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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 featu ...
(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 ...
, or services provided by them, or to fulfill a legal obligation. 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 ar ...
,
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 e ...
, credit, or bank transfers, whether through mobile payment 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 compan ...
, or using barter, 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 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 transaction. The payee may compromise 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 commercial document issued by a seller to a buyer relating to a sale transaction and indicating the products, quantities, and agreed-upon prices for products or services the seller had provided the buyer. Paym ...
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 proper ...
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. 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 ar ...
, 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 ...
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 ...
,
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 ...
,
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) disbursements are all electronic payments methods. Electronic payment technologies include magnetic stripe cards, smartcards, 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 and the acquiring bank. 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 com ...
, Visa,
American Express American Express Company (Amex) is an American multinational corporation, multinational corporation specialized in payment card industry, payment card services headquartered at 200 Vesey Street in the Battery Park City neighborhood of Lower Man ...
and MasterCard. Maestro and Cirrus 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, ...
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 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 ...
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 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. ...
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-im ...
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 cheques, 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 ...
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 Association) *
Business Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit." Having a business name does not separ ...
*
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, natio ...
*
Financial transaction A financial transaction is an Contract, agreement, or communication, between a buyer and seller to exchange goods, Service (economics), services, or Asset, assets for payment. Any transaction involves a change in the status of the finances of two ...
*
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 ar ...
* Money transmitter *
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 exc ...


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