Since the inception of the financial structure, different payment options have been made available for the smooth functioning of business and retail transactions. Let us discuss some of the methods that have survived the test of time and others that are recent and developing.
What are the different modes of payments prevalent today?
In today’s fiscal environment modes of payment can be divided into two broad categories, firstly, the Traditional payments methods and secondly, the E-commerce modes.
Traditional Payments Methods
Printed currency is the reason trade flourished in the first place. With the exchange of currency in the form of notes and coins, a person could purchase anything from the open market. Cash is widely for retail payments. This method requires the presence of the buyer and seller at the time of the transactions and is suitable only for smaller amounts and businesses.
Here money is deposited at a bank which has a branch that can be accessed by the payee. After receipt of the money and the charges applicable for the service from the payer, the bank telegraphically informs the payee’s branch office to credit the amount into the payee’s account who can then withdraw the amount at his convenience. Though simple, it is not a popular mode for transactions.
Money or Postal Order
These are service rendered by the Postal authority of India where the money is transmitted through the post. Money orders have to be bought from the postal department but in case of Postal Orders, it a form of a cheque which can be crossed. When not crossed it works as a substitute for cash.
Bills of Exchange
More than a form of payment it is a short-term credit given by the creditor on the condition that the debtor promises to pay the sum after a period agreed upon by the parties. It has to be in writing and therefore accepted by banks even today. It even allows the creditor to get his money beforehand by discounting the bill with any bank.
It a widely used method of payment in business networks today. With every account opened with a bank, the account holder is provided with a chequebook which contains ‘cheque leafs’ / ‘cheques’. These cheques can be used instead of cash and allow the creditor to receive money in his bank account directly from the debtor’s account. In the alternative, the creditor can withdraw the cheque amount directly from the debtors’ account.
It is an order to pay, drawn on one bank branch, to pay to the account of another. This is a systematic and secure way of accepting payments and is used mostly by Government authorities or institutions.
Today, the credit card is the most common electronic method of payment. When you use a credit card it is the card issuing company who pays for your purchase, then at the end of the month, you settle the monthly payment cycle by paying back the amount thus paid along with the applicable charges to the company.
Another commonly used electronic payment method that allows you to pay directly from your bank account without any transaction charges or fees. On payment, your account is directly debited for the amount of purchase.
The use of wire transfers has become a norm in the business sector for financial transactions. These wire transfers are suitable for larger amounts and can be executed through a safe gateway via the internet from one bank account to another. Moreover, they are simple and save valuable time.
Electronic money is just like trading cash but over the internet. This form of payment can be used when the debtor and creditor have signed up with the company providing e-cash. Most e-money is equivalent to the currency prevalent in the country.
Even though traditional methods are still used by most business, industries today, have understood the advantages of electronic payments methods and are putting systems in place for paperless transactions.