Float Income

The interest or investment income earned on cash held temporarily before it is paid out to third parties.

Float income is the revenue a company generates by investing cash that is temporarily held in its possession but belongs to third parties. This dynamic is a core business driver for financial intermediaries, payroll processors (who hold client tax and wage funds before distributing them to employees and governments), and insurance companies (who collect premiums before paying out future claims). This income is typically generated by placing the temporary cash balances into highly liquid, low-risk, short-term instruments such as Treasury bills, commercial paper, or money market funds. Because the underlying cash must be paid out on short notice, capital preservation and liquidity are prioritized over high-yield, longer-term investments. Investors analyze float income because it is highly sensitive to macroeconomic interest rates. In a high-interest-rate environment, companies with large cash floats can generate significant, high-margin interest income with virtually no incremental capital expenditure. Conversely, when central banks cut interest rates, this high-margin revenue stream can contract rapidly, hurting overall profitability even if the core operational business remains stable.

A payroll processing firm holds an average daily balance of $2,000,000,000 in client funds before distributing them. If the short-term annualized interest rate is 4.5%, the annual float income is calculated as $2,000,000,000 0.045 = $90,000,000.