Jean-Paul Martin
3/25/14
FIN 2822
Chapter 9
1) A disbursement system is used to make payments to suppliers, vendors, etc. in a timely
manner. This system can be used for frequent payments to the same vendors, simplifying
disbursements, making sure that payments are on time. This system also can help reduce
costs by ensuring fees associated with late payments or payments past a grace period do
not occur.
2) Some direct costs associated with a disbursement system would be lost discounts, fee to
transfer funds across accounts, overdraft fees, lost investment income, and cost of excess
borrowing.
3) Some indirect costs are ruined relationships from late payments and damage to
banking relationships due to mismanaging bank accounts.
4) Disbursement float is the time between when a payment is mailed and when the funds
are withdrawn from the payer’s bank account. Three components of a disbursement float
are mail float, processing float, and clearance float.
5) A collection float is the time between one deposits a check and the funds are made
available. This used to be at least several days, but with modern banking is now usually at
most one day. Though the payer of the funds usually doesn’t send the money to the bank
with the deposit until later on, which means that the bank making the funds available
doesn’t have money yet from the original payer.
