What it means
When a company pays a supplier by cheque, its bank account is not reduced until the cheque has travelled through the banking system and been presented for payment. The time between writing the cheque and the money leaving the account is called disbursement float.
Companies have always tried to make that period as long as legally possible. A remote disbursement account is a bank account deliberately opened at a bank in a far-off or hard-to-reach place.
Cheques drawn on that account take extra days to be sent back to the paying bank for collection, so the company holds on to its cash for longer. The additional days can be put to work in an interest-bearing account or used to reduce overdraft costs.
The benefit is easy to estimate: multiply the average daily payments by the extra days of float and the interest rate. For companies making large payments, the savings could be meaningful, which is why treasurers once studied clearing times by region.
Electronic clearing, image-based cheque processing and electronic payments have shrunk these delays to almost nothing in many countries. There is also an ethical and practical side.
Suppliers who notice that cheques are unusually slow to clear may regard the practice as unfriendly or deceptive, and it can damage relationships. Where payment terms say funds must be available by a certain date, using remote disbursement to delay could breach those terms.
Today treasurers focus on negotiating longer payment terms in the open, using supply chain finance, and paying electronically on the due date. Remote disbursement is still taught in cash management courses because it illustrates how float works and why timing matters.
It is a useful way to understand the value of a day of cash.
In practice
Real-world examples.
Example
A distribution company in the 1990s opened a payment account at a bank in a remote mountain town and wrote supplier cheques from it. The additional clearing time gave it three extra days of float on each payment run. The treasurer calculated the interest gain each month and reported it to the board.
Example
A modern retailer's treasurer evaluates whether a remote account is still worth it after the bank shifts to image-based clearing. Cheques now clear in a day regardless of where the account is held, so the float gain falls to almost nothing. She closes the account and puts the money into payment automation instead.
Example
A small manufacturer notices that a large customer's cheques always take about a week to clear, even though the postmarks show they were sent promptly. The finance manager suspects the use of a remote account and raises the issue politely during contract renewal. The customer agrees to move to electronic transfers.
Formula
Calculation
Annual benefit = (Annual disbursements / 365) x Extra days of float x Interest rate
Suppose a company pays $36,500,000 a year to suppliers by cheque. Average daily payments = 36,500,000 / 365 = $100,000. Using a remote account adds 3 days of float, so extra cash held = 100,000 x 3 = $300,000. If the company earns 5% on cash, the annual benefit = 300,000 x 0.05 = $15,000, before bank charges for the extra account.Case study
Seen in the real world.
Falconridge Supplies is an illustrative, fictional wholesaler that paid $60,000,000 a year to its suppliers by cheque. Its treasurer proposed opening a remote disbursement account to gain extra float.
The initial calculation suggested that four extra days would free up about $657,000 of cash, which at 4% would earn roughly $26,000 a year. The proposal looked attractive until the procurement director warned that two key suppliers had already complained about slow payments.
The company chose instead to negotiate a 10-day extension of payment terms with its largest suppliers, in return for faster approval of their invoices. The illustrative lesson was that openly agreed terms beat hidden delays, both for relationships and for risk.
Watch out
Common mistakes.
- Assuming the technique still delivers large savings, when electronic and image-based clearing have removed most of the delay in many countries.
- Ignoring supplier relationships, since slow-clearing cheques can look like a deliberate attempt to avoid paying on time.
- Forgetting the costs of the extra account, such as bank fees and administration, which can wipe out a small float gain.
Questions
People also ask.
What is disbursement float?
It is the time between a company writing a cheque and the money leaving its bank account, during which the company still has use of the cash.
Is remote disbursement legal?
It is not generally illegal, but it can breach payment terms or banking rules in some places, so companies should take advice before using it.
What replaced remote disbursement?
Treasurers now rely on negotiated payment terms, supply chain finance and scheduled electronic payments to manage the timing of cash.
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