HOME

TheInfoList




A payment is the voluntary tender of money or its equivalent or of things of
value Value or values may refer to: * Value (ethics) it may be described as treating actions themselves as abstract objects, putting value to them ** Values (Western philosophy) expands the notion of value beyond that of ethics, but limited to Western s ...
by one
party A party is a gathering of people who have been invited by a host A host is a person responsible for guests at an event or for providing hospitality during it. Host may also refer to: Places *Host, Pennsylvania, a village in Berks Cou ...
(such as a person or company) to another in exchange for
goods In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
, or
service Service may refer to: Activities :''(See the Religion section for religious activities)'' * Administrative service, a required part of the workload of university faculty * Civil service The civil service is a collective term for a sector of gove ...
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), 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 individual ...
. The party making a 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 In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner">174x174px Money is any item or verifiable record that is generally a ...

money
,
cheque A cheque, or check (American English American English (AmE, AE, AmEng, USEng, en-US), sometimes called United States English or U.S. English, is the set of varieties of the English language native to the United States. Currently, A ...
, or
debit Debits and credits in double entry bookkeeping are entries made in account ledger A ledger is a book or collection of accounts in which account transactions are recorded. Each account has an opening or carry-forward balance, would record tr ...
,
credit px, Domestic credit to private sector in 2005 Credit (from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, k ...
or
bank transfer Wire transfer, bank transfer or credit transfer, is a method of electronic funds transfer Electronic funds transfer (EFT) is the electronic transfer of money from one bank account A bank account is a financial account maintained by a bank o ...
s. * the transfer of anything of value, such as
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities i ...

stock
, or using
barter In trade, barter (derived from ''baretor'') is a system of exchange (economics), exchange in which participants in a financial transaction, transaction directly exchange good (economics), goods or service (economics), services for other goods or ...

barter
, the exchange of one good or service for another. In general, the payee is at liberty to determine what method of payment he or she will accept; though normally laws require the payer to accept the country's
legal tender Legal tender is a form of money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner, 1 ...
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 decentralization, decentralized or Over-the-counter (finance), over-the-counter (OTC) market for the trading of currency, currencies. This market determines Exchange rate ...
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 Communication (from Latin ''communicare'', meaning "to ...
on a debt, i.e., accept a 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 :''See also Voucher: an invoice is within the European union primarily legally defined by the EU VAT directive as an accounting voucher (to verify tax and VAT reporting) and secondly as a Civil law (common law) document. An invoice, bill or tab is ...

invoice
or bill, which follow the supply of goods or services, but in some industries (such as travel and hotels) it is becoming common 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 300px, '' Hip, Hip, Hurrah!'' (1888) by Peder Severin Krøyer, a painting portraying an artists' party in 19th century Denmark A party is a gathering of people who have been invited by a host A host is ...

creditor
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 parcel, Manifest (transportation), manifest or customer receipt) is a document acknowledging that a person has rece ...

receipt
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 Telecommunication is the transmission of information Information can be thought of as the resolution of uncertainty; it answers the question of "What an entity is" and thus defines both its essence and the nature of ...
. Exchanging involves the use of
money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner">174x174px Money is any item or verifiable record that is generally a ...

money
, comprising
banknote A banknote (often known as a bill (in the US and Canada), paper money, or simply a note) is a type of negotiable promissory note A promissory note, sometimes referred to as a note payable, is a legal instrument ''Legal instrument'' is a ...
s and
coin A coin is a small, flat, (usually, depending on the country or value) round piece of metal A metal (from Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hell ...

coin
s. Provisioning involves the transfer of money from one account to another, and involves a third party.
Credit card #REDIRECT 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 promise to the card issuer to pay them for the amounts plus the ...

Credit card
,
debit card A debit card (also known as a bank card, plastic card or check card) is a payment card that can be used in place of cash to make purchases. It is similar to a credit card, but unlike a credit card, the money for the purchase must be in the cardho ...
,
cheque A cheque, or check (American English American English (AmE, AE, AmEng, USEng, en-US), sometimes called United States English or U.S. English, is the set of varieties of the English language native to the United States. Currently, A ...
, money transfers, and recurring cash or ACH ( Automated Clearing House) disbursements are all electronic payments methods. Electronic payments technologies include
magnetic stripe card A magnetic stripe card is a type of card capable of Magnetic storage, storing data by modifying the magnetism of tiny iron-based magnetic particles on a band of magnetic material on the card. The magnetic stripe, sometimes called swipe card or ma ...
s,
smartcard A smart card, chip card, or integrated circuit card (ICC or IC card) is a physical electronic authorization device, used to control access to a resource. It is typically a plastic credit card A credit card is a payment card issued to user ...

smartcard
s, contactless cards, and mobile payments.


Parties involved

A payment may involve more than two parties. For example, a
pre paid card
pre paid card
transaction usually involves four parties: the purchaser, the seller, the
issuing bank An issuing bank is a bank A bank is a financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by ...
and the
acquiring bank An acquiring bank (also known simply as an acquirer) is a bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be ...
. 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 Diner on U.S. Route 7, Canaan, Connecticut, 1976">Canaan,_Connecticut.html" ;"title="U.S. Route 7, Canaan, Connecticut">U.S. Route 7, Canaan, Connecticut, 1976 A diner is a small, inexpensive restaurant found all over the United States, as ...
,
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 e ...
,
American Express The American Express Company (Amex) is a multinational corporation, multinational financial services corporation headquartered at 200 Vesey Street in the Financial District (Manhattan), Financial District of Lower Manhattan in New York City. Th ...
and
MasterCard#REDIRECT Mastercard Mastercard Incorporated (stylized as MasterCard from 1979 to 2016 and mastercard since 2016) is an American multinational financial services Financial services are the Service (economics), economic services provided by the ...

MasterCard
.
Maestro Maestro (; from the Italian ''maestro Maestro (; from the Italian ''maestro Maestro (; from the Italian '' maestro'' , meaning " master" or "teacher A teacher (also called a schoolteacher or formally, an educator) is a person who ...
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 growing list of records A record, recording or records may refer to: An item or collection of data Computing * Record (computer science), a data structure ** Record, or row (database), a set of fields in a database related ...

Blockchain
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 The Intern ...
and potentially better security, fewer intermediaries, and lower transaction costs.


Interbank

The ''central bank CB(Ccy)'' of a currency can maintain a loro account for a bank (which the bank would call a nostro account).


Direct

A bank ''P'' (the ''payer'') with a central bank nostro can ''pay directly'' to another bank ''R'' (the ''receiver'') which has also a nostro with ''CB(Ccy)'' by instructing the central bank to make a payment of ''N
cy
cy
' (or an amount ''N'' in ''Ccy''). The central bank however will only accept ''P''s payment instruction if the balance ''B'' on P's loro account before the payment is ''B≥N''. The payment itself is a booking in the loro accounts of the central bank where P's loro account is debited with ''N'' (it will be ''B-N≥0'' thereafter) and simultaneously ''R''s loro account is credit with ''N'' (its balance ''C'' will be ''C+N≥0'' thereafter). We denote the payment symbolically with '' →CB→R'.


Indirect

If the payer ''P'' maintains a loro account for another bank ''X'', ''P'' can act as a payment agent for ''X'': ''X'' instructs ''P'' to pay to ''R''; then ''P'' instructs ''CB(Ccy)'' to pay on behalf of ''X'': 'X→P→CB→R'' In this example the first half of the payment is ''indirect'' and the second one (from ''CB(Ccy)'' to ''R'') is still ''direct''. If ''X'' would pay via ''P'' to ''R'' and finally to another party ''Y'', the payment would be 'fully indirect': 'X→P→CB→R→Y'' In practice, not every payment agent might have a direct nostro with the central bank, thus rather weird payment constellations can exist, which are hard to describe.


Directness coefficient ''(p,q)''

If we define (p,q) where ''p'' is number of parties on the sender side and ''q'' on the receiver side, we can classify the directness of payments.


''Sn,Rm'' Description

We denote with ''Sn'' the senders and with ''Rm'' the receivers in a payment process, such that ''R0=S0=CBCCY'' is the central bank of the currency which has 'no' distance (''n=m=0'') to the payment process, ''m,n=1'': the ''direct'' nostro agents of the sender / receiver: S1 is the ''direct payer''; R1 is the ''direct receiver'' (or nostro agent) ''m,n=2'': the ''indirect nostro agents'' of the sender / receiver: S2 is the ''indirect payer''; R2 is the ''indirect receiver'' ''m,n=3'': the ''sender / payer bank'' : S3 is the ''sender bank''; R3 is the ''receiver bank'' ''m,n=4'': the ''sender / payer'': S4 is the ''sender (payer)''; R4 is the ''receiver (payee)'' Here is an (p=q=4) example: [sender→sender bank → indirect agent of sender bank → direct agent of sender bank → central bank → direct agent of receiver bank → indirect agent of receiver bank → receiver bank → receiver(payee)] or [S4 → S3 → S2 → S1 → S0=R0 → R1 → R2 → R3 → R4]


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 e ...
and
MasterCard#REDIRECT Mastercard Mastercard Incorporated (stylized as MasterCard from 1979 to 2016 and mastercard since 2016) is an American multinational financial services Financial services are the Service (economics), economic services provided by the ...

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 close to $524 billion.


Debit cards

In the U.S.,
debit card A debit card (also known as a bank card, plastic card or check card) is a payment card that can be used in place of cash to make purchases. It is similar to a credit card, but unlike a credit card, the money for the purchase must be in the cardho ...
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 percent 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 allo
NFC Payments
in markets where Google, Apple and Samsung are absent. In some countries, mobile wallets have become a dominant way of mobile payments. Notable in Armenia
IdramTelcell Wallet
an
MobiDram
allow consumers to make quick payments by scanning QR Codes, removing the need to have and carry a plastic card.


Cheques

Historically,
cheques A cheque, or check (American English American English (AmE, AE, AmEng, USEng, en-US), sometimes called United States English or U.S. English, is the set of varieties of the English language native to the United States. Currently, Am ...
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%. In the United States, a cheque as a form of payment can legally be refused for any reason (or no reason). A payment by cheque is not a "payment" until the cheque has been cashed (i.e., deposited) and cleared by the banking system.


Timing

The timing of a payment has legal implication in some situations. For tax purposes, for example, the timing of a payment may determine whether it qualifies as a 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 Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within those societie ...
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 check is normally deemed to occur when the check is delivered, as long as the check is honored on presentation by the payee. This rule also generally applies where the check is not presented to the bank until the next taxable year, and even though the payer could stop payment on the check in the meantime.
Postdated checkIn 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 #REDIRECT 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 promise to the card issuer to pay them for the amounts plus the ...

credit card
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 or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variable and attribute (research), attributes of an object or event, which can be used to compare with other ob ...
* Alternative Payments *
APACS The UK Payments Administration Ltd (UKPA) is a United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a syn ...
(The UK Payments Association) *
Business Business is the activity of making one's living or making money by producing or buying and selling products (such as goods and services). Simply put, it is "any activity or enterprise entered into for profit." Having a business name A trad ...

Business
*
Commerce Commerce is the exchange of goods and services, especially on a large scale. Etymology The English-language word ''commerce'' has been derived from the Latin word ''commercium'', from ''com'' ("together") and ''merx'' ("merchandise"). History ...

Commerce
*
Financial transaction A financial transaction is an agreementAgreement may refer to: Agreements between people and organizations * Gentlemen's agreement A gentlemen's agreement, or gentleman's agreement, is an informal and legally non-binding wikt:agreement, agreem ...
*
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 main functions of money are distinguished as: a ...

Money
*
Money transmitterIn 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 money ...
*
Trade Trade involves the transfer of goods from one person or entity to another, often in exchange for money. Economists refer to a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of r ...

Trade


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 {{CatAutoTOC Terms Jargon Terminology Terms Terminology Terminology is a general word for the group of specialized words or meanings relating to a particular field, and also the study of such terms and their use. This is also known as termino ...