What Is a "Cash Disbursement Clearing"?

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Businesses conduct transactions in order to setup and run their revenue-producing activities, to acquire the products intended for sale, to convert those same products to realized revenues, and to maintain the operations needed to continue their activities. Each transaction cannot be complete without other, subordinate processes. In some cases, this is simple - a cash sale sees the business receiving cash in exchange for its products. In other cases, the clearing process to complete a transaction is much more extensive and time-consuming.

Cash and Cash Equivalents

  • Cash refers to currencies while cash equivalents refer to certain short-term financial instruments. Cash equivalents are called thus because their terms tend to be three months or less and can be easily and quickly converted to cash on the open market. Examples of cash equivalents include certain government bonds, treasury bills, and commercial papers. Cash and cash equivalents are sometimes considered interchangeable for one another for some purposes.

Clearing

  • In finance, clearing is a term that refers to the processes needed to complete a transaction once it is began until it is complete. For example, a private individual might deposit a check at a bank and be unable to use those funds until a week later when the bank clears the check and deposits the funds into that individual's account. Component processes of clearing might include reporting and recording the transaction, changing trade positions in order to accommodate the transaction, taxes and other such occurrences.

Cash Disbursement

  • Disbursement is a term used to refer to the act of paying out money. Businesses spending money in order to continue their operations, individuals paying out money to buy groceries and businesses paying the money for previous incurred obligations -- all of these actions can be considered cash disbursements. In most of these cases, cash equivalents can be considered the same as cash.

Cash Disbursement Clearing

  • Cash disbursement clearing refers to the processes that must be completed before a cash disbursement transaction is complete. Different cash disbursements for different purposes will require different processes while clearing and thus different spans of time and effort. For example, depositing cash into a bank account is likely to require fewer processes and thus less time than depositing a check from another bank.

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