A2 Different Ways to Pay
When buying goods and services, consumers have a wide range of methods to pay the business they are buying them from. These include
Cash and cheques
Credit cards, debit cards, pre-paid cards, contactless cards, charge cards and store cards.
Electronic Transfer, direct debit, standing order, mobile banking, BACS, FPS and CHAPS.
Cash Payments
Cash is money in the form of notes and coins that has been issued by the governments of different countries. Bank notes and coins hold the monetary value of the amount printed on them. Cash is a legal tender that can be exchanged for goods and services.
Legal tender is anything that is recognised by law as something that can be used to settle a debt. Businesses are therefore legally obligated to accept cash as a method of payment for their goods and services.
Benefits of paying with cash include;
Cash is accepted everywhere.
There are no hidden fees.
Its easier to budget.
Avoids interest charges.
Drawbacks of paying with cash include;
Vulnerable to theft.
Unable to use it to make online purchases.
May not be able to hold reservations.
Lack of perks.
ATM withdrawal charges
Cheque Payments
A cheque is a small document containing written instructions to pay a specified amount of money to the named person or organisation and deduct it out of the payees bank account.
The payer of the cheque must include;
The date
The payee
The amount to be paid
A signature to authorise
Benefits of paying by cheque include;
Easy to use.
Widely accepted.
Security of not needing to carry cash.
Can be used to pay large amounts.
Payment can be stopped if necessary.
Records are kept.
Drawbacks of paying by cheque include;
Not suitable for small amounts.
Time lag between issuing a cheque and money being transferred.
Not legal tender so can be refused.
Risk that payer has insufficient funds.
Electronic Transfers
Electronic transfers are any payments that do not involve physical transaction. They include payments made by telephone banking, mobile banking and card payments.
A direct debit is an agreement to allow your bank to make regular payments directly to a business to pay your bills.
A standing order is an agreement to allow your bank to make regular payments directly to a business but it is the same amount each time.
Mobile banking is the ability to access banking services using apps on your phone. You can use apps to arrange payments to individuals or businesses.
BACS (Bank Automated Clearing System) is a network of banks that participate in making payments between accounts. Payments are usually made within 3 days.
FPS (Faster Payments Service) is an electronic transfer that can take as little as two hours for payments to reach another account. You have to use this service with your bank to make payments to another account that uses FPS.
CHAPS (Clearing House Automated Payment System) that can transfer money between accounts of a small group of institutions in the UK. This is used to transfer large amounts of money and the transaction fees are high.