Transactions may be paid for by notes and coins. A $10 or $50 note legally belongs to the person who possesses it and that person may spend it as they wish.
The fact that cash is portable and belongs to the person in possession of it is also a disadvantage. It can be lost, destroyed or stolen. In quantity, it is also quite bulky.
In terms of security and convenience, bank payments are preferred in business.
Cheques are used for many receipts and payments, although they are declining in importance as electronic and digital forms of transaction grow in importance. If you have your own bank account, you may be familiar with cheques from your personal experience.
NATIONAL SOUTHERN BANK 74 High Street Bristol BS4 7DX | 000101 20 | ||
Pay | £ | ABC Trading Ltd | |
Cheque number 201470 Sort Code 80-22-10 Account number 27430079 ⊢201470⊢ ⊢802210⊢ 27430079⊢ | |||
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Date-The cheque most shows the cheque has not be presented refuse to honor Cheques as sometimes post-dated cit of the time they are Banks reconing dated cheerfu 10 sodepit them before the actual date on the house. The post-dating of cheques is not recommended by thanks
Bank sort code-Every branch of every bank has a unique dentrying number known as a sort code which is printed on the cheque in the UK i have six digits
191
The name of the account holder and signature of an authorised person (the drawer) This is the person making the payment by cheque Cheques written by individuals are signed by the account holder for one of the sccount holders, if there is more than one) With business cheques, the name of the Individual signing the cheque and the name of the business (the account holder) may be different For example, cheques written by ABC Co may be signed by any one of the managing director, chief executive officer, the chief accountant or the deputy chief accountant. The bank will keep a record of the signatures of the individuals who are authorised to sign a cheque on behalf of the business (authorised signatories)
(h) Account number The account number of the account holder is pre-printed on the cheque and is unique to each individual bank account.
(1) Cheque number - Each cheque is sequentially numbered. The cheque number is pre-printed on the cheque.
A cheque is crossed by drawing (or printing) two parallel vertical lines across it. When a cheque is crossed, the payment must be made into a bank account, it cannot be paid out in cash. This is a useful security procedure as it prevents cash payments being made to unauthorised persons should the cheque be lost or stolen.
Most cheques are now printed as a crossed cheque and with A/c payee printed between the vertical lines. This is shown below
A/c payee stands for Account payee. When a cheque is crossed with A/c payee:
In other words, a cheque crossed A/c payee cannot be endorsed or signed over to another bank account holder. Endorsement is described in the next section. Most cheques are crossed A/c payee because it reduces the risk of loss as a result of theft or fraud.
A cheque may be endorsed by the payee unless it is an A/c payee cheque.
Suppose, for example, that B Brown has written a cheque, payable to G F Dunn, for $500. It can be endorsed by the payee, GF Dunn writing their signature on the back of the cheque. The cheque can then be passed to another person to pay it into their own bank account. The wide use of A/c payee cheques has significantly reduced the use of cheque endorsements.
1 Customers have obligations to their bank. Which of the following is a customers obligation?
2 When may a bank return a cheque to the payee?
What is the effect of endorsing a cheque account payee?
For a suggested answer, see the Answers section at the end of the book.
Whilst many payments are made by cheque, there are other methods of making payments. For example, it is possible to instruct a bank to make regular payments for a fixed amount to a third party by means of a standing order.
A standing order is a written instruction to the bank by the payer to pay a certain amount on a regular basis (usually monthly) to a third party. This removes the need for anyone within the business to remember to make the payment and to write a cheque. The types of regular payments that are made by standing order are items such as insurance premiums or regular donations to charity. The standing order can only be amended or cancelled by the authorised signatory of the bank account who originated the payment.
A bank can also pay a third party on behalf of a customer by a direct debit. This is very similar to a standing order, the main difference being that it is the receiving business that initiates the direct debit and specifies the amount it wants to collect. Also, the amount and frequency of payment can vary with a direct debit.
The types of payments that a business might make using a direct debit include payments of regular bills such as telephone and electricity charges that vary month by month. For example, the electricity provider will instruct its bank to collect a specified amount from the bank account of their customer, perhaps after the electricity meter has been read so that usage for the previous month can be confirmed and the cost calculated. The direct debit will not be honoured id there are insufficient funds in the account-holders bank account.
A credit transfer is a further method of instructing a bank to make a payment to a third party. This is usually done by the customer completing a credit transfer form in favour of the third party. This form is typically attached to the bottom of a bill or invoice received by the customer and, when completed, is then handed into the bank and the funds are transferred from the payer bank account to the payees bank account.
This method of payment is suitable for one-off payments or irregular payments to suppliers. Credit transfer forms (Bank Giro Credit) may be attached to bills or invoices for items such as gas, electricity and telephone charges.
A bankers draft is a payment instrument prepared by a bank at the request of a customer. It can only be paid into an account maintained by the payee named in the draft. The bank will usually require notice from a customer if a bankers draft is required and they will normally charge a fee for its preparation. Upon preparation of the draft, the customers bank account is immediately charged with the amount of the draft, plus any charges or fees applicable, even though the recipient of the draft (he payee) may not receive and present it for payment for several days.
In effect, a bankers draft ids a cheque drawn directly upon a bank. The benefit of the bankers draft to the payee is that there is no risk of the draft being dishonoured due to lack of funds on the part of the customer. This form of payment is less popular than it used to be as more individuals and businesses operate bank accounts and there is now a broader range of methods of making receipts and payments between two parties.
Many business and personal bank accounts now permit the account holder to make a direct payment to another bank account. The payer needs to have the bank account details of the intended recipient (bank sort code, account number and account name) and is then able to set up a payment authority. The payment authority normally allows the payer flexibility in terms of the amount to be paid and the date of payment.
Individuals may find this beneficial, for example, when paying a tradesperson for work done relating to their property, or as a far more convenient alternative to using a cheque. Normally the payers bank will instigate controls to verify with the payer that the account number is correct. The risk of error is reduced by the bank using standard templates for completion for information required. Banks are now also able to check the bank account details of the recipient to check whether it appears to be a valid account.
In addition, following the completion of the payment authority, before a payment is made the bank will instigate further controls to ensure that, for any payment requested, the correct recipient has been selected, and that the date and amount of the payment is correct. Such payments may now appear in the bank account of the recipient within a matter of minutes or hours.
Typical controls used in this situation include the bank requesting confirmation from the payer of a confidential password or code number, which may be communicated via the payers personal mobile phone. A more recent alternative method of verifying a payment is to use the bank app which may use face recognition technology to enable the account holder to authorise a payment. There is obviously a risk to the account holder if they set up the payment authority using incorrect details.