What is the difference between disbursement and reimbursement?

They may sound similar, but disbursement and reimbursement play distinctly different roles in managing money in both personal and corporate finance.

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For example, anyone who has ever been paid into their bank account by an employer for a work expense, such as equipment, has been on the receiving end of a disbursement. But if that person covered the work expense out-of-pocket and then needed to be repaid by the employer, that's known as a reimbursement.

This article further explains disbursements and reimbursements, highlights their differences, and illustrates where and how they might apply to everyday finances.

What is disbursement?

Simply stated, disbursement involves money being paid out from one place to another. The money might be disbursed through an electronic transfer, wire transfer, cash-in-hand payment, or cashing a cheque. This is sometimes called a payout.

Disbursements are more commonly used in corporate finance and public administration than in everyday personal finance.

Types of disbursements

Disbursements can take many forms. Here are some common types.

Disbursement voucher

A disbursement voucher can be used to reimburse specific expenses to an individual. For example, when someone volunteers for a charity or a not-for-profit, they might be paid back for out-of-pocket costs with a disbursement voucher. That individual needs to track expenses carefully to ensure they're fully reimbursed.

Disbursement cheque

Disbursement cheques may be used if a person prefers to pay someone from a specific fund or account that requires documentation and secure approval. For example, someone might want to give their grandchildren disbursement cheques for their birthdays or graduations.

Disbursement cheques need signatures and recipient details to ensure they can be cashed only by the intended person.

Cash disbursement

A cash disbursement is when physical cash is paid out to a person or business, to cover a financial obligation. Examples of cash disbursements include using cash to pay plumbers and electricians, handing a family member or friend some notes from a wallet, or taking out £100 at an ATM.

Most cash disbursements don’t come with a transaction record, so people need to keep track of the money movement on their own.

Controlled disbursement

A controlled disbursement is a cash management process used by businesses to manage their liquidity. While primarily a business banking service, a controlled disbursement can also affect an individual's everyday spending and cash flow. Banks that manage when cheques are cleared are an example of controlled disbursement.

Controlled disbursements can affect financial planning, especially for people preparing for large financial disbursements like house deposits.

Disbursement examples

Some situations where people may receive a disbursement include:

• Personal loan disbursements. These occur when a bank or financial institution releases the approved loan amount to the borrower’s account. These disbursements are often used for specific purposes, such as home renovations or consolidating debt. Such disbursements are typically held in a new loan account.
• Insurance claim payouts. Following the approval of a claim, insurance claim payouts are payments made by insurance companies to policyholders. For example, payouts may cover some or all costs related to an accident, health procedure, or property damage. Such disbursements are typically paid into a nominated bank account.
• Tax refunds. When HM Revenue & Customs returns excess tax payments to taxpayers, it's called a tax refund. Typically, a tax refund is disbursed into a person's bank account after someone files an annual tax return that shows they paid more tax than they needed to.

What is reimbursement?

Now, let's look at the similar-sounding counterpart to disbursement: reimbursement. Reimbursements are the process of compensating someone for out-of-pocket expenses they have paid for either themself or another person.

In business settings, reimbursements are typically provided after the expenses have been verified and approved by a finance department. But it can also apply to individuals when multiple people are sharing bill payments for a group purchase or activity.

Types of reimbursements

Here are three common ways to reimburse others.

Direct reimbursement

This happens when one person covers a cost for others — like a parent paying for back-to-school costs or medicine from a chemist. One parent might reimburse the other, or they may choose to do the reimbursement from a joint account.

Per diem reimbursement

A per diem reimbursement is a set daily amount given to a person to spend, usually on costs like meals and transport. While commonly used in business, it might apply to personal situations, like allocating daily budgets to kids during school or summer holidays.

Mileage reimbursement

Mileage reimbursement is standard in business — especially for workers who spend time on the road. But friends or families might occasionally have mileage reimbursements, too, repaying a driver for using their car or van on a long trip or daily commute.

Reimbursement examples

Here are two common examples of reimbursement:

• Family holidays. One family member might pay upfront for shared costs like hotels or car hire, which will be repaid later (reimbursed) by the other family members who went on the trip.
• Friends, gifts, and gatherings. When going in on a group gift or splitting a bill with friends, one person might have paid for everything with the understanding that everyone would pay them back soon.