Remote Disbursement

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DEFINITION of 'Remote Disbursement'

A cash-management technique that some businesses use to increase their float by taking advantage of the Federal Reserve System's check-clearing inefficiencies. A company that practices remote disbursement intentionally draws its checks on a bank in a location that is geographically remote from whomever it needs to send checks to. It does this to maximize disbursement float, which represents a reduction in book cash but no current change in actual cash in the bank. This means the company still has the money in its bank account and can keep earning interest on it. Using remote disbursement can also allow a company to keep a smaller amount of cash on hand and more of its money in higher-interest-paying accounts.

A company that wants to use remote disbursement to its full advantage needs to also minimize its collection float, or the time it takes to receive payments. Companies can speed up their collections through techniques that reduce float, such as concentration banking and lockbox banking. By slowing down payments and speeding up collections, a company increases its net float and therefore its cash balance.

BREAKING DOWN 'Remote Disbursement'

The Federal Reserve discourages the practice of remote disbursement. It clears almost all checks within two business days, so it is the Fed, not the writer nor the recipient of the check, that loses in the remote-disbursement game. The recipient never has to wait more than two days to receive payment, so it will not necessarily object to doing business with companies that practice remote disbursement.

Other ways companies extend disbursement float include zero-balance accounts and purchasing supplies and services on credit (managing trade payables).

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