What Is a Delayed Disbursement?

Delayed disbursement is a cash management technique that involves a company deliberately making payments using checks drawn from banks that are located in remote areas. 

The strategy behind delayed disbursement is to ensure that the funds backing the check remain in the company's account for as long as possible before being drawn on and actually deposited by the recipient. That way, the company can earn a little extra interest on the money.

Understanding Delayed Disbursements

Delayed disbursements are possible because commercial banks typically take longer to process checks which are drawn from banks in remote locations, often up to as many as five business days (instead of the usual three days). By exploiting this phenomenon, companies can ensure that the funds in question remain in their account for as long as possible before ultimately being paid to their vendors.

Of course, this practice can create inefficien🐷cies throughout the economy as recipients—particularl𓃲y small vendors—might struggle to cope with the delays in checks being presented for payment and the release of the funds.

Check 21 and Delayed Disbursements

The Check🃏 Clearing for the 21st Century Act (Check 21), passed by Congress in 2004, sought to reduce the delayed disbursement phenomenonไ by removing the requirement that original paper checks be presented to a bank for payment. Instead, the Act permitted banks to process payments using electronic copies of paper checks. By so doing, it effectively undermined the ability of check issuers to exploit the delayed disburseme😼nt strategy, as electronic check processing allows checks to be cleared in a matter of hours or minutes.

Yet the impact of Check 21 extends far beyond its role in reducing delayed disbursements. After all, checks remain a widely used medium of payment in the United States, and they are particularly popular among businesses. For some, checks are advantageous because they provide a paper trail that can assist in auditing and record-keeping requirements. For others, they can provide a more cost-effective alternative to 澳洲幸运5官方开奖结果体彩网:wire transfers. Such users are likely to have directly benefited from the 𓃲increased efficiency caused by Check 21, particularly for those 🎃who had never relied on the delayed disbursement strategy.

Example of Delayed Disbursement

Delayed disbursement remains an economic hindrance in 澳洲幸运5官方开奖结果体彩网:developing countries, where minimal infrastructure🍃 and other considerations can cause considerable waits for checks to clear, even when they've been drawn on eveඣn relatively close banks. Scholars have identified disbursement delays as a significant factor impairing the development of new businesses in many African nations, for example. 

In many cases, 澳洲幸运5官方开奖结果体彩网:entrepreneurs may find themselves making payments on a business loan before the loan amount has even been disbursed, du𓄧e to delayed disbursement in that region. In some developing countries, the average borrower experiences disbursement delays for as many as 20 days between the approval of business loans and the receipt of their funds. Such delays inevitably form a considerable barrier to local commerce and, by extension, continued economic dev🦄elopment at the national level.