55 Methods

Methods of
of payments
payments
 Your syllabus…..
• 5.1 Money
• 5.2 Bank methods of payment
• 5.3 clearing system
• 5.4 Post office method of payment
• 5.5 Payment by credit
• 5.6 international method of payment
YOUR SYLLABUS
 History of money
• A Historical Perspective: Goldsmiths
– Goldsmiths functioned as warehouses where
people stored gold for safekeeping.
– Upon receiving the gold, a goldsmith would issue a
receipt to the depositor. After a time, these
receipts themselves began to be traded for goods,
and were backed 100 percent by gold.
– Then, Goldsmiths realized that they could lend out
some of this gold without any fear of running out.
Now there were more claims than there were
ounces of gold.

• A run on a goldsmith (or a modern-day bank)

occurs when many people present their claims at
the same time.
 Understand what is meant by
barter
• Barter trade is the exchange of one
goods with another
• Problems of barter trade:
1. Problems of double coincidence of wants
2. Problems of exchange rates
3. Problems of indivisibility
4. Problems of perishability
5. Problems of portability
 What is money?
• Money is a standard
medium of exchange
of goods and services
which is generally
Acceptable, Durable,
Portable, Divisible,
Scarce and easily
recognized.
 The quality of good money.

• Acceptability
• Durability
• Portability
• Divisibility
• Scarcity
• Easily recognized
 Functions of money.

• A medium of exchange
• Unit of account or measures of value
• Store of value
• Standard of deferred payment
 Types of money

• 3.1 Commodity money

• 3.2 Representative money
• 3.3 Credit money
• 3.4 Fiat money
 Commodity money

– Main article: Commodity money

• Commodity money value comes from the commodity
out of which it is made. The commodity itself
constitutes the money, and the money is the
commodity. Examples of commodities that have been
used as mediums of exchange include gold, silver,
copper, rice, salt, peppercorns, large stones,
decorated belts, shells, alcohol, cigarettes, cannabis,
candy, barley, etc. These items were sometimes used
in a metric of perceived value in conjunction to one
another, in various commodity valuation or
Price System economies. Use of commodity money is
similar to barter, but a commodity money provides a
simple and automatic unit of account for the
commodity which is being used as money.
 Representative money

– Main article: Representative money

• Representative money is money that consists
of token coins, other physical tokens such as
certificates, and even non-physical "digital
certificates" (authenticated digital
transactions) that can be reliably exchanged
for a fixed quantity of a commodity such as
gold, silver or potentially water, oil or food.
Representative money thus stands in direct
and fixed relation to the commodity which
backs it, while not itself being composed of
that commodity.
 Credit money
– Main article: Credit money
• Credit money is any claim against a physical or legal person that can be used for
the purchase of goods and services. Credit money differs from commodity and
fiat money in two ways: It is not payable on demand (although in the case of fiat
money, "demand payment" is a purely symbolic act since all that can be demanded
is other types of fiat currency) and there is some element of risk that the
real value upon fulfillment of the claim will not be equal to real value expected at
the time of purchase.
• This risk comes about in two ways and affects both buyer and seller.
• First it is a claim and the claimant may default (not pay). High levels of default
have destructive supply side effects. If manufacturers and service providers do
not receive payment for the goods they produce, they will not have the
resources to buy the labor and materials needed to produce new goods and
services. This reduces supply, increases prices and raises unemployment, possibly
triggering a period of stagflation. In extreme cases, widespread defaults can
cause a lack of confidence in lending institutions and lead to economic depression
. For example, abuse of credit arrangements is considered one of the significant
causes of the Great Depression of the 1930s.[8]
• The second source of risk is time. Credit money is a promise of future payment.
If the interest rate on the claim fails to compensate for the combined impact of
the inflation (or deflation) rate and the time value of money, the seller will
receive less real value than anticipated. If the interest rate on the claim
overcompensates, the buyer will pay more than expected.
 Fiat money
• Fiat money is any money whose value is determined by legal means, rather
than the strict availability of goods and services which are named on the
representative note.
• Fiat money is created when a type of credit money (typically notes from a
central bank, such as the Federal Reserve System in the U.S.) is declared by
a government act (fiat) to be acceptable and officially-recognized payment
for all debts, both public and private. Fiat money may thus be symbolic of a
commodity or a government promise, though not a completely specified
amount of either of these. Fiat money is thus not technically fungible or
tradable directly for fixed quantities of anything, except more of the same
government's fiat money. Fiat moneys usually trade against each other in
value in an international market, as with other goods. An exception to this is
when currencies are locked to each other, as explained below. Many but not
all fiat moneys are accepted on the international market as having value.
Those that are trade indirectly against any internationally available goods
and services [7]. Thus the number of U.S. dollars or Japanese yen which are
equivalent to each other, or to a gram of gold metal, are all market decisions
which change from moment to moment on a daily basis. Occasionally, a
country will peg the value of its fiat money to that of the fiat money of a
larger economy: for example the Belize dollar trades in fixed proportion (at
2:1) to the U.S. dollar, so there is no floating value ratio of the two
currencies.
• Legal tender
Legal tender
• Legal tender or forced tender is payment that, by law, cannot be refused in
settlement of a debt (debtor cannot successfully be sued for non-payment). Legal
tender is a status which may be conferred on certain examples of money, which may
depend on circumstances including the amount of money. The term "legal tender" is
also sometimes used to refer to the money or currency itself holding that status (see
below).
• Legal tender has various legal definitions in different jurisdictions. Cheques,
credit cards, debit cards and similar non-cash methods of payment are not generally
defined as legal tender. Only specific coin and note examples of cash money are
usually defined as legal tender. Some jurisdictions may, by law, forbid or otherwise
restrict payment made other than by legal tender. For example, such a law might
outlaw the use of foreign coins and bank notes, or require a license to perform
financial transactions in a foreign currency.
• In some jurisdictions, a currency holding the status of legal tender can be refused as
payment if no debt exists prior to the time of payment (for example, where the
obligation to pay arises substantially contemporaneously with the offer of payment).
Consequently vending machines and transport staff do not have to accept the largest
denomination of banknote for a single bus fare or bar of chocolate. Shopkeepers can
reject large banknotes — this is covered by the legal concept known as
invitation to treat. However, restaurants that do not collect money until after a meal
is served would have to accept that legal tender for payment of the debt incurred in
purchasing the meal.
• The right, in many jurisdictions, of a trader to refuse to do business with any person
means a purchaser cannot demand to make a purchase, and so declaring a legal tender
other than for debts would not be effective.
 Understand what is meant by
barter/cashless society
• Barter trade is the exchange of one
goods with another
• Problems of barter trade:
1. Problems of double coincidence of wants
2. Problems of exchange rates
3. Problems of indivisibility
4. Problems of perishability
5. Problems of portability
YOUR SYLLABUS......
 Methods of payment
provided by bank in home
trade
• Cheques
• Credit transfer
• Direct debit
• Standing order
• Bank draft
• Credit card
• Debit card
 Cheque/Check
•A cheque (spelled check in American English) is a negotiable
instrument instructing a financial institution to pay a specific amount
of a specific currency from a specified demand account held in the
maker/depositor's name with that institution. Both the maker and
payee may be natural persons or legal entities.
 Part of a
cheque
• place of issue
• cheque number
• date of issue
• payee
• amount of currency
• signature of the drawer
• routing / account number in MICR format - in the U.S., the routing number is
a nine-digit number in which the first 4 digits identifies the U.S. Federal
Reserve Bank's cheque-processing center. This is followed by digits 5
through 8, identifying the specific bank served by that cheque-processing
center. Digit 9 is a verification digit, computed using a complex algorithm of
the previous 8 digits. The account number is assigned independently by the
various banks.
• fractional routing number (U.S. only) - also known as the transit number,
consists of a denominator mirroring the first 4 digits of the routing number.
And a hyphenated numerator, also known as the ABA number, in which the
first part is a city code (1-49), if the account is in one of 49 specific cities,
or a state code (50-99) if it is not in one of those specific cities; the second
part of the hyphenated numerator mirrors the 5th through 8th digits of the
routing number with leading zeros removed.
 Types of cheques
• Types of cheques
• An order check – the most common form in the United States – is payable
only to the named payee or his or her endorsee, as it usually contains the
language "Pay to the order of (name)."
• A bearer check is payable to anyone who is in possession of the document:
this would be the case if the cheque does not state a payee, or is payable
to "bearer" or to "cash" or "to the order of cash", or if the cheque is
payable to someone who is not a person or legal entity, e.g. if the payee
line is marked "Happy Birthday".
• A counter check is a bank cheque given to customers who have run out of
cheques or whose cheques are not yet available. It is often left blank, and
is used for purposes of withdrawal.
• In the United States, the terminology for a cheque historically varied
with the type of financial institution on which it is drawn. In the case of a
savings and loan association it was a negotiable order of withdrawal; if a
credit union it was a share draft. Checks as such were associated with
chartered commercial banks. However, common usage has increasingly
conformed to more recent versions of Article 3, where check means any
or all of these negotiable instruments. Certain types of cheques drawn on
a government agency, especially payroll cheques, may also be referred to
as a payroll warrant.
Advantages of using cheque
• It is convenient method of payment as no
notice of withdrawal is required.
• It is safe method of payments which is
safeguarding by crossing the cheque that
can be easily traced as it is numbered
• It is serves as a record of receipts and
payments since each cheque has a
counterfoil in which particular are
recorded.
• It is relatively cheap means of payments.
 Credit transfer
• A current account holder can instruct
his bank to pay directly into the bank
account of the payee. The bank will
debit his account and credit the
account of the payee.
• Advantages of credit transfer
system:
– Convenient
– Economical
– safe
 Standing order
• This are orders to a bankers to pay
regularly a fixed sum of money from
one’s current account in order to
settle recurring payments like
mortgage repayments, hire purchase
transactions, rents, insurance
premiums, subscription to club etc.
 Advantages and disadvantages
of standing order
• Advantages:
– Regular commitments are met punctually.
– Debtor need not to remember due dates payments
– Creditors need not send reminder to debtors to pay up
their debts.
• Disadvantages:
• The current account holder using the facility is informed of
the payment made by the bank on his behalf only when he
receives the monthly bank statement; so it is possible that he
may inadvertently overdrawn his account if he has only small
balance.
• It is restricted to only payments of a specific
amount and where payments are of an irregular sum
of increased in amounts, fresh instructions have to
be made to the bank. To overcome this problem,
direct debiting facilities are provided to the
consumer.
 Direct debiting
• A facility provided by the bank whereby the
creditor instructs it to debit the debtor’s
account and credit his own as regular
payments are made between two parties.
• Advantages:
– This saves the buyer the trouble of
remembering due dates of payment and sending
off cheque.
– The creditor gets prompt settlement of debts
– This differ from the standing orders in that It
is the creditor who gave payment instructions
not the debtors. The amount and date of
payment are not fixed as in the case of
standing order.
 Bank draft
• Bank draft is an unconditional order
in writing drawn by one bank on
another bank requesting the drawee
bank to pay a third party on demand a
specified sum of money
 Credit card
• A credit card is a system of payment
named after the small plastic card issued to
users of the system. In the case of credit
cards, the issuer lends money to the
consumer (or the user) to be paid later to
the merchant. It is different from a charge
card, which requires the balance to be paid
in full each month. In contrast, credit cards
allow the consumers to 'revolve' their
balance, at the cost of having interest
charged. Most credit cards are issued by
local banks or credit unions, and are the
same shape and size, as specified by the
ISO 7810 standard.
 Benefits of credit card
• Benefits to customers
• Because of intense competition in the credit card industry,
credit card providers often offer incentives such as
frequent flyer points, gift certificates, or cash back
(typically up to 1 percent based on total purchases) to try to
attract customers to their programs.
• Low interest credit cards or even 0% interest credit cards
are available. The only downside to consumers is that the
period of low interest credit cards is limited to a fixed
term, usually between 6 and 12 months after which a higher
rate is charged. However, services are available which alert
credit card holders when their low interest period is due to
expire. Most such services charge a monthly or annual fee.
 Benefits of credit card
• For merchants, a credit card transaction is often more secure than
other forms of payment, such as checks, because the issuing bank
commits to pay the merchant the moment the transaction is authorized,
regardless of whether the consumer defaults on the credit card
payment (except for legitimate disputes, which are discussed below, and
can result in charges back to the merchant). In most cases, cards are
even more secure than cash, because they discourage theft by the
merchant's employees and reduce the amount of cash on the premises.
Prior to credit cards, each merchant had to evaluate each customer's
credit history before extending credit. That task is now performed by
the banks which assume the credit risk.

• For each purchase, the bank charges the merchant a commission

(discount fee) for this service and there may be a certain delay before
the agreed payment is received by the merchant. The commission is
often a percentage of the transaction amount, plus a fixed fee. In
addition, a merchant may be penalized or have their ability to receive
payment using that credit card restricted if there are too many
cancellations or reversals of charges as a result of disputes. Some small
merchants require credit purchases to have a minimum amount (usually
between $5 and $10) to compensate for the transaction costs, though
this is not always allowed by the credit card consortium.
 Benefits to merchant
• In some countries, for example the Nordic countries, banks
guarantee payment on stolen cards only if an ID card is
checked and the ID card number/civic registration number
is written down on the receipt together with the signature.
In these countries merchants therefore usually ask for ID.
Non-Nordic citizens, who are unlikely to possess a Nordic
ID card or driving license, will instead have to show their
passport, and the passport number will be written down on
the receipt, sometimes together with other information.
Some shops use the card's PIN for identification, and in
that case showing an ID card is not necessary
 Debit card
• A debit card (also known as a bank card) is a plastic card
which provides an alternative payment method to cash when
making purchases. Functionally, it is similar to writing a
check, as the funds are withdrawn directly from either the
bank account (often referred to as a check card), or from
the remaining balance on the card. In some cases, the cards
are designed exclusively for use on the Internet, and so
there is no physical card.
• The use of debit cards has become wide-spread in many
countries and has overtaken the cheque, and in some
instances cash transactions by volume. Like credit cards,
debit cards are used widely for telephone and Internet
purchases.
• Debit cards can also allow for instant withdrawal of cash,
acting as the ATM card for withdrawing cash and as a
cheque guarantee card. Merchants can also offer
"cashback"/"cashout" facilities to customers, where a
customer can withdraw cash along with their purchase.
 Cheque clearing
• One of the primary functions of the bank
is the collection of cheques paid in by its
customers. The collecting bank will send
the cheques to the drawee bank for
payment and reciept of payment the
collecting bank will credit the customers’
account less commission ,if any
 Clearing of check between
two banks
• Page 119
Your syllabus ......
Post office methods of payment

• Postage stamps
• Postal order
• Telegraphically money order
• International money order
• Giro system
 Postage stamps
• A postage stamp is an
adhesive paper evidence of
pre-paying a fee for postal
services. Usually a small paper
rectangle or square that is
attached to an envelope, the
postage stamp signifies that
the person sending the letter
or package may have either
fully, or perhaps partly, pre-
paid for delivery. Postage
stamps are the most popular
way of paying for retail mail;
alternatives include prepaid-
postage envelopes and postage
meters.
 Postal order

• A means of remitting small sums of money

by post. ex: $100
• A small commission is charged for the use
of postal orders, the rate varying with the
denomination of the postal order.
• The name of payee and the office payment
must be filled in the remitter so that postal
order will not fail into the wrong hands.
 money order
• A method of remitting money through the mail service
of the post office. ex: $1000.
• The rate of commission charged is higher than that for
postal orders, the rare depending on the remittance.
• Money needed urgently can be remitted through
telegraphic money order
• A supplementary fees has to pay for telegraphic money
order.
• The post office will send a telegram to a paying office
instructing to pay the amount to the payee.
• The remitter is allowed to add any massage with the
telegram advice at an extra cost.
• Money order is important because:
– It is cheap, convenient, safe.
International postal
money order
 Giro system

• a system of monetary transfer

through bank ( post office) between
giro account holders; a non giro
account holder can pay cash into a
giro account and can also be paid
from a giro account by means giro
check.
5.4 Payment by
CREDIT
Concept of credit buying
• In credit buying, the buyer and the seller
enter into a legally binding agreement
whereby the seller allows the buyer to
have immediate possession( not
necessarily) of the goods. The buyer
agrees to repay the principal, with the
interest, over a stated period in a number,
fixed installment.
• Who pays the installment credit?
• Normally by the buyer to the seller
• Sometime financed by the specialized financial
institutions such as finance companies.
• Who are the buyers of installment buying?
• Consumers who buys from retailer.
• Wholesaler who buys from producer
• In what kind of buying it is applicable?
• In all kind of purchases like consumer
durables like car, furniture and consumer non
durables like cloth, holiday abroad etc.
 Advantages and
disadvantages of credit
buying to the Economy:
• Advantages: • Disadvantages:
1. Installment buying 1. Installment buying allows
facilities encourage individuals to buy ‘out of
the sale of consumer future income’.
durables and non 2. This may encourage
durables. recklessly and to cover-
commit themselves to
2. This will create future payment
employment in such installments.
industries and increase 3. It may lead to general
the national income. increase in the price level
 Advantages and
disadvantages of credit
buying to the Seller:
• Advantages: • Disadvantages:
1. It increase sales 1. More capital
turnover.
needed to run the
2. It enables to clear business.
stock quickly.
3. The seller who is also 2. Risk of bad debt.
the financier can earn 3. More
interest on the money administrative
due. This increase his cost.
profit.
 Advantages and
disadvantages of credit
buying to the Buyer:
ADVANTAGES • Disadvantages:
• The buyer can have immediate 1. The ultimate price has to pay
use of goods whiles he pays by the buyer
for it over a period of time
out of his future income. It,
2. The buyer stands the risk of
therefore, rises his present having his goods repossessed
living standard of being sued in court if he
Installment buying is a way of
cannot pay on time.
•
forced saving. Through gradual 3. Installment buying often
investment in fixed assets, it encourages people to spent
allow people with steady rashly and for those with
incomes and little capital to uncertain incomes, it can
own property with out much cause distress and even
inconvenience. hardships.
 Types of credit
• Hire Purchase
• Extended Credit (Deferred Payments)
• Store Cards
• Credit Cards
Hire Purchase ( Meaning)
• A hire purchase agreement is an agreement
signed between the customer and the
financier of the hire purchase facility,
whereby the customer to:
a) Hire the goods ( so the customer becomes
the hirer)
b) Pay a fixed number of installments of a
agreed amount over a stated period.
 Main features of hire
purchase:
• The hirer gets to use the goods
immediately but he does not become
the owner until he has paid the final
installment.
• As a hirer of the goods customer
cannot transfer ownership to anyone to
whom he may dispose the good while
still on hire purchase.
 Main features of hire
purchase:……

• If the hirer fails to pay installments,

he may find his goods repossessed by
the financer.
• Hire purchase facility is suitable for
goods with a good resale value such as
car.
 advantages and
disadvantages of hire
purchase;
• Advantages of Hire Purchase
1. Cash flow: payment by installments.
2. Writing down allowances apply.
3. Hire purchase is an alternative funding line to bank overdrafts
4. Attracts fixed rate interest.

• Disadvantages of Hire Purchase

1. Inflexible: difficult to escape the outstanding settlement if say, a
vehicle is no longer required.
2. High deposit compared to contract hire.
3. Business hire purchase appears as a debt on the balance sheet which
could inhibit future borrowing.
4. More expensive than contract hire
5. Burden of controlling and running fleet.
 Finance of Hire Purchase;

• The financier of the higher purchase facility may be the

trader himself but usually it is the specialized financial
institution called the finance company. what happens here
is that the finance company buys the goods and pay the
trader for it. The finance company then signs an
agreement with the hirer. Most trader act as agents for
the hire purchase agreement at the trader premises
itself.
• Most finance companies arrives at the amount of monthly
installment to be paid by the adding the total interest
payable to the principle sum owing and dividing it by the
number of installment agreed upon
 Extended Credit (Deferred
Payments):
• A deferred payment or credit sale in an actual sale.
• The consumer or buyer becomes the owner of the goods
as soon as the agreement made.
• If the buyer defaults on the installment payment, the
seller cannot repossess the good. The seller must sue
the buyer for the price of the goods sold.
• The buyer is free to dispose of the goods as he please
even though he may not have paid all the installment due.
• The credit sale arrangement is suitable for goods that
do not have a good resale value such as garments,
 advantages of deferred
payment
• Advantages
• The advantages of unconfirmed deferred payment credits:
• The importer is not required to effect payment until the due date. If
necessary, the goods can be re-sold during the payment period and the
proceeds of the sale used to settle the documentary credit.
• More cost-effective than a confirmed credit.

• The additional advantages of confirmed deferred payment credits:

• This form of credit offers the exporter extensive security as the
credit risk is extremely limited, for instance, it is liable for the
exporter – and the country risk is eliminated altogether.
• The credit is available with the confirming bank, which means that the
exporter receives the payment undertaking from the confirming bank
on the due date as soon as the stipulated documents have been
presented if they constitute a complying presentation.
• The risks associated with postage – late delivery or loss - for the
exporter are largely eliminated as the credit is deemed to have been
utilized once the complying documents have been presented to the
confirming bank.
• Under certain circumstances, the exporter can benefit from the
prepayment of the credit subject to an interest charge once the
complying documents have been presented.
 disadvantages of
deferred payment
• Disadvantages
• The disadvantages of unconfirmed deferred payment credits:
• Under certain circumstances, there is a risk that the exporter will not be paid
in the event of problems in the country in which the issuing bank is based or
credit-related difficulties on the part of the issuing bank.
• The exporter must bear the financing costs during the payment period.
• Compared with payment against open account or documentary collection, the
administrative costs are higher.

The disadvantages of confirmed deferred payment credits:

• This is a more expensive option than an unconfirmed credit because the
confirming bank effectively guarantees the payment and thus charges a
commitment fee for the risk it assumes.
• The risks associated with postage – late delivery or loss - are borne by the
importer as the credit is deemed to have been utilized once the complying
documents have been presented to the nominated/confirming bank.
 Comparison of hire purchase
with Extended Credit
(Similarities and differences)
• Similarities:
1. The customer gets to use the goods immediately
after signing the agreement, paying a deposit and
taking possession of the goods.
2. The buyer agrees to pay the balance together with
interest, in a fixed number of installments over a
stated period.
 Differences between hire
purchase and deferred
payments:
• Hire purchase • Deferred payments:
1. It is agreement to higher 1. The credit sale or
with an option to purchase.
This option is exercised by deferred payment is
the payment of the final actual sale.
installment by the buyer. 2. Ownership of the
2. Ownership of the goods goods bought lies in
bought lies in the hands of the hands of the
the seller of his financer;
it does not pass on to the buyer as soon as he
buyer until last installment has paid the first
has been made. installment and the
agreement is made.
 Differences between hire
purchase and deferred
payments:…….
• Hire purchase • Deferred payments
3. If buyer fails to pay 3. If the fails to pay
installments, he stands installment, the seller
the risk of having the cannot repossess the
goods repossessed by goods. the most he can do
the financer. is to sue the buyer for
debt.
4. Hire purchase is suitable
4. Deferred payment is
for capital goods which
suitable for consumer
have good second hand goods which have no
value, e.g. car, motor second hand value, e.g.
cycle, TV. Etc. watches, cloths, crockery.
 Store card ( meaning)
• Store card: a financial transaction
card associated with a retailer or
group of retail stores which can be
used only for purchases from the
retailers concerned
 Store Cards (main features)
1. Card and cardholder maintenance.
2. • Multiple cardholders linked to an account.
3. • Credit limit amendment (resolution) with
tolerances and dormancy. (temporarily inactive)
4. • Manual transaction adjustment and reversal
facility.
5. • Flexible and dynamic payment methods.
6. • Individual agreement interest rate amendment
facility with multiple calculation methods.
7. • Advanced enquiry criteria and ‘wildcard' cards
having any rank) search facility.
 advantages and disadvantages of
store card.
• Home work
 Credit Cards ( meaning )
• What is a credit card?

A credit card is more then a

simple piece of plastic, it is
first and foremost a flexible
payment tool accepted at 30
million locations worldwide,
and if the card balance is paid
off every month, then no
interest is charged on
purchases made so,
essentially, short-term credit
is granted without the
consumer paying any interest.
 Credit card ( features)
• 1. Access to unsecured credit (no collateral required against
amounts charged)

• 2. Interest-free payment from time of purchase to the end of

the billing period

• 3. Instant payment of purchases, allowing for instant receipt

of goods and services

• 4. 24/7 access

• 5. Fraud protection
 Credit card ( features)
……
6. Easy way to track expenses:
As well as convenient, accessible credit, credit cards offer
consumers an easy way to track expenses, which is necessary for
both monitoring personal expenditures and the tracking of work-
related expenses for taxation and reimbursement purposes.
7. Credit cards are accepted worldwide:
Credit cards are accepted worldwide, and are available with a large
variety of credit limits, repayment arrangement, and other perks
(such as rewards schemes in which points earned by purchasing goods
with the card can be redeemed for further goods and services or
credit card cashback).
• Some countries, such as the United States, the United Kingdom, and
France, limit the amount for which a consumer can be held liable due
to fraudulent transactions as a result of a consumer's credit card
being lost or stolen.
 advantages and
disadvantages of credit card
• Advantages • Disadvantages:
1. Offer free use of funds, 1.Cost much more than other
provided you always pay your forms of credit, such as a
balance in full, on time.
2. Be more convenient to carry than
line of credit or a personal
cash. loan, if you don't pay on
3. Help you establish a good credit time.
history. 2. Damage your credit rating
4. Provide a convenient payment if your payments are late;
method for purchases made on the
Internet and over the telephone. 3. Allow you to build up more
5. Give you incentives, such as debt than you can handle;
reward points, that you can
redeem. 4. Have complicated terms
and conditions;
Yours syllabus…
 International methods of
payment…..

• Bill of exchange
• Documentary bill
• Documentary credit
• Letter of credit
• Mail transfer
• Electronic mail transfer
 Bill of exchange
• An unconditional order in writing addressed
by one person to another signed by the
person giving it, requiring the person to
whom it is addressed to pay on demand of
at some fixed time in the future, a certain
sum of money to , or to the order of, a
specified person or to bearer.
 Documentary bill
• The purchase of a bills for a sum less
than its face value, the amount of
this discount depending partly on the
length of the unexpired term of the
bill and partly on the amount of risk
involved.
 Documentary (letter) credit
• A guarantee by a bank addressed to the exporter of
goods stating that payment will be made provided that
the terms of credit are adhered to and the documents
representing goods (i.e. bill of lading etc) are
surrendered to the bank; can be described as irrevocable
and confirmed or revocable.
• The importance of letter of credit that the issuing bank
guarantying payment and the exporter need not worry
about the credit worthiness of the importer. The issuing
bank bears the risk that the importer will not pay but
safeguards itself by not releasing the bill of lading until
payment has been made.
• The issuing bank could also ask the importer to sign the
letter of hypothecation, which would allow the bank to
sell the goods named on the bill of lading if the importer
did not pay the bank.
 Documentary LC can be:
• Revocable means credit can be cancelled by
the importer at any time
• Irrevocable means the credit cannot be
cancelled without the agreement of the
exporter.
• Confirmed: The advising bank will agree to
pay the exporter If there is any default by
importer or the issuing bank
Mail transfer
Electronic mail transfer