A payment is the voluntary tender of money or its equivalent or of things of
value
Value or values may refer to:
Ethics and social
* Value (ethics) wherein said concept may be construed as treating actions themselves as abstract objects, associating value to them
** Values (Western philosophy) expands the notion of value beyo ...
by one
party
A party is a gathering of people who have been invited by a host for the purposes of socializing, conversation, recreation, or as part of a festival or other commemoration or celebration of a special occasion. A party will often feature f ...
(such as a person or company) to another in exchange for
goods
In economics, goods are items that satisfy human wants
and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not tran ...
, or
service
Service may refer to:
Activities
* Administrative service, a required part of the workload of university faculty
* Civil service, the body of employees of a government
* Community service, volunteer service for the benefit of a community or a pu ...
s provided by them, or to fulfill a
legal obligation
The law of obligations is one branch of private law under the civil law legal system and so-called "mixed" legal systems. It is the body of rules that organizes and regulates the rights and duties arising between individuals. The specific rights a ...
. The party making the payment is commonly called the payer, while the payee is the party receiving the payment.
Payments can be effected in a number of ways, for example:
* the use of
money
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...
,
cheque
A cheque, or check (American English; see spelling differences) is a document that orders a bank (or credit union) to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The pers ...
, or
debit
Debits and credits in double-entry bookkeeping are entries made in account ledgers to record changes in value resulting from business transactions. A debit entry in an account represents a transfer of value ''to'' that account, and a credit en ...
,
credit
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt), ...
, or
bank transfer
Wire transfer, bank transfer, or credit transfer, is a method of electronic funds transfer from one person or entity to another. A wire transfer can be made from one bank account to another bank account, or through a transfer of cash at a cash ...
s, whether through
mobile payment
A mobile payment, also referred to as mobile money, mobile money transfer and mobile wallet, is any of various payment processing services operated under financial regulations and performed from or via a mobile device, as the cardinal class of d ...
or otherwise
* the transfer of anything of value, such as
stock
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
, or using
barter
In trade, barter (derived from ''baretor'') is a system of exchange in which participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money. Economists distingu ...
, the exchange of one good or service for another.
In general, payees are at liberty to determine what method of payment they will accept; though normally laws require the payer to accept the country's
legal tender
Legal tender is a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered ("tendered") in pa ...
up to a prescribed limit. Payment is most commonly effected in the local currency of the payee unless the parties agree otherwise. Payment in another currency involves an additional
foreign exchange
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all as ...
transaction. The payee may
compromise
To compromise is to make a deal between different parties where each party gives up part of their demand. In arguments, compromise is a concept of finding agreement through communication, through a mutual acceptance of terms—often involving var ...
on a debt, i.e., accept part payment in full settlement of a debtor's obligation, or may offer a discount, E.G: For payment in cash, or for prompt payment, etc. On the other hand, the payee may impose a
surcharge, for example, as a late payment fee, or for use of a certain credit card, etc.
Payments are frequently preceded by an
invoice
An invoice, bill or tab is a commerce, commercial document issued by a sales, seller to a buyer relating to a sale transaction and indicating the product (business), products, quantities, and agreed-upon prices for products or Service (economic ...
or bill, which follows the supply of goods or services, but in some industries (such as travel and hotels) it is not uncommon for pre-payments to be required before the service is performed or provided. In some industries, a deposit may be required before services are performed, which acts as a part pre-payment or as security to the service provider. In some cases, progress payments are made in advance, and in some cases part payments are accepted, which do not extinguish the payer’s legal obligations. The acceptance of a payment by the payee extinguishes a debt or other obligation. A
creditor
A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...
cannot unreasonably refuse to accept a payment, but payment can be refused in some circumstances, for example, on a Sunday or outside banking hours. A payee is usually obligated to acknowledge payment by producing a
receipt
A receipt (also known as a packing list, packing slip, packaging slip, (delivery) docket, shipping list, delivery list, bill of the parcel, manifest, or customer receipt) is a document acknowledging that a person has received money or propert ...
to the payer. A receipt may be an endorsement on an account as "paid in full". The giving of a guarantee or other security for a debt does not constitute a payment.
Etymology
The root word "pay" in "payment" comes from the Latin "pacare" (to pacify), from "pax", meaning "peace". In the Middle Ages, the term began to be used more broadly, to mean "to pacify one's creditors". As the Latin word was made part of Old French "paier", it retained the meaning "appease" but gained the meaning "to pay" (as in paying a debt). The Middle English word "payen", which came from French, was also used in both ways.
Methods
There are two types of payment methods;
exchanging and
provisioning
In telecommunication, provisioning involves the process of preparing and equipping a network to allow it to provide new services to its users. In National Security/Emergency Preparedness telecommunications services, ''"provisioning"'' equates to ...
. Exchanging involves the use of
money
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...
, comprising
banknote
A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand.
Banknotes w ...
s and
coin
A coin is a small, flat (usually depending on the country or value), round piece of metal or plastic used primarily as a medium of exchange or legal tender. They are standardized in weight, and produced in large quantities at a mint in order t ...
s. Provisioning involves the transfer of money from one account to another, and involves a third party.
Credit card
A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the o ...
,
debit card
A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but u ...
,
cheque
A cheque, or check (American English; see spelling differences) is a document that orders a bank (or credit union) to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The pers ...
,
money transfers, and recurring cash or ACH (
Automated Clearing House
An automated clearing house (ACH) is a computer-based electronic network for processing transactions, usually domestic low value payments, between participating financial institutions. It may support both credit transfers and direct debits. The ...
) disbursements are all electronic payments methods. Electronic payment technologies include
magnetic stripe card
The term digital card can refer to a physical item, such as a memory card on a camera, or, increasingly since 2017, to the digital content hosted
as a virtual card or cloud card, as a digital virtual representation of a physical card. They share ...
s,
smartcard
A smart card, chip card, or integrated circuit card (ICC or IC card) is a physical electronic authentication device, used to control access to a resource. It is typically a plastic credit card-sized card with an embedded integrated circuit (IC) c ...
s,
contactless cards, and mobile payments.
Parties involved
A payment may involve more than two parties. For example, a
pre-paid card transaction usually involves four parties: the purchaser, the seller, the
issuing bank An issuing bank is a bank that offers card association branded payment cards directly to consumers, such as credit cards, debit cards, contactless devices such as key fobs as well as prepaid cards. The name is derived from the practice of issuing ca ...
and the
acquiring bank
An acquiring bank (also known simply as an acquirer) is a bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from the card-issuing banks ...
. A cash payment requires at least three parties: the seller, the purchaser and the issuer of the currency. A barter payment requires a minimum of two parties: the purchaser and the seller.
Providers
The infrastructure and electronic clearing methods are formed by the
payment provider. Global credit card payment providers are
Diners Club
A diner is a small, inexpensive restaurant found across the United States, as well as in Canada and parts of Western Europe. Diners offer a wide range of foods, mostly American cuisine, a casual atmosphere, and, characteristically, a comb ...
,
Visa
Visa most commonly refers to:
*Visa Inc., a US multinational financial and payment cards company
** Visa Debit card issued by the above company
** Visa Electron, a debit card
** Visa Plus, an interbank network
*Travel visa, a document that allows ...
,
American Express
American Express Company (Amex) is an American multinational corporation specialized in payment card services headquartered at 200 Vesey Street in the Battery Park City neighborhood of Lower Manhattan in New York City. The company was found ...
and
MasterCard.
Maestro
Maestro (; from the Italian ''wikt:maestro#Italian, maestro'' , meaning "wikt:master, master" or "teacher") is an honorific title of respect (plural: maestros or maestri). The term is most commonly used in the context of Western classical music ...
and
Cirrus
Cirrus may refer to:
Science
*Cirrus (biology), any of various thin, thread-like structures on the body of an animal
*Cirrus (botany), a tendril
*Infrared cirrus, in astronomy, filamentary structures seen in infrared light
*Cirrus cloud, a type ...
are international debit card payment providers.
Blockchain
A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, a ...
also provides an infrastructure for payments using
digital currency
Digital currency (digital money, electronic money or electronic currency) is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Types of digital cu ...
and potentially better security, fewer intermediaries, and lower transaction costs.
Global market
In 2005, an estimated $40 trillion globally passed through some type of payment system. Roughly $12 trillion of that was transacted through various credit cards, mostly the 21,000 member banks of
Visa
Visa most commonly refers to:
*Visa Inc., a US multinational financial and payment cards company
** Visa Debit card issued by the above company
** Visa Electron, a debit card
** Visa Plus, an interbank network
*Travel visa, a document that allows ...
and
MasterCard. Processing payments, including the extending of credit, produced close to $500 billion in revenue. In 2012, roughly $377 trillion passed through noncash payment systems. This led to total account and transaction revenues of nearly $524 billion.
Debit cards
In the U.S.,
debit card
A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but u ...
s are the fastest growing payment technology. In 2001, debit cards accounted for 9 percent of all purchase transactions, and this is expected to double to 18.82 per cent in 2011.
Mobile payments
There is a fast growth of mobile payments around the world. Google Pay, Apple Pay and Samsung Pay are the three main choices for mobile payments, while some banks also allow NFC Payments. In some countries, mobile wallets have become a dominant way of mobile payments.
Cheques
Historically,
cheques
A cheque, or check (American English; see spelling differences) is a document that orders a bank (or credit union) to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The pers ...
have been one of the primary means of payment for purchasing goods and services, though its share in the payment mix is falling worldwide. In 2001, in the United States, cheques accounted for 25% of the U.S.-based payment mix; and in 2006, this was projected to fall to 17%.
Timing
The timing of payment has legal implications in some situations. For tax purposes, for example, the timing of payment may determine whether it qualifies as a
deduction in a taxpayer's calculation of
taxable income Taxable income refers to the base upon which an income tax system imposes tax. In other words, the income over which the government imposed tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. Th ...
in one year or the next.
For U.S. tax purposes,
cash
In economics, cash is money in the physical form of currency, such as banknotes and coins.
In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-imm ...
payments generally are taken to occur at the time of payment. Payment may also occur when a person transfers property or performs a service to the payee in satisfaction of an obligation.
[See Donaldson, Samuel A., Federal Income Taxation of Individuals: Cases, Problems and Materials, 734 (2nd. Ed. 2007).] A payment by cheque is normally deemed to occur when the cheque is delivered, as long as the cheque is honoured on the presentation by the payee. This rule also generally applies where the cheque is not presented to the bank until the next taxable year, even though the payer could stop payment on the cheque, in the meantime.
Postdated cheque In banking, a post-dated cheque is a cheque written by the drawer (payer) for a date in the future.
Whether a post-dated cheque may be cashed or deposited before the date written on it depends on the country. A Canada, Canadian bank, for example, ...
s, however, are not considered payment when delivered. Generally, payments by
credit card
A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the o ...
take effect at the point of the sale and not when a payer is billed by the credit card company or when the payer pays the credit card company's bill.
[Revenue Ruling 78-38, 1978-1 C.B. 67.] A business that reports on an accrual basis, would report income in the year of sale though payment may be received in a subsequent year.
Payment of most fees to government agencies by cheque, if permitted, usually takes effect after a set number of days for
clearance or until the cheque is actually cleared. Payments by credit card, if permitted, and cash payments take immediate effect. Normally, no other forms of payment are permitted or accepted.
See also
*
Accounting
Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...
*
APACS
The UK Payments Administration Ltd (UKPA) is a United Kingdom service company that provides people, facilities and expertise to the UK payments industry.
UKPA was created on 6 July 2009, as a successor of the Association for Payment Clearing Se ...
(The UK Payments Association)
*
Business
Business is the practice of making one's living or making money by producing or Trade, buying and selling Product (business), products (such as goods and Service (economics), services). It is also "any activity or enterprise entered into for pr ...
*
Commerce
Commerce is the large-scale organized system of activities, functions, procedures and institutions directly and indirectly related to the exchange (buying and selling) of goods and services among two or more parties within local, regional, nation ...
*
Financial transaction
A financial transaction is an agreement, or communication, between a buyer and seller to exchange goods, services, or assets for payment. Any transaction involves a change in the status of the finances of two or more businesses or individuals. A ...
*
Money
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...
*
Money transmitter
In the legal code of the United States, a money transmitter or money transfer service is a business entity that provides money transfer services or payment instruments. Money transmitters in the US are part of a larger group of entities called mo ...
*
Trade
Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market.
An early form of trade, barter, saw the direct excha ...
Footnotes
References
* finn. Carmine Bunker, Mary S.:John Wiley and sons.
* Schaefer, Mary S.: John Wiley & Sons (2007) Controller & CFO Guide to Accounts Payable
* Schaeffer, Mary S.: John Wiley & Sons (2006) Accounts Payable & Sarbanes Oxley
External links
*
{{Authority control
Business terms
Financial law
Legal terminology