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What is a Payment Delay?

Malcolm Tatum
By
Updated May 17, 2024
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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.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
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Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
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