This paper deals with the balanced truncation of discrete-time, linear time-varying, heterogeneous subsystems interconnected over finite arbitrary directed graphs. The information transfer between the subsystems is subject to a communication latency of one time-step. The method guarantees the preservation of the interconnection structure and further allows for its simplification. In addition to truncating temporal states associated with the subsystems, the method allows for the order reduction of spatial states associated with the interconnections between the subsystems and even the removal of whole interconnections. Upper bounds on the l(2)-induced norm of the resulting error system are derived. The method is illustrated through an example. (C) 2017 Elsevier Ltd. All rights reserved.