What is disbursement?

Disbursement can be a critical part of financial operations for businesses and other organizations. 

By ensuring that disbursements are made accurately and efficiently, organizations can improve their cash flow, reduce their risk of fraud, and improve their overall financial health.

But what exactly is a disbursement? What are the different types? And how are they different from a reimbursement? We’ll answer these questions and explain how you can use disbursements with Checkout.com.

Understanding disbursements

Disbursement is the payment of money from a particular fund or source, such as your business bank account, to individuals or other businesses, which can be in the form of cash or a cash equivalent such as an electronic transfer. 

Disbursements can be used for many purposes, including paying employee salaries, settling bills with suppliers, and paying dividends to shareholders. They are part of your businesses’ everyday cash flow and should be tracked in your bookkeeping records. 

Types of disbursements

The three main types of disbursement your business will encounter are:

Cash disbursements

A cash disbursement is simply the payment of a sum to meet your financial obligations. In other words, cash disbursement refers to the daily outflow of funds from your accounts. 

Controlled disbursements

Controlled disbursements are a cash management service provided by banks or financial institutions to businesses. They allow you to review and structure your businesses’ disbursements on any given day so that you can make better decisions about cash flow and investments. In practice, that means you can maximize interest on funds in high-interest accounts and use funds from lower-interest accounts to pay disbursements. 

Delayed disbursements

A delayed disbursement, sometimes known as remote disbursement, is the practice of deliberately issuing a check from a bank located in a remote region in order to drag out the payment process. The purpose of this is to withhold funds for as long as possible in your own account so that they can continue to earn additional interest. 

How disbursements work

Disbursements are simply cash outflows. They can be paid out through electronic transfer or other payment methods. For businesses, the most important aspect of disbursements is record-keeping.

After being paid out, disbursements should be recorded by businesses on a cash disbursement journal or general ledger for accounting, auditing and tracking purposes. 

These records should include the date, the amount, the payee’s name, the payment method, and the purpose of the payment. By recording and categorizing payments, you can track outflows of cash from your business over a particular period and understand where and why you're spending money. 

Cash disbursement journals can be automatically created and maintained within your accounting software. You can then filter disbursements by specific dates or periods in order to create reports for analysis. 

What is a loan disbursement?

A loan disbursement is the transfer of funds from a lender to a borrower as part of a loan agreement. When a borrower successfully secures a loan, the lender releases the approved loan amount to the borrower and makes the funds available for use.

The disbursement of loans can take various forms, depending on the terms of the loan and the agreement between the lender and borrower. For example, the entire loan amount could be disbursed in one lump sum at the beginning of the loan term or it could be released in installments to help the borrower better manage their spending.

What is a disbursement check?

A disbursement check is the term for a check written from a business account. The term refers only to business payments, so a check written from one individual to another would not be classed as a disbursement check. 

Disbursement vs reimbursement

A disbursement is not the same as a reimbursement, even though, at first glance, the difference is subtle.

A disbursement refers to the act of distributing or paying out funds from a particular source to another party. It involves the transfer of money to fulfill financial obligations, make purchases, or settle debts.

A reimbursement, on the other hand, is the act of repaying or compensating someone for expenses they have already incurred on behalf of another party. 

For example, when a company pays out a monthly sum to a salaried employee, that is disbursement. In contrast, when that same employee claims travel expenses from the company incurred on a business trip, that is reimbursement. 

How to use Disbursements with Checkout.com

Checkout.com can help you offer your clients and customers a number of ways to transfer funds so that, whatever your needs and preferences, there’s an option that works for you.  

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Our three card payout types are:

• Money transfer - perfect for when an individual consumer needs to send funds directly to another consumer or to another of their own accounts 
• Direct funds disbursement - a business funded transaction that’s used by merchants to transfer money to either an individual or corporate cardholder 
• Third-party funds disbursement - another business-funded transaction that allows merchants to send money to either a consumer or corporate cardholder on behalf of a business

Whether your payout needs are, Checkout.com has a solution that works for you. Find out more about our payouts technology here.