Means of Payment

Subject: Accountancy

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Overview

Means of payment are the instruments used for making payment of the value of goods purchased under trade. These means are used to remit money from one place to another for settling accounts and for making cash purchases. This note has information about means of payment f the goods purchased.
Means of Payment

Means of payment are the instruments used for making payment of the value of goods purchased under trade. These means are used to remit money from one place to another for settling accounts and for making cash purchases. The following are some of the important means of payment which can be used to remit money either through bank or post office:

  1. Cheque

    Cheque
    Cheque
    A cheque is a written order issued by a depositor directing a specified banker to pay on demand a certain sum of money to a certain person or to the bearer of the instrument. In order to pay the amount of goods, the buyer draws a cheque on his local banker and sends it to his seller by post. For additional safety, the cheque may be crossed.

  2. Bank draft

    It is the means of payment used in foreign trade. For this, one has to go to the bank and deposit the money equal to the amount of payment to be made to the party and should also pay the service charge. Bank issues a draft which can be sent through register letter. The party who receives the draft produces it to the bank according to the instruction and takes payment.

  3. Telegraphic Transfer (T.T)

    Telegraphic Transfer
    Telegraphic Transfer
    The telegraphic transfer is the quickest means for remitting a large sum of money in and outside the country. The T.T. is an order issued by a bank directing its branch in another place through telegraph to pay a certain sum of money to a certain person. It is used both in home trade and foreign trade. It is costlier than bank draft.

  4. Letter of Credit

    It is also one of the very common means of payment used in foreign trade. It is also done through the bank. It is a letter issued by a bank giving a guarantee on behalf of local trade making payment to the foreign parties. It is a guarantee of payment issued by the bank. So, it solves the guarantee and currency problems of the importer.

  5. Money order

    Money order
    Money order
    The money order is a means of remitting money through the post. It is suitable to remit a relatively small sum of money to a distant place quickly. It is an order issued by a post office of one place usually through telegraph directing the post office of another place to pay a certain person. Money order is cheapest than telegraphic transfer.

  6. Automated Teller Machine (ATM) card

    ATM card
    ATM card
    ATM is a computerized device which provides the financial services to the customers without the involvement of human clerk. A bank installs ATM in different public spaces like department stores, hospitals, universities, hotels, airports, railway stations, petrol/ gas stations etc. The account holder uses the debit card to draw money through ATM from his bank balance. The ATM card contains a unique card number and security information. The security refers to the Personal Identification Number (PIN) of the customer.

  7. Electronic transfer

    Electronic transfer
    Electronic transfer
    Electronic transfer refers to the computer-based system used to perform financial transactions electronically. It is used by a cardholder to pay the amount of goods and services, withdraw cash through ATM from different places, transfer fund from one bank account of the cardholder and transfer fund to the account of the third party. In order to remit any foreign currency from one country to another through the bank, the support of SWIFT (Society for Worldwide Interbank Financial Telecommunication) is essential. SWIFT is an international institution which makes the networking of member banks in different countries.

  8. Hundi

    Hundi
    Hundi
    Hundi is believed to have arisen in the financing long distance trade around the emerging capital trade centre. Hundi is an informal value transfer system between huge networks of money brokers. Transferring money through hundi is an informal system in which no legal documents are exchanged between hundi brokers. The transactions are totally based on the honesty of the hundi brokers. Hundi is an attractive instrument of means of payment because it provides fast and convenient transfer of funds from one place to another place. It is an economical way of remitting money as the commission to be charged is much lower than the commission charged by the banks.

Things to remember
  • Means of payment are the instruments used for making payment of the value of goods purchased under trade. 
  • Cheque is a written order issued by a depositor directing a specified banker to pay on demand a certain sum of money to a certain person or to the bearer of the instrument.
  • Telegraphic transfer is the quickest means for remitting a large sum of money in and outside the country.
  • The money order is a means of remitting money through post.
  • ATM is a computerized device which provides the financial services to the customers without the involvement of human clerk.
  • Electronic transfer refers to the computer based system used to perform financial transactions electronically.
  • Hundi is an informal value transfer system between huge networks of money brokers.
  • SWIFT is an international institution which makes the networking of member banks in different countries.

 

  • It includes every relationship which established among the people.
  • There can be more than one community in a society. Community smaller than society.
  • It is a network of social relationships which cannot see or touched.
  • common interests and common objectives are not necessary for society.
Questions and Answers

Means of payment are the instruments used for making payment of the value of goods purchased under trade.

A cheque is a written order issued by a depositor directing a specified banker to pay on demand a certain sum of money to a certain person or to the bearer of the instrument.

Telegraphic Transfer is an order issued by a bank directing its branch in another place through telegraph to pay a certain sum of money to a certain person.

Letter of credit is a letter issued by a bank giving a guarantee on behalf of local trade making payment to the foreign parties. It is guarantee of payment issued by bank.

Money order is an order issued by a post office of one place usually through telegraph directing the post office of another place to pay a certain person.

ATM is a computerized device which provides the financial services to the customers without the involvement of human clerk.

Electronic transfer refers to the computer-based system used to perform financial transactions electronically.

Hundi is an informal value transfer system between huge networks of money brokers.

Hundi is an attractive instrument of means of payment because it provides fast and convenient transfer of funds from one place to another place.

Hundi is an economical way of remitting money as the commission to be charged is much lower than the commission charged by the banks.

The full form of SWIFT is Society for Worldwide Interbank Financial Telecommunication.

PIN Card stands for Personal Identification Number Card.

Means of payment are the instruments used for making payment of the value of goods purchased under trade. These means are used to remit money from one place to another for settling accounts and for making cash purchases. The following are some of the important means of payment which can be used to remit money either through bank or post office:

  1. Cheque
    A cheque is a written order issued by a depositor directing a specified banker to pay on demand a certain sum of money to a certain person or to the bearer of the instrument. In order to pay the amount of goods, the buyer draws a cheque on his local banker and sends it to his seller by post. For additional safety, the cheque may be crossed.
  2. Bank draft
    It is the means of payment used in foreign trade. For this, one has to go to the bank and deposit the money equal to the amount of payment to be made to the party and should also pay the service charge. Bank issues a draft which can be sent through register letter. The party who receives the draft produces it to the bank according to the instruction and takes payment.
  3. Telegraphic transfer (T.T)
    The telegraphic transfer is the quickest means for remitting a large sum of money in and outside the country. The T.T. is an order issued by a bank directing its branch in another place through telegraph to pay a certain sum of money to a certain person. It is used both in home trade and foreign trade. It is costlier than bank draft.
  4. Letter of credit
    It is also one of the very common means of payment used in foreign trade. It is also done through the bank. It is a letter issued by a bank giving a guarantee on behalf of local trade making payment to the foreign parties. It is a guarantee of payment issued by the bank. So, it solves the guarantee and currency problems of the importer.
  5. Money order
    The money order is a means of remitting money through the post. It is suitable to remit a relatively small sum of money to a distant place quickly. It is an order issued by a post office of one place usually through telegraph directing the post office of another place to pay a certain person. Money order is cheapest than telegraphic transfer.
  6. Automated Teller Machine (ATM) card
    ATM is a computerized device which provides the financial services to the customers without the involvement of human clerk. A bank installs ATM in different public spaces like department stores, hospitals, universities, hotels, airports, railway stations, petrol/ gas stations etc. The account holder uses the debit card to draw money through ATM from his bank balance. The ATM card contains a unique card number and security information. The security refers to the Personal Identification Number (PIN) of the customer.
  7. Electronic transfer
    Electronic transfer refers to the computer-based system used to perform financial transactions electronically. It is used by a cardholder to pay the amount of goods and services, withdraw cash through ATM from different places, transfer fund from one bank account of the cardholder and transfer fund to the account of the third party. In order to remit any foreign currency from one country to another through the bank, the support of SWIFT (Society for Worldwide Interbank Financial Telecommunication) is essential. SWIFT is an international institution which makes the networking of member banks in different countries.
  8. Hundi
    Hundi is believed to have arisen in the financing long distance trade around the emerging capital trade centre. Hundi is an informal value transfer system between huge networks of money brokers. Transferring money through hundi is an informal system in which no legal documents are exchanged between hundi brokers. The transactions are totally based on the honesty of the hundi brokers. Hundi is an attractive instrument of means of payment because it provides fast and convenient transfer of funds from one place to another place. It is an economical way of remitting money as the commission to be charged is much lower than the commission charged by the banks.

Any two means of payment are:

  1. Cheque
  2. Electronic transfer

SWIFT is an international institution which makes the networking of member banks in different countries.

Quiz

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