What is 'Delayed Disbursement'

Delayed disbursement is a cash management technique that involves a company paying vendors and/or other creditors by checks drawn on banks located in remote areas. Commercial banks will typically delay the availability of funds to the depositor of such checks for up to five days as they await payment from the paying bank. Companies use this technique as a way to maximize disbursement float, a term that describes a decrease in book cash while delaying a change in bank cash.

BREAKING DOWN 'Delayed Disbursement'

The Check Clearing for the 21st Century Act (Check 21) sought to reduce or eliminate delayed disbursement by removing the requirement that original paper checks be presented to a bank for payment. Instead, electronic check conversion can be used, so that electronic copies of paper checks can be presented instead. This speeds the check-clearing process, and means that issuers of checks may no longer be able to count on disbursement delays, since electronic processing means that checks may be cleared in a matter of hours or minutes.

However, companies remain the largest users of paper checks in the U.S. Total check volume decreased 18 percent between 2003 and 2006, but the value of payments made by check increased in that period from $39.3 trillion to $41.7 trillion, suggesting that corporate account holders are still issuing most checks. Small businesses especially prefer to use checks because they are easy to keep track of for auditing and record-keeping purposes, as well as being easy and cheap to issue. For these reasons, corporations may still choose to use delayed disbursement to take advantage of float, by having checks drafted by a bank in a location far away from that of the payee.

Delayed Disbursement in Third-World Countries

Delayed disbursement remains an economic hindrance in developing countries, where minimal infrastructure and other considerations can cause considerable disbursement delays for checks drawn on even relatively close banks. Scholars have identified disbursement delays as a significant factor impairing the developing of new businesses in many African nations, for example. In many cases, entrepreneurs may find themselves making payments on a business loan before the loan amount has even been disbursed, due to delayed disbursement in that region. The average borrower experiences a disbursement delay of about 20 days between approval for a business loan and receipt of the funds.

  1. Remote Disbursement

    Remote disbursement is a cash control technique businesses use ...
  2. Cash Disbursement Journal

    A cash disbursement journal is a record kept by accountants of ...
  3. Positive Pay

    Positive pay is a banking service used to match the checks a ...
  4. Substitute Check

    A substitute check is a paper reproduction of a check that is ...
  5. Crossed Check

    A crossed check is a check that is crossed with two parallel ...
  6. Bounced Check

    A bounced check is slang for a check that cannot be processed ...
Related Articles
  1. Tech

    5 Useless Financial Products That Will Disappear Soon

    Bank deposit slip: what's that? Everyday tools of our financial life that went from indispensable to obsolete.
  2. Investing

    The Best Small Business Checking Accounts in 2016

    Accounts with big banks offer frills, such as mobile and text-based banking – but for small businesses, local banks and credit unions can save money.
  3. Small Business

    How To Do a Background Check on Prospective Employees

    Discover why background checks can be extremely costly, tips for small businesses conducting checks on a budget and if professional checks can be avoided.
  4. Personal Finance

    An Introduction To Perkins Loans

    Check out the eligibility and repayment options, and how you can get this loan forgiven.
  5. Insights

    What Are the Different Types of Foreign Aid?

    Foreign aid can take many forms and may involve governments and private-sector contributors. Some efforts are more effective than others.
  6. Small Business

    Best Checking Accounts For Small Businesses

    What you need to know to choose the best checking account for your small business – and where to look.
  7. Personal Finance

    The 8 Best Bank Perks

    Many banks are now offering free perks to entice new customers.
  8. Tech

    The Pros And Cons Of Internet Banks

    Learn how internet banking services stack up against their brick-and-mortar peers. Find out what internet banks have to offer and where they fall short.
  9. Personal Finance

    Cut Your Bank Fees

    Find out how to get the bank to pay you for using their services, not the other way around.
  1. What is the difference between drawdown and disbursement?

    Learn about some of the many definitions for financial drawdowns and disbursements, which represent transfers of funds between ... Read Answer >>
  2. How long does it take a check to clear?

    It usually takes two days for a check to clear, but in some cases it may take longer. Discover how banks treat large deposits ... Read Answer >>
Trading Center