Disbursement is when one person, company, or organization distributes funds to another person, company, or organization, usually from a larger pool or collection of funds. You could be the person who disburses funds to someone else, or you could be the person who receives a disbursement.
The term “disbursement” is used to describe fund transfers to and from different entities, including lenders, governments, nonprofits, and the general public. Learn more about disbursements and how they work.
Definition and Examples of Disbursement
When funds are paid out from one entity to another, it’s called a disbursement. A disbursement is usually cash or the equivalent of cash, and it’s often a form of payment. You might disburse money to a company, or a company might disburse money to you—in the form of a refund, for example. The act of issuing a disbursement is called disbursing.
Other examples of disbursements include:
- You invoice a company for work it hired you to do; it disburses funds as payment.
- You purchase a home with a mortgage; your lender disburses funds to the seller at closing.
- You retire and receive regular disbursements from your retirement account.
- You use student loans to pay for school; the lender disburses funds to your school.
- A government disburses emergency funds to a municipality for disaster relief.
How Disbursement Works
Disbursement is the transfer of money from one entity to another; it’s typically a distribution of a portion of funds from a much larger account.
If a business owes money to a person, bank, or organization, it might disburse money to the appropriate party from an account earmarked for that purpose. If you’re owed money from an organization, perhaps from a class-action lawsuit, your payout might come from a much larger disbursement of funds from that organization.
When a disbursement occurs, funds get transferred from one institution to another, often a bank. It could be via direct deposit, such as an ACH transfer, or by wire transfer, a cash deposit, or a written check.
When a disbursement occurs, details of the transaction are recorded, such as the date the payment occurred, where the money came from, and why the disbursement is taking place.
The terms disbursement and payment may sometimes be used interchangeably, though there is a subtle difference in their meanings: A payment needn’t come from a much larger account, for example, but a disbursement typically does. Also, a payment can be from funds you don’t own, while a disbursement is not. For example, you wouldn’t make a disbursement of funds from your credit card to cover a utility bill—but you would make a payment using your credit card to pay your utility bill.
Types of Disbursement
Disbursements come from a variety of institutions for a number of different reasons, including disbursements that are:
- Federal: If you received a stimulus check or tax refund, that was part of a much larger disbursement of federal funds.
- Work-related: If you get paid for services rendered, it may come in the form of a disbursement.
- For student aid: Your lender disburses funds to your school periodically, in the form of disbursements, to pay your college expenses.
- From an escrow account: If your mortgage lender deposits part of your monthly payments into an escrow account, the lender is required to make timely disbursements from that account to pay for property taxes, homeowners insurance, and any other items called for in the terms of your mortgage.
- Investment-related: If you receive dividends from investments, those dividends are considered disbursements from the company or companies paying them.
- Retirement-related: Many retirement plans have required minimum distributions, which indicate a minimum amount of money that needs to be disbursed to you from your retirement account annually in order to avoid penalties.
- A disbursement is a payment from one party to another, usually from a much larger account, for a variety of reasons.
- Disbursement and payment are very similar terms, and may sometimes be used interchangeably, but their meanings are not identical.
- Disbursements can be made from a variety of institutions, but are commonly made from governments, large corporations, and lending institutions.
- Retirees get monthly disbursements from retirement accounts every time they withdraw money.
- Disbursements received typically show where the money came from, the date the transaction went through, and the disbursement amount.