What is the consequence of having float on funds in a business context?

Float refers to the time difference between when a transaction is initiated and when it is finally settled. In a business context, having float on funds can lead to a lost opportunity to reinvest those funds effectively. For instance, when a business has money that is tied up in float, they are unable to use that capital for immediate investment or operational needs. This situation limits the ability to take advantage of other opportunities that may arise, such as investing in new projects or seizing time-sensitive market advantages.

While having float can potentially enhance cash flow and contribute to liquidity, these benefits are often overshadowed by the inability to fully utilize the funds during the period they are in float, thus resulting in opportunities being missed. In essence, the cost of the float comes from the inability to put those funds to work, making reinvestment in other areas less feasible.