Disbursements are an essential part of every business’ payment apparatus. Learn what they are and how to streamline them and boost your cash flow.
There are several ways money flows into, within, and out of your business. Of particular importance is how money flows out of your business. All of these are critical for your cash flow, the primary measure of a business’ financial health.
One of the ways cash flows out of your business are disbursements. In this article, you will learn what disbursements are and how to streamline them for your business’ financial success.
Let’s dive right in.
What is a disbursement?
A disbursement is money paid out from a fund or a business’ accounts, usually on behalf of a third party. It is a cash outflow that, however, should not be confused with every day business expenses.
Unlike regular business payments made for stock and operating expenses, you make a disbursement when you pay out or distribute money for a purpose from which you do not profit directly.
Some disbursements are made periodically. A few examples of these are salaries and bonuses.
Disbursements can take several forms, depending on the financial tools you use. They can be distributed or paid in cash, through cheques, or via electronic transfer.
Since every business will make a disbursement at some point, efficiency and accuracy are crucial when making them.
When streamlined with clear systems, your disbursements can improve your cash flow and the general health of your finances. On the other hand, if your business’ accounts show disbursements outstripping cash inflows, your business may be headed for difficult times. You may soon run out of cash.
What is an example of a disbursement?
There are many instances where you might want to make a disbursement in business. Among the more common examples of business disbursements are salaries, share dividends, and loans.
At government level, you might want to disburse money from a special purpose vehicle or grant to a list of qualifying individuals, businesses, or organizations.
Depending on your company, examples of disbursements may also include:
- Tax payments,
- Utility bill payments,
- Software payments,
- Travel bookings,
- Equipment rental payments.
The number of beneficiaries and the frequency of the disbursement will dictate what systems and tools you must have in place to manage your disbursements efficiently. Generally, it's essential to put in place a system that eases reconciliation and helps to prevent errors.
Disbursement errors and inefficiencies can mean that people don't receive their salaries or loans on time. If you are a micro-loans provider, it can mean that the small businesses that depend on your funding may fail to access their loans and run into cash flow challenges as a result.
Disbursement vs reimbursement. What is the difference?
Disbursements and reimbursements are opposites. A disbursement pays out money, while a reimbursement pays it back.
For example, when a micro-loans provider in Eldoret deposits a loan amount into a small business owner’s bank account, that counts as a disbursement.
When that small business owner pays back the loan, either in full or in installments, they are reimbursing the loan provider for the loan.
You can also talk of reimbursement when you pay back money for expenses and fees your lawyer or agent covered on your behalf. Your own workers can also ask for reimbursement for business expenses they covered from their own pocket while on a work assignment out in the field.
When you disburse funds, your business will typically have a special source account. The same is true where reimbursements must be covered from and recorded in the right accounts for ease of record-keeping, tax compliance, and reporting.
What are the main types of disbursements?
Disbursements can be immediate payments that are made as when they are due. For example, a micro-loans provider may disburse the full loan amount when a loan applicant is approved for funding.
The above are the most common type, generally referred to as cash disbursements. However, there are other types of disbursements that utilize special payment features to maximize benefits for both the paying and receiving entities.
Controlled disbursements.
However to maximize interest earnings and help recipients manage the disbursed money, you may opt for controlled disbursements. Staying with our micro-loans provider example, they may decide to pay out the loan amount in tranches instead of the full amount at once.
You can also sign up for an arrangement with your bank or fintech you use to schedule disbursements on a day-to-day basis. This way you can review each disbursement before it’s made to keep a tighter handle on your cash-flow and maximize interest earnings on your balances.
Intasend, for example, offers a business account that allows you to schedule payments in advance. This allows you to plan your disbursements well in advance, giving you an overview of your payments for the month. Because you can automate the actual disbursements, your salaries and other disbursements are paid out right on schedule.
Delayed disbursements.
If your business is not in a healthy cash flow condition, you can opt to use delayed disbursements for some of your financial obligations. Delayed disbursements are payments where you use payment methods that do not immediately draw cash from your bank accounts.
Instead of immediate direct deposits or wire transfers into beneficiaries’ bank accounts, you will write checks that you know will not be banked for at least a few days.
For example, you can opt to pay farmers in a remote region of Kenya for their produce using cheques instead using electronic transfers where the money is immediately available for use after you have disbursed it.
This drags out the disbursement for days to weeks, allowing you to fund your account or use the balance for other purposes in the meantime.
How to streamline business disbursements and boost cashflow.
You need an intentional process for disbursing funds in your business. If disbursements are made manually and in a haphazard manner, it is difficult to track and reconcile them.
Such a system also raises the risk of disbursement errors where payments are made too soon or late, in the wrong amounts and to the wrong recipients.
Automation is the best way to manage your business disbursements. It eliminates disbursement errors that can cause cash flow challenges and imperil your business.
Intasend’s automated business account tools allow you make disbursements to several beneficiaries with one request, whether they are salary payments, vendor payments, or loan disbursements.
By automating your business disbursement workflows simplify reporting and reconciliation and boost tax compliance, which helps to keep your accounting books up-to-date.
Another benefit of payment automation, accurately assigning different disbursements to their right ledgers helps you determine how much cash has been disbursed and to track it. It’s easier to see at a glance how much has been spent on specific disbursements in comparison to other business payments.
Automate your business disbursements and general payments with Intasend’s advanced digital business banking tools. Sign up today or request a demo to explore all the tools Intasend avails to help manage your business payments efficiently.
