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:
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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
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.