Definition of Disbursement
If you are new to the world of business or have just started managing your own finances, you should get familiar with a few terms that are normally used in businesses. Disbursement is one such term.
The literal definition of disbursement states that— disbursement is a cash payment which is made to fulfill an expense by a company or an individual. These expenses may involve payrolls, payment made towards a loan, money paid to run a business, etc.
So basically, disbursement means transfer of money from one person or organisation to another.
What is Disbursement and how does it work?
When running a business it is absolutely necessary to keep a track on the company’s cash flow. Any money paid by the company for any reason and to any organisation or person is called disbursement.
The company can make these payments at the time of purchase or over a decided period of time. This may be a year or quarter of a year. Keeping track of this disbursement is necessary as it is a record of the company’s cash flow.
If the disbursement is more than the revenue, it means the cash flow is negative and the company may be headed towards a loss. This early sign may help the company to manage their finances better in future.
The task of recording the disbursement falls to the bookkeeper of the company and is maintained in a cash disbursement journal or general ledger. This record includes the date, amount, payee name, payment method and purpose of payment.
What are the different types of disbursement?
There are two types of disbursement— controlled disbursement and delayed disbursement.
Controlled disbursement-
This is a cash flow management method made available by banks to their corporate clients. This allows businesses to carry out disbursement on a daily basis.
Delayed Disbursement-
This is when the payment is purposely dragged out by issuing a check of a bank located in a remote region. This method is also called remote disbursement.
