Learn something new every day
More Info... by email
Also known as a delay in payment, a payment delay is a term that is actually applied to two different scenarios. In one scenario, the term is used to describe the amount of time that passes in between the reception of a bill and the actual remittance of the payment that is due. A payment delay can also be described as the time that lapses between the receipt of the mortgage payment and the forwarding of principal and interest payments to investors of any security that is partially backed by that mortgage loan.
Many businesses make use of payment delays as part of their usual strategy of doing business. It is not unusual for buyers to set aside specific dates each month to issue payments for any recently received invoices. For example, a company may issue payments to vendors on the fifteenth and thirtieth of each month. In order to be included in a specific payment cycle, the bill must be received by a certain date to ensure processing during the upcoming cycle, usually at least two or three days before the actual pay date.
Using a payment delay in this manner allows the remitter time to receive payments from customers that in turn can be used to pay suppliers, without creating a temporary cash flow issue. By arranging payment terms with each supplier that grants anywhere from thirty to forty-five days from the invoice issue date to remit payment, it is possible to avoid the application of interest charges on the balance due. At the same time, the favorable remittance terms allows the business to gain the most benefit from the funds used to pay the invoice, since there is the chance that the funds can be retained in an interest bearing account long enough to generate at least some amount of interest income.
When it comes to issuing payments to investors of mortgage-backed securities, the duration of the payment delay often has to do with how long it takes to calculate the principal payment and the accompanying interest payment after the mortgage payment has been received. Typically, the issuers of the security require a window of time to receive payments on the group of mortgages that is based on the due dates associated with each of those mortgages. For example, if a particular pool of mortgages used to back the security carries due dates that vary by as much as thirty days, the payment delay may be as much as forty-five days. If the interest payments are calculated on a specific date of the month, the delay may be longer.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!