Matt has written a bit about risk and float for a while now, you can follow his latest mostly on the Saverocity Forum. One of the sticking points in manufactured spending is float.
From Matt:
Your float number
The float number should be the amount of money you can afford to lose for a considerable amount of time. I would suggest that the float timeline you should use should be the greater of the amount of time to liquidate traditionally, or 90 days. For example, if you buy $5,000 of gift cards, how long would it take you to liquidate them if all avenues closed? If you used them for your groceries etc and drained them the old fashioned way. Remember that you will be receiving a bill from your credit card company within 1-2 months of your purchases, and they do not care if your funds are locked up.
My Current Stance:
For me, I don’t float much because I do not feel comfortable left hanging. The horrors of people left with thousands on the Home Improvement Gift Card where they seemingly couldn’t use it anywhere is my nightmare scenario. I don’t play and float in the thousands because it crushes my working capital to manufacture spend. On the flip side, if you are able to float thousands upon thousands and become highly leveraged, you can scale up quickly.
What I Have Been Thinking:
The last few weeks I have been putting more thought into floating. There are so many limited time offers for a day or 3 for the bonuses. The idea is to float a few thousand in American Express gift cards and merchant gift cards. And when the right offer comes up, I would spring on the deal like a lion springs on a wild zebra. Those limited time bonuses are incredibly generous and the AMEX gift cards would push down the cost per point. Some times, this could mean a gift card churn would be $.017/point to $.007/point.
Floating money comes with risk, as Matt has noted, if an avenue shuts down, what next? AMEX gift cards are more difficult to liquidate than the Visa or Mastercards.
Great post, and important points, Reading through, I first thought about your post at first just from a pure MS standpoint, e.g. AMEX Gift Cards (which can sometimes be difficult to liquidate). But I’d say its not limited to just “pure” MS.
Float is especially important when it comes to reselling, too. Scaling up on reselling, it is incredibly easy to find yourself floating multiple thousands of dollars worth of product… and you have to factor in that Amazon will only disburse revenue/earnings twice a month, so immediately in a worse case scenario, you’re looking at two weeks + transfer time to your bank account, and that’s after the sale is made. That doesn’t include the time from purchase, receipt from seller, and turning it around and mailing it.
In the best of situations for me, (other than when I actually physically pick stuff up from the store myself), I’m lucky to make the turn in under 30 days.
Trever, I’ve been paid daily on items I sell on Amazon. I just request payment. I’ve done it several times this week. I’m working on a second companion pass so there have been lots of sales.
@Shannon, Apparently I’ve just been letting things go on Amazon’s schedule. Thanks! I’ll have to play around with requesting a payment sooner.
Thanks Trevor! Coincidentally, there’s a WSJ article about Sears changing their payment terms from Net 30 or 60 to something like 15 days
http://www.wsj.com/articles/sears-tries-to-calm-supplier-jitters-1426695596
Floating less would be nice, but as you mentioned at the expense of scaling and we’re all about the velocity and cheap to free points