Disbursement float is the time delay between when a company initiates a payment and when the payment is actually debited from its bank account. Disbursement float represents the time period during which a company still has access to the funds that it has earmarked for payment, before those funds are actually withdrawn from its account.
For example, when a company writes a check to a vendor, there is typically a delay between the time when the check is issued and when the funds are actually debited from the company’s bank account. During this time, the funds are said to be in disbursement float, meaning that they are still available for use by the company.
Managing disbursement float is important for companies, as it can affect their cash flow and overall financial stability. By minimizing the amount of time that funds remain in disbursement float, companies can ensure that they have accurate and up-to-date information on their available cash balances, and can avoid the risk of overdrafts or other cash flow issues.
One way that companies can manage disbursement float is by implementing electronic payment systems, such as automated clearinghouse (ACH) transfers or wire transfers, which can reduce the time delay between when a payment is initiated and when it is actually debited from the company’s account. Another strategy is to carefully monitor payment processing times and to manage payment schedules in order to minimize the amount of time that funds remain in disbursement float.