JSS3 Business Studies Lesson Note on Methods of Making Payment

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PROCEDURES AND METHODS OF MAKING PAYMENT

1. Cash
2. Cheque
3. Bank draft
4. Bank transfer
5. Cashless system

Cash Payment:

Cash are legal tender can be coins or naira notes. Small amount is usually paid by cash.

Cheque:

To secure payment of large amount, cheques are issued. Cheques are issued to owners of current account. Cheques is payable within three working days after deposit. Cheque is normally prepared by the clerk in the sales office or by the drawer (account owner). A cheque is a written order to pay on demand a stated amount to a named person at a particular date. There are four types of cheques; and they are (a) Bearer cheque (b) Order cheque (c) Open cheque (d) Crossed cheque. Cautions or steps to be taken in preparing a cheque:

• There must be a date.
• The payee name must be written in full and clear.
• Amount must be stated and must agree in word and figure.
• Record the purpose of the cheque.
• Any alteration must be backed by payee signature.
• All signatory of the payee must be uniform.
• The signature of the drawer (account holder) must appear and it must be the bank authorized signature.

Parties to a cheque

Three parties are involved in the payment of a cheque:

1. The Drawer: this is the person who draws and signs the cheque, and from whose account the money is removed.
2. The Drawee: this is the bank on whom the cheque has been drawn.
3. The payee: this is the person to whom the amount of money on the cheque is paid.

Advantages of cheque system

1. Cheques provide a simple method of cash transfer.
2. Cheques provide a relatively safe method for the settlement of debts.
3. Cheques provide a simplified method for the payment of salaries and wages.
4. Cheques eliminate the burden and danger of carrying large amounts

from place to place.

5. Cheques minimize fraud in business transactions.

Bank draft

To initiate bank draft payment, bank review request to see if there are sufficient funds. If confirmed, the sum is set aside from the drawer account when the draft is issued.

A bank draft is a written order for money to be paid by a bank, especially from one bank to another. It is a cheque drawn by a bank on itself.  Normally, a bank draft is prepared by a commercial bank. A commercial bank drawing a bank draft should have received an equivalent amount, plus a standard commission from the person buying the draft.

Bank transfer

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