The collection float is a term that is used in the world of finance in two different ways. On definition of a collection float has to do with investments, while the second definition is involved with deposits made into a bank account. In both cases, collection floats refer to some type of asset that is currently in a state of transition.
When it comes to investing, a collection float has to do with shares of a security that are currently outstanding. Sometimes referred to simply as a float, the shares are available for trading by the general public, which means that any investor may choose to execute an order to buy the shares. Investors tend to look for floats as a means of acquiring shares of securities that are particularly desirable, either due to their proven track record or strong indicators that the value of the stock is anticipated to rise significantly in the short term.
When used in reference to a bank deposit, a collection float has to do with the status of time that takes place between the actual deposit in the payee’s account and the clearing of the funds by the payer’s bank. During this period of negative float, the deposit may show as posted to the bank account. However, the funds are not available for withdrawal until the check or other financial instrument has been honored by the issuing institution. The duration of the collection float will vary, depending on the steps necessary for the two banks to communicate and complete the transaction.
In both scenarios, the term collection float is used to describe a set of circumstances that are temporary in nature. When applied to investments, the collection float is considered over once the outstanding shares have been acquired. In the case of bank deposits, the collection float ends as soon as the receiving bank verifies the legitimacy of the checks deposited.