What is a Cash Disbursement?

A cash disbursement is the outflow of cash paid in exchange for the provision of goods or services. A cash disbursement can also be made to refund a customer, which is recorded as a reduction of sales. Yet another type of cash disbursement is a dividend payment, which is recorded as a reduction in corporate equity.

A cash disbursement can be made with bills or coins, a check, or an electronic funds transfer. If a payment is made with a check, there is typically a delay of a few days before the funds are withdrawn from the company's checking account, due to the impact of mail float and processing float.

How are Cash Disbursements Made?

Cash disbursements are usually made through the accounts payable system, but funds can also be disbursed through the payroll system and through petty cash. Payments made through the payroll system are intended solely for compensation disbursements to employees. Payments made through the petty cash system are intended only for very small disbursement amounts; larger disbursements must be made through the accounts payable system.

Examples of Cash Disbursements

Here are several examples of cash disbursements:

Payments to suppliers. Paying a vendor for raw materials or inventory, using a check or electronic transfer.
Utility payments. Disbursing cash to cover electricity, water, internet, and other utility bills.
Employee compensation. Payroll disbursements made to employees.
Loan payments. Making monthly payments to settle principal and interest on business loans.
Rent payments. Paying rent for office or warehouse space.
Equipment purchases. Buying machinery or computers and paying the vendor in cash or electronically.
Tax payments. Remitting corporate taxes, sales taxes, or payroll taxes to government authorities.
Dividend payments. Issuing cash dividends to shareholders.
Travel reimbursements. Paying for office supplies, minor repairs, or petty cash expenses.

Outsourcing of Cash Disbursements

The cash disbursement process can be outsourced to a company's bank, which issues payments as of the dates authorized by the paying entity, using the funds in the entity's checking account. This usually requires a formal approval of the scheduled payments by an authorized person, but not necessarily for smaller disbursements that are below a minimum threshold value.