2.3.3: Making Payments

• Businesses need to make payments to a number of different stakeholders, such as:

  • Employees
  • Suppliers
  • Utility companies
  • Travel companies
  • Hotels
  • Transport providers
• There are multiple different methods of payment that businesses can use, such as:

  • Cheque
  • Debit card
  • Credit card
  • Bank payment
  • Online/digital
• A cheque is a paper based form of payment which transfers money between accounts.
• Advantages and disadvantages of cheques for the payer

  Advantages:

  • No need to obtain cash
  • Can be stopped

  Disadvantages:

  • Can be lost
• Advantages and disadvantages of cheques for the payee

  Advantages:

  • No need to obtain cash

  Disadvantages:

  • Takes 3-5 working days to process
  • Cheques can bounce if the payer account doesn't have enough money
• A debit card makes a payment directly from one account to another. E.g a purchase from a shop.
• Advantages and disadvantages of debit cards for the payer

  Advantages:

  • No need for cash
  • Can be used online
  • Accepted in most places

  Disadvantages:

  • Fraud risk, as it gives direct access into the account
  • Enough funds required for the payment to be authorised.
• Advantages and disadvantages of debit cards for the payee

  Advantages:

  • Online payment
  • Payment is guaranteed once authorised

  Disadvantages:

  • Equipment needed to process payment (card machine)
  • Fees on transaction
• Digital and online payment exchanges real currency for virtual currency, such as Bitcoin.
• Advantages and disadvantages of digital payments for the payer

  Advantages:

  • Easy to use, only need a login

  Disadvantages:

  • Accounts can be frozen
  • Value of virtual currency changes
• Advantages and disadvantages of digital payments for the payee

  Advantages:

  • Payment is guaranteed once authorised

  Disadvantages:

  • Fees on transactions
  • Value of virtual currency changes
• Credit card

  Similar to a debit card, but the customer borrows money from the card provider to make a payment and repays it at the end of the month
• Credit cards

  • Only available for those over 18
  • A form of borrowing
  • The card provider pays for the purchase and adds it to the amount owed by the customer
  • The card provider sends a monthly statement with a minimum amount to be repaid
  • Any amount not repaid will have interest charged
• Credit cards are only available for those over 18, as it is a form of borrowing
• The card provider essentially pays for the purchase, and adds this purchase to the amount owed by the customer
• The card provider will send a monthly statement to the customer with a minimum amount to be repaid
• Any amount that is not repaid will have interest charged
• Advantages and disadvantages of credit cards for the payer

  Advantages:

  • Don't need cash upfront
  • Use online
  • Additional customer protection

  Disadvantages:

  • Interest charged on amount not repaid each month
  • Can lead to debt problems
• Advantages and disadvantages of credit cards for the payee

  Advantages:

  • Payment guaranteed once authorised
  • Can be used online

  Disadvantages:

  • Equipment needed e.g card machine
  • Fees on transactions
• There are two ways a bank payment can be made:

  • Paying-In-Slip: used to pay-in cash/cheques into a bank account.
  • Electronic Fund Transfer: transfer funds from one account to another; direct debit and standing order.
• Direct debit gives permission withdraw from another account.

  Standing order allows a recurring payment to be made.
• Advantages and disadvantages of bank payments for the payer

  Advantages:

  • Quick and easy transfers
  • No need to remember to make regular payments

  Disadvantages:

  • May forget payments for things no longer required
  • Money still paid if there is insufficient funds, leading to debt problems
• Advantages and disadvantages of bank payments for the payee

  Advantages:

  • Regular payments on time
  • With direct debits, there is flexibility to change the amount

  Disadvantages:

  • Potential fees
  • Amount may be charged back if errors.