Add a 15-20% buffer for the unexpected. A sudden equipment repair requiring cash, busier-than-usual periods needing more change, or last-minute supply runs—these spikes happen. Building in cushion prevents scrambling when reality deviates from average.
Service businesses often need smaller operational floats since most transactions run through cards or invoices. Retail operations handling significant cash transactions need more physical currency on hand. Construction and trades sit somewhere between, with field workers needing accessible funds for materials and tolls.
For timing float, map your payment cycles. List when you pay suppliers and when clients pay you. A 30-day payment gap means you need 30 days of operating capital available while waiting for receivables to clear. If your average daily spend is $500 and you have a 30-day gap, that's $15,000 you need liquid.
Chart your payment methods and note how long each takes to clear. ACH transfers, wire payments, checks, and card processing each have different timelines. Understanding these delays helps you predict when committed funds actually become available.
Setting up your cash float systems
Separate your operational float from your main accounts. Designate one checking account or cash drawer specifically for daily operations. This prevents accidentally spending float money on regular business expenses.
Establish a fixed starting amount and a responsible custodian. Every time money leaves or returns, note the amount, date, and reason in a simple log. When someone takes $40 for supplies, they record it. When they return with $5 in change and a receipt for $35, that gets logged too.
The real challenge with timing float hides in the days between sending an invoice and seeing cleared funds. List your usual payment methods and note how long each takes to clear. Chart supplier terms on the same timeline.
Park committed dollars in a dedicated operating account so you can see what's already spoken for. Shaving five days off receivables frees almost a workweek of operating cash without an extra sale.
Managing your cash float effectively
Issue a set amount of operational float to each register or service vehicle at the start of each day. Record the hand-off and ensure every usage has a receipt. When you close, that same amount comes back. A quick count confirms the numbers, and the reserve gets locked away until morning.
Track and reconcile in near-real time. A daily cash-up highlights variances while memories are fresh. A weekly glance tells you if your amount still fits the pace of business. A monthly audit catches slow leaks before they become floods.
Six out of ten small businesses cite late payments as a primary pain point with timing float. Send invoices the moment work is done, make it easy for clients to pay digitally, and consider small incentives for settling early.
Some owners create a second checking account strictly for committed funds. When payments clear, a quick transfer converts "expected" money into spendable dollars. This separation eliminates the guesswork around what's actually available.
Common cash float mistakes to avoid
Holding too much operational float invites theft and ties up money that could earn a return elsewhere. Holding too little leaves you short on change during busy periods. Review past transactions to see if you can trim reserves by 10-15% while still covering peak demand.
As teams grow, informal procedures become liabilities. A short, written routine with the same starting amount, same sign-out sheet, and same nightly count gives everyone the same playbook. Regular spot checks reinforce the standard and catch problems early.
An invoice may show as revenue in your books, but until the funds clear, it's just a promise. Spending against those IOUs risks overdrafts and embarrassing declined payments with timing float. Separating "cleared" and "expected" balances through a second checking account keeps optimism from draining your liquidity.
Creating cash float policies that work
Start by naming who does what. Authorization typically falls to the owner or finance lead. Each register, van, or site needs a primary custodian who issues the amount at opening, records every use, and secures it at close.
Document your procedures in simple steps:
Opening routine: Count your reserve, record the amount, confirm bill and coin mix matches business needs
During operations: Log every withdrawal with date, amount, person, and purpose
Closing routine: Recount cash, reconcile against the log, hand off a signed summary
Walk new hires through a live count and explain why the policy protects both them and the business. When everyone understands the why behind the what, compliance improves naturally.
Schedule quarterly sizing checks to compare actual usage to your target amount. Annual policy refreshers update checklists to reflect new locations, staff changes, or payment technology upgrades.
From cash float chaos to clarity
Your next decision about working capital happens the moment you need to approve a purchase, make payroll, or commit to a new opportunity. In that moment, you need to know what's genuinely available—not just the balance on your screen, but what remains after accounting for physical reserves and pending transactions.
Most businesses track this mentally. They check the balance, do rough math on upcoming obligations, and hope they got it right. That's how you end up scrambling to cover gaps despite looking profitable on paper.
The answer isn't complex forecasting models or daily spreadsheet updates. It's infrastructure that separates money by purpose automatically. Relay's multiple accounts1 let you designate funds for operations, committed expenses, and available capital. Automated transfers handle the allocation, and instant visibility shows exactly what's free to spend.
See how it works and make capital decisions with confidence instead of guesswork.
Disclosures
Relay is a financial technology company and is not an FDIC-insured bank. Banking services provided by Thread Bank, Member FDIC. FDIC deposit insurance covers the failure of an insured bank. Certain conditions must be satisfied for pass-through deposit insurance coverage to apply.
