Modes of Payment
Payments through the Internet
- Payza
- Paypal
- Liberty Reserve
Payments
through the Bank
Cheques: They are used for payments which are large in
amount and payments within the country. They are convenient and safe means of
payment, especially for large amounts. They also serve as records of payments.
Cheques that are crossed have to be paid into an account. This safeguards
payments by cheque.
Cashier's order: It is a bank's own cheque drawn upon itself which can be purchased
at the bank. It is used when a creditor is unwilling to accept a personal
cheque or when the one making the payment does not have a current account. It
is a convenient and safe means of payment as the drawer of the cheque is a
bank. It can be used for payments of any amount within the same town.
Bank draft: It is a cheque drawn by one bank on another
bank, demanding that the latter pay a specified sum to the payee named on the
draft. The advantages of using the bank draft to remit money are the same as
those of a cashier's order. It can be
used to remit money to other towns in the same country or even abroad.
Standing order: It is an order to a bank to make regular
payments of a fixed amount on one's behalf from one's current account, e.g. for
rental, insurance premiums and hire-purchase installments. It is a convenient
and safe means of making payments promptly.
Credit transfer: It is payment made directly into the bank
account of the payee upon instructions from an account holder. It is convenient
and safe. It is usually used for making payments into many accounts from one
account, e.g. payment of salaries to staff members of a large company. It is an
economical or relatively cheap means of making payments as only one cheque is
required for multiple payments.
Direct debiting: It is similar to standing orders except that the
amount to be paid and the date of payment are not fixed. Upon receipt of a debit form, the bank is
authorized to debit the account of the debtor and transfer the cash to the
account of the creditor shown in the form.
Bank giro: It is a system
of payment which allows for monetary transfers between account holders. It is
similar to a credit transfer system.
Mail and telegraphic transfer: They are remittances that can be made through the bank. Both are convenient means of payment because the bank informs the
payee of the remittance on the remitter's behalf. In the case of mail transfer,
the payment instruction is remitted by mail while in the case of telegraphic transfer;
the payment instruction is made via cable or telex. The latter is for urgent
remittance. All local remittances are payable in local currencies while foreign
remittances are payable in foreign currencies drawn on an overseas bank.
Credit card : Holders of a credit card can charge their expenses to the card and
pay for them when they receive the statement of account from the credit card
centre. This type of payment is popular because the card holder can defer
payment for the goods he has purchased. However, credit cards are only accepted
at certain local and overseas establishments and there is usually a credit
limit granted to the card holder.
Autophone or telebanking or mobile-banking: It is a service through which customers can pay bills (e.g.
utility bills) or make loan repayments, hire purchase installments, credit card
payments, club subscriptions through the use of their telephones. Autophone or
telebanking operates 24 hours a day via the push-button telephone linked to the
bank's computer centre.
Traveller's cheques: They are common
means of payment in overseas travels. They are a form of international cheques
issued by certain international banks and specialized companies. They can be
issued in various currencies like US dollars, Sterling Pounds, Japanese Yen,
Swiss Francs, Deutsche marks, Australian dollars, Hong Kong dollars and
Singapore dollars. They are issued in various denominations and can be
purchased from any bank. They can be cashed at banks or used for payments in.
hotels, shops, restaurants and established outlets. They are safer than
currency notes because if they are lost, they can he refunded. They can be used
for an indefinite period or they can be resold to the bank when one returns
from one's travels.
Bills of exchange: They are
commonly used as means of securing payment in foreign trade.
Payments
through the Post Office
Postage stamps: They can be
used for small payments. Instead of sending cash by mail for small payments,
one can send unused postage stamps which can be cashed at any post office.
International reply coupon: It is a means of repayment of replies by post. These coupons
(selling price $2.50 each) may be exchanged in any country of the Universal Postal
Union for a stamp or stamps representing the minimum postage prepayable on an
unregistered letter to any country by air mail.
Postal order: It is a
convenient, safe and cheap means of sending money through the postal services. Amounts
to be remitted should not exceed $100. It can be used to make payments for direct
mail orders of small amounts. A small commission is charged for the use of
postal orders, the rate varying with the denomination of the postal order.
Stamps are used to make up odd amounts. The nature of the payee and the office
for payment must be filled in by the remitter so that the postal order will not
fall into wrong hands.
Money order: It is a cheap, convenient and safe way of
remitting money via the post office. The maximum remittance amount is $2000 and
the commission charged is $2. However, overseas money order is subject to the
limit set by the country of destination.
Telegraphic
money order: It is a facility offered for urgent and speedy remittance of
money using the postal telegraphic service. The charges are higher than for
ordinary money order.
Giro system:
It
provides cheap and convenient banking facilities to those who open giro
accounts at the post office. It operates like the current account system of a
bank. Giro account holders can make payments using giro cheques. Credit
transfer and standing order facilities like payment of HDB rental or
conservancy charges, housing loans are provided to account holders. Unlike the
current account system, the giro system does not grant overdraft facilities and
there are limits on personal cash withdrawals. Giro cheques can be used for
payments to a giro account holder or a non-giro account holder. In both cases,
the cheques have to be sent to the Giro Centre for verification of the drawer's
account before any payment is made. In the case of the former, the payee will
be advised by the Centre if the account is to be credited. If the payee is
a non-giro account holder, he will be sent the giro cheque once it has been
verified and he can cash it at any post office or bank it into his bank
account. Giro service charges aro relatively cheap.
Postal
automated machines (PAM): These have been set up in various sites in Singapore. They
use multi-media touch screen technology that allows people to interact with it.
The following can be made via PAM:
(a) Payment of bills — power supply and
Singapore Telecom.
(b) Payment of parking fees -- Housing
Development Board (HDB) and Urban Redevelopment Authority (URA).
c) Purchase
of products -- stamp booklets, prepaid envelopes, prospect envelopes,
postcards, aerograrnmes and phone cards. Payment can be made by NETS (Network or
Electronic Transfer Singapore Ltd) using an ATM (Automated Teller Machine) card.
Payments
in Cash
Currency notes and coins: Currency notes which
legal tender to an unlimited amount are, i.e. they cannot lawfully be refused
by creditors as payments for debts. Currency coins which are legal
tender up to a limited amount: in Singapore and Malaysia Bangladesh, BDT 1 coins are legal tender up to BDT 5. Cash is used
when payments are small in amount; payments are made directly, for purchase of
goods or services, e.g. buying stationery from a local shop or paying the bus
fare. It is used as a common means of payment because it is convenient and generally
acceptable, being legal tender.
Factors to Choose Mode of Payment
Above shows a list
of the various means of payment which can be used in trade and commerce and below shows the mode of payment normally adopted
depends on the following factors:
Amount:
If the amount is small,
cash is usually used. If the amount is large, it is more convenient to pay by
cheque or bank draft. Payment by money or postal order is limited to a certain
amount.
Distance:
If
payment is made directly or personally, cash may be used. If the payment has to
be posted to another part of the country, it is safer and more convenient to
remit money through the bank by way of cheque or bank draft or through the post
office via money or postal order. For payment overseas, it is best to go through
the bank via purchase of bank draft, mail transfer or telegraphic transfer. Cheques
cannot be used for payment abroad as their use is restricted to payment within
the country. Payment overseas through the postal service may not be possible if
there is no postal arrangement with the overseas country concerned.
Safety:
It is always more risky to pay by cash than by cheque
especially when the amount is large. If the payment is paid by cheque and the
cheque is lost, payment can be stopped. When it is necessary to ensure payment,
the payee can insist that payment be made by banker's cheque or bank draft
rather than personal cheque. This is because there is no risk of the former
being returned due to insufficient funds. For the same reason, a retail outlet
may find payment by credit card safer than payment by personal cheque.
Urgency:
If
cash is to be remitted urgently, the fastest means would be by telegraphic
transfer either through the bank or post office.
Cost: Cheque
is the cheapest means of payment as the cost of each cheque is only 15 cents.
The cost of a bank draft is higher and varies with the amount to be remitted. Money
order may be cheaper for small remittance; however, it is no longer economical if
the remittance exceeds a certain amount.
Due
date: When
the payment is supposed to be effected or due is an important consideration. Cheques
and bank drafts are payable on demand whereas bills of exchange may be drawn,
payable at sight, on demand or at a fixed or determinable future date. However,
the beneficiary of a bill of exchange that is due for payment at some future
date may get immediate payment by discounting (i.e. sell less interest) the bill
with a bank. Payment by credit card is delayed until the holder receives the
statement of account from the Credit Card Centre. Even then, he does not need
to settle the whole amount. He is only required to pay a minimum sum. The
outstanding balance is the amount of credit taken and he is charged interest on
this amount.
Reference:
Betsy, L., & Tan, K. S. (1999). Transport., Modern certificate guide: Elements of Commerce
(pp. 90-96). Singapore: Oxford University Press
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