Methods of payment

Various methods of payment may be used in settling accounts. The form of pay­ment to be used is a matter for arrangement between the parties concerned.

1Cash (coins and notes).

2 Payments through the Post Office

(a) Postal orders and money orders (the latter for foreign payments only). British postal orders and money orders are issued and paid in many coun­tries abroad. Payment is made in the currency of the country of payment at the current rate of exchange. Postal orders are used for small sums (up to £ 20 in the United Kingdom).

Money orders (other than telegraph money orders) are no longer issued for payment in the United Kingdom but are issued for amounts up to £ 50 for payment abroad. This method is used by senders who have no bank or giro (postal cheque) account. A person sending a money order should ask the payee for a receipt since there is no other evidence of payment.

(b) Giro transfers. 'Giro' is a term commonly applied to the postal cheque system run by post offices in most Western European countries and Japan. Apart from cash transactions, giro transfer or postal cheque is the chief means of payment. Anyone can make a deposit or receive a payment, whether or not a giro account is held.

(c) The COD system. In the COD (cash on delivery) system the buyer pays for the goods at the time they are handed over by the carrier (this includes the postal system). In this way the supplier makes certain of receiving payment for goods supplied to unknown customers.

3 Payments through banks

(a) Home trade relies on cheques, credit transfers (bank giro), banker's drafts and letters of credit.

• Cheques: A bank cheque is always payable on demand. It is by far the most common form of payment used to settle credit transactions in the home trade of countries where the bank cheque system has been developed. It may also be used to pay debts abroad. A receipt is the best, but not the only, evidence of payment and cheques which have been paid by a banker and later returned to customers may be produced as receipts. When payment is made by cheque a separate receipt is therefore unnecessary but the payer may legally demand a receipt if required.

• Credit transfers: The system of credit transfers operated by banks is in many ways similar to the postal cheque (giro) system and is now commonly referred to as a bank giro. The payer completes a credit transfer or giro transfer slip for each separate payment and enters it on a list, which is passed (in duplicate) to the banker together with the slips and a cheque for the total amount. The banker then distributes the slips to the banks of the payees concerned and their accounts are then credited. Payees receive the transfer slips from their bankers. A separate advice of payment by the payeris therefore unnecessary but some payers make it their practice to send one,

• Banker's drafts: A banker's draft is a document bought from a bank. It orders the branch bank, or the agent on whom it is drawn, to pay the stated sum of money on demand to the person named in the draft (the payee). In foreign transactions the payee receives payment in the local currency at the sums of money in circumstances where a creditor would hesitate to take a cheque in payment. Like cheques, they may be crossed for added safety.

(b) Foreign trade may use bank transfers (mail, telegraphic and telex); bills of exchange and promissory notes; bank commercial credits (documentary credits if a documentary bill is used); banker's drafts; and letters of credit.