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. Disbursement

    Disbursement is the act of paying out or disbursing money; examples ...
  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. Check Conversion

    Check conversion is a reformatting service offered by banking ...
  5. Electronic Check Presentment - ...

    Electronic check presentment allows financial institutions to ...
  6. Electronic Check

    An electronic check is a form of payment made via the internet ...
Related Articles
  1. Personal Finance

    The 6 Different Types of Checking Accounts

    Know exactly what you are getting before you open an account with this guide to checking account options.
  2. 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.
  3. Personal Finance

    The 4 Most Costly Banking Mistakes

    It's difficult to avoid bank charges, but taking the time to avoid these four costly mistakes will save you money.
  4. Personal Finance

    10 Checking Accounts the Ultra Rich Use

    These accounts – created specifically for the wealthy – come with special extras such as personal bankers, waived fees and the option of placing trades.
  5. Personal Finance

    Fund Your Schooling with PLUS Loans

    Find out what they and are whether you're eligible to apply for these no-maximum loans.
  6. 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.
  7. Personal Finance

    Best Checking Accounts For Couples

    Being a couple, especially if you both have jobs, can help you qualify for benefits and fee waivers that would be tougher to get on just one salary.
  8. 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.
  9. Investing

    Check Point Software Reports Strong Q1 Earnings

    Already near its 52-week high, Check Point Software (NASDAQ: CHKP) stock could be poised for another strong run in the wake of its impressive first-quarter earnings report. After it announced ...
  1. How does Sallie Mae disburse funds?

    Understand how Sallie Mae operates as a private company and discover about the different ways in which Sallie Mae disburses ... 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