Cash float is the amount of money a business has available to cover daily expenses, such as making change for customers and paying vendors. It can also refer to the time between when money leaves an account and when it officially clears, such as with checks and card payments.

Below, we’ll explain the importance of cash float, how businesses calculate their required cash float, and how to refine cash float.

What’s in this article?

• Why is cash float important?
  
• How does cash float differ from cash reserves?
  
• How do businesses calculate their required cash float?
  
• What industries rely heavily on cash float?
  
• How can businesses refine their cash float?
  

Why is cash float important?

Businesses often don’t think about cash float until it becomes a problem. In the United Kingdom, 34% of small business owners have used personal funds to keep their businesses running. This can be avoided by keeping sufficient cash float. Here’s what cash float can do for a business.

Cover the gap between getting paid and paying others

You might invoice a client and wait 30, 60, or even 90 days to get paid, during which time you need to pay bills of your own. An adequate cash float can cover that gap so you’re not forced to take on debt, delay payments, or miss payroll.

Give you power in negotiations

When you have cash on hand, you’re in control. You can take advantage of early payment discounts, buy in bulk for lower prices, and lock in better terms with suppliers. Businesses that are low on cash can get hit with late fees, higher pricing, and less favourable contract terms.

Keep your reputation (and credit) intact

Consistently paying late – whether it’s to vendors, landlords, or lenders – hurts your business’s credibility. If you ever need financing, a track record of being short on cash can hurt you. A well-managed cash float allows you to pay on time, which keeps relationships strong and opens up better financial options later on.

How does cash float differ from cash reserves?

Cash float and cash reserves both refer to money a business keeps on hand but they serve different purposes. Cash float is the money you use to manage daily cash flow, while cash reserves are your financial safety net for larger, less frequent needs. If your cash float runs low, you might have to delay payments, dip into reserves, or take on short-term debt. But if your cash reserves run out, your business has no financial backup for emergencies or major moves.

A smart business manages both: it keeps enough float to avoid cash crunches while building reserves to handle bigger challenges and opportunities. Here’s more information on each type of fund.

Cash float

Cash float is what keeps your business running between incoming and outgoing payments. It’s the money you have available to cover short-term, recurring expenses such as payroll, rent, supplier payments, and operating costs, and it keeps you from relying on credit or emergency borrowing just to stay open.

The amount needed varies depending on your billing and payment cycles – some businesses need more liquidity than others.

Cash reserves

Cash reserves are the money you set aside for unexpected expenses or future opportunities. These are savings meant to be tapped only when necessary. Cash reserves act as a cushion for emergencies (e.g. economic downturns, unexpected expenses, major equipment failure) and can be used for growth investments (e.g. expanding operations, launching a new product, hiring a new team member). They’re typically held in separate accounts or low-risk investments to prevent their use for routine expenses.

How do businesses calculate their required cash float?

To figure out exactly how much cash float you need, calculate your expenses, determine your payment timelines, and see how much inventory you have on hand. Every business’s calculation will look a little different. Here’s how to figure out what your business needs.

Start with your recurring expenses

First, get a clear picture of your fixed and necessary costs – what has to be paid, no matter what. These usually include:

• Payroll

• Rent or mortgage

• Utilities

• Supplier payments

• Loan payments

• Insurance

• Marketing and ad spend

Look at the last 3–6 months of expenses to get a reliable monthly average.

Map out when cash comes in

Next, take a look at when you’re actually getting paid. Determine if you're collecting cash daily or if you're waiting 30, 60, or even 90 days for invoice payments. Do you need to account for seasonal dips? Do you have big customers with unpredictable payment schedules?

Understanding the timing of your inflows is just as important as knowing your expenses. If your revenue is slow to arrive, you’ll need more float.

Find your cash gap

Your cash gap is the number of days between when you have to pay your expenses and when you receive revenue in your account. Here’s how you calculate it:

Cash Gap = Days It Takes Customers to Pay You + Days of Inventory You Have Available for Sale - Average Number of Days You Take to Pay Suppliers

Example

• You get paid 45 days after making a sale.

• You have 30 days’ worth of inventory.

• You typically pay suppliers in 15 days.

Cash Gap = 45 + 30 - 15 = 60

This means you need enough float to cover 60 days’ worth of expenses before you collect payments.

Calculate how much float you need

Now that you know your average daily expenses and cash gap in days, you can calculate how much float you need. Here’s the formula:

Recommended Cash Float = Daily Expenses × Cash Gap in Days

Example

Assume your daily operating expenses are £3,000 and your cash gap is 60 days.

Cash Float = £3,000 × 60 = £180,000

That’s how much you need available to cover expenses.

Adjust for your business

Every business is different so consider the following factors:

• Seasonality: If you have slow months, increase your float.

• Industry norms: A manufacturer with long production cycles needs more float than a subscription-based business with predictable revenue.

Which industries rely heavily on cash float?

Some industries depend heavily on cash float because of the way money moves in and out of their businesses. They experience either delayed payments, high operating costs, or tight cash flow cycles that make it necessary to have a considerable float. Here are some of the most dependent industries.

Construction and contracting

Construction and contracting businesses have long payment cycles, high upfront costs, and unpredictable cash flow. Contractors often have to pay for materials, labour, and permits months before they get paid for a project. If they don’t have enough float, they either take on debt or delay work, which hurts profitability.

Healthcare

Private healthcare providers bill insurance companies, but payments often take weeks or months to come through. Meanwhile, they have to cover salaries, medical supplies, rent, and equipment maintenance.

Manufacturing and wholesale distribution

Manufacturing and wholesale distribution businesses have high inventory costs, large bulk orders, and slow-moving receivables. Manufacturers have to buy raw materials, pay suppliers, and keep production running, sometimes long before they ship finished goods and receive payment.

Logistics and freight companies

Logistics and freight companies have to pay fuel costs, drivers’ salaries, and maintenance upfront, but they often offer customers payment terms of net 30 to net 90. That means they can deliver goods today but get paid weeks or months later. If a major client delays payment, they need cash float to continue operations.

Restaurants and hospitality

Restaurants and hospitality businesses have high daily operating costs, unpredictable sales, and advance supplier payments. They pay upfront for food, staff wages, and utilities, while revenue fluctuates based on customer traffic. Catering businesses take deposits but often don’t get final payment until after an event.

Retail

Retail businesses have to stock products in advance, cover rent, and pay employees before they make sales. Seasonal fluctuations make float even more important.

Professional services

Many professional services firms operate on project-based payments, which means they could work for months before invoicing and then wait another 30–90 days for payment. Meanwhile, they still need to pay staff, office rent, and software subscriptions.

Film and media production

Film and media production businesses have large up-front production costs, delayed revenue, and irregular payment cycles. Film and TV projects require months (or years) of work before any revenue comes in. Even digital media companies can face long delays in ad revenue payouts.

How can businesses refine their cash float?

Optimising cash float means keeping enough liquidity to cover expenses while ensuring excess cash isn’t sitting idle. Here’s how businesses can fine-tune their cash float for maximum efficiency.

Tighten payment cycles

A long cash gap – the time between paying expenses and receiving revenue – is often the reason businesses run into liquidity problems. The faster you collect payments, the less float you need.

• Shorten payment terms: If you’re on net 60 terms with clients, negotiate down to net 30 or even net 15.

• Offer early payment incentives: Small discounts (e.g. “2% off if paid within 10 days”) can motivate customers to pay sooner.

• Invoice immediately: Delaying invoices by even a few days adds up over time. Automate invoicing so they’re sent out as soon as work is completed.

• Require deposits or progress payments: Get partial payments up front for large projects instead of waiting for the entire balance at the end.

Stretch out your own payments

Just as you want to collect payments faster, so too you want to delay your own outgoing payments. Find ways to do so without damaging supplier relationships.

• Negotiate longer payment terms: If your supplier expects payment in 30 days, ask for 45 or 60 days.

• Use credit wisely: If suppliers offer 0% interest financing or trade credit, use it to keep more cash available.

• Set up payment schedules: Instead of paying all bills at once, stagger payments closer to their due dates to free up short-term cash.

Keep a real-time cash flow forecast

You can’t fine-tune your cash float if you don’t know where your money is going. A rolling 90-day forecast helps you spot potential shortfalls before they become problems.

• Track daily inflows and outflows: Know exactly when money is coming in and going out.

• Plan for seasonal dips: If you have slow months, adjust float levels in advance.

• Factor in unexpected costs: Customer defaults or sudden dips in sales can disrupt cash flow if you’re not prepared.

Automate cash management

Manual cash tracking is slow and prone to errors. Smart automation keeps you liquid without requiring constant oversight.

• Use automatic billing for clients: This helps ensure consistent incoming payments.

• Set up alerts for low cash balances: This prevents surprises when expenses hit.

• Automate expense approvals: This avoids unnecessary delays in paying important vendors.

Use a line of credit as a backup

A line of credit can act as a buffer but it shouldn’t be a primary source of cash float. Keep it available but tap into it only when necessary. Use it strategically for short-term needs, such as covering payroll during a delayed receivables cycle.

Improve inventory management

Too much inventory ties up cash for businesses that hold physical stock, while too little can disrupt sales.

• Move slow-selling products with promotions: Unsold inventory drains cash. Convert it into revenue faster.

• Reduce over-ordering: Data-driven inventory forecasting prevents cash from being locked in excess stock.

• Negotiate better supplier terms: Some suppliers offer just-in-time inventory options, which means you don’t have to pay for stock up front or store extras.

Centralise cash reserves, but keep float accessible

Although long-term reserves should be set aside in high-yield accounts, your cash float needs to be liquid and accessible.

• Separate float from reserves: Don’t tie up operational cash in long-term investments.

• Use interest-bearing business accounts: If you maintain a steady float, put it in a cash account that earns some returns.

• Regularly review cash float levels: What worked six months ago might not be optimal now. Adjust float levels based on business cycles and growth.

Review and cut unnecessary expenses

Every dollar saved is a dollar added to your float. Small, recurring expenses can go unnoticed but add up over time.

• Audit subscriptions and software tools: Eliminate what you don’t use.

• Negotiate with vendors: See if loyalty discounts or bulk purchasing deals are available.

• Switch to cost-effective payment methods: Credit card processing fees can get expensive. Automated Clearing House (ACH) or direct bank transfers are often cheaper.

Build a float buffer for emergencies

A business without a financial cushion relies too heavily on credit, which can be risky. Keep a little extra float so you can always cover your operating expenses, and replenish cash float and reserves regularly. If you dip into them, replenish them as soon as you can.