MAKING A PAYMENT There are many different ways

MAKING A PAYMENT There are many different ways of making and receiving payments. • Cash • Cheque • Credit cards • Debit cards • Direct debit • Credit transfers

Cash is the most commonly used form of payment day to day. Notes and coins are a quick and easy way to pay for goods. Once cash is handed over for goods or services transaction is complete. Advantages: • The business receives payment immediately • Not as open to fraud as a cheque Disadvantages: • Large sums of money would have to be taken to the bank • Can only sell direct to the customer and not by mail order or the internet

Cheque To be able to make a payment by cheque a business must have a current bank account and be issued with a cheque book. A cheque is an instruction to a bank to take money out of the drawer’s account and put it into the payee’s account. Advantages: • Banks will guarantee a cheque up to a certain amount via a cheque guarantee card. • A cheque takes approximately 5 working days to clear. Disadvantages: • A cheque takes 5 working days to clear so the business does not receive the money immediately • If inadequate funds are in the account the cheque could “bounce” • Some banks charge businesses for paying cheques into their account.

Credit Cards • Plastic payment cards that allows the cardholder to make payments • The cardholder borrows money up to a limit agreed • Interest is charged on money that is borrowed • some charge an annual fee • Cardholders have to make a payment on their card each month. • They can make a minimum payment or pay the full amount owed. Advantages: • Easy method of borrowing money • Accepted by many businesses in UK and abroad • Payment is delayed until the bill needs paying Disadvantages: • Sellers have to pay a fee for each customer that pays by credit card (approx 2%) • Interest charges can be very high

Debit Cards Similar in use to the credit card but: • Linked to a bank account so their must be fund before it can be used • Cannot be used to borrow money • Provides sellers with instant payment and is quicker than a cheque. Many businesses prefer to receive payments by debit card as there is no fee attached.

Direct Debit Direct debit allows customers to pay regular bills automatically. A direct debit is an agreement under which a business selling goods and services can take money from the customer’s bank account. Advantages: • Direct debits are free: buyers do not have to pay to use this method of payment • Buyers do not have to remember to pay regular bills, direct debit does this automatically. • Sellers know that they will receive payment on time. • Sellers can save time and money, as they do not have to pay cheques into their bank account or send out invoices to customers.

Credit Transfer Credit transfer allows money to be moved directly from one bank account to another. Electronic transfer of this kind is used by businesses in different ways: • Many businesses pay their employees each week or month by credit transfer. • Increasing numbers of businesses pay their suppliers using credit transfer.