© Business Studies Online: Slide 1
Methods of Payment Methods of Payment There are 5 commonly accepted methods of payment:
BACS BACS
Cash Cash
Cheques Cheques
Debit Cards Debit Cards Credit Cards Credit Cards
© Business Studies Online: Slide 2
Which Methods Are Most Popular? Which Methods Are Most Popular?
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Tran
sact
ions
(Millio
ns)
Cash
Cheques BACS
Credit Cards
Debit Cards
Source: Apacs
© Business Studies Online: Slide 3
Cash is a popular form of payment with customers because:
Transactions are completed immediately Cash can be reused for other transactions immediately
Cash Cash
© Business Studies Online: Slide 4
Can be Stolen Convenient
Has to be locked away for security
Ideal for small purchases
Cash has to be counted Payment is made straightaway
Disadvantages Advantages
Advantages & Disadvantage of Using Cash Advantages & Disadvantage of Using Cash
© Business Studies Online: Slide 5
Cheques Cheques
A paperbased form of payment Effectively a promise to pay the amount stated Cheques must be presented to a bank in order to obtain the payment It usually takes at least 3 working days for a cheque to “clear” – i.e. payment to be received
© Business Studies Online: Slide 6
Errors can result in bank refusing cheque
Cheaper than cash to operate with
It can “bounce” Better for large amounts
Takes time to clear Safer than cash
Disadvantages Advantages
Advantages & Disadvantages of Cheques Advantages & Disadvantages of Cheques
© Business Studies Online: Slide 7
Customer hands over debit card
Shop assistant puts card in chip and pin machine The amount is taken
electronically from customer‛s account and added to business's account (takes 3 days)
Debit Cards Debit Cards A plastic card, issued by the bank, which allows payment to be made without writing a cheque or carrying cash It works as follows:
© Business Studies Online: Slide 8
Danger of fraud – hence new chip and pin
Cheaper than cash to operate with
A fee must be paid to the bank
Can be used for mail order or online purchases
Takes 3 days for the money to be received
Guaranteed Payment
Disadvantages Advantages
Advantages & Disadvantages Advantages & Disadvantages of Debit Cards of Debit Cards
© Business Studies Online: Slide 9
Credit Cards Credit Cards It looks just like a debit card – and is also issued by banks It allows payment to be made without the need for cash or cheques
BUT unlike a debit card…
The money does not come out of your bank account – you are borrowing it! You get a statement at the end of each month You have to pay some off each month You pay interest on any amount left
© Business Studies Online: Slide 10
The Dangers of Credit Cards The Dangers of Credit Cards
It is a form of borrowing so MUST be used sensibly Some businesses charge for accepting credit cards However, if used properly they do offer:
Some protection from fraud Cash back / reward schemes The opportunity to make a small amount of money from them
© Business Studies Online: Slide 11
High interest rates so expensive way to borrow
Enables the cardholder to borrow money
A fee must be paid to the bank
Can be used for mail order or online purchases
Takes 3 days for the money to be received
Guaranteed Payment
Disadvantages Advantages
Advantages & Disadvantages Advantages & Disadvantages of Credit Cards of Credit Cards
© Business Studies Online: Slide 12
This stands for:
It is a way of transferring money between accounts without exchanging cash or cards There are 3 types of transfers:
Credit transfers Direct Debits Standing Orders
BACS BACS
Banks Automated Clearing Service
© Business Studies Online: Slide 13
Disadvantages Advantages Fewer security problems as
no cash involved.
Record kept through bank statements.
Cheaper and quicker than writing out lots of cheques.
The bank needs notice before releasing wages of
1000s of people.
They need checking before being processed. Errors
cost money.
Credit Transfers Credit Transfers These are used for large transfers of money on a regular basis, particularly wages
© Business Studies Online: Slide 14
Direct Debit Direct Debit Money is transferred automatically The Business requiring payment must ask the customer’s bank for payment Can be used for paying different amounts so is useful for paying regular bills
Percentage of Bills Paid by Direct Debit
0
20
40
60
80
Cable/Satellite Bills
Mortgages Gas Bills Electric Bills TV License
%
© Business Studies Online: Slide 15
Disadvantages Advantages
Businesses are guaranteed payment.
Customers don‛t have to remember payment dates.
Customers don‛t have to write out cheques and post
them.
Money is still taken, even if there is no money in the
customer‛s account.
Customer‛s may fail to check price increases and
budget accordingly.
Businesses can change amount and payment date.
The Advantages & Disadvantages The Advantages & Disadvantages of Direct Debit of Direct Debit
© Business Studies Online: Slide 16
Disadvantages Advantages Customers don‛t have to
remember payment dates.
Customers don‛t have to write out cheques and post
them.
Payment may not be made if there is not enough money in the account.
Customer‛s may forget to cancel the order, and go on
paying for services they aren‛t receiving
Standing Orders Standing Orders Money is transferred automatically Customer instructs their bank to make a regular payment Can only be used for paying the same amount
