3.5: What are the Different Ways to Pay Money
The following will outline the different methods of payment where a bank would be involved. In this module, we refer to a ‘creditor’ as a ‘person/institution that you wish to make a payment to. Cash You can pay a creditor with cash (notes and coins) that can exchange hands immediately. Cheque can be issued to the creditor that is usually accompanied by a cheque guarantee card. For large amounts, this can be the most secure method of payment compared to exchanging cash. Cheques can also be used conveniently to send payment via post. It is common for your account to be debited within five working days after the creditor deposits the cheque into their bank account.
1. A cheque is written (made payable to the creditor) and signed by you.
2. The creditor deposits the cheque at their bank.
3. After routine checks, the amount is debited from your bank account (within 5 working days).
Switch Card (or Other ‘Debit’ Card)
Switch is an electronic payment that is accepted by most retailers throughout the UK. In most cases, the payment will be debited from your account on the same day; occasionally it can take up to two working days for the amount to be debited. You will not get charged to use your switch card unless your bank account does not have enough money to pay the full amount. In addition, there is usually no limit on the amount you can spend with your switch card (unless stated by the creditor’s policy). Switch is a common method of payment and is usually regarded as a good (and safer) substitute to carrying cash.
1. The creditor swipes your switch card through a machine.
2. You sign to confirm the transaction.
3. The amount is debited from your bank account within 2 working days.
There are several companies (Visa, MasterCard, Diners, etc) that offer credit to people with varying interest rates. The repayments are usually paid back in instalments on a monthly basis until the credit is paid off: the credit company will set a minimum payment each month. Interest is usually calculated on a monthly basis on the outstanding amount owed. Failure to make a monthly repayment will incur extra charges (in addition to a poor credit record with the company).
You can pay the credit company using a variety of methods – direct debit from your bank account, postal order or cheque are the main methods that credit companies usually prefer.
1. The creditor swipes your credit card through a machine.
2. You sign to confirm the transaction.
3. The credit company send you a monthly statement.
4. You send a valid form of payment (at least the minimum payment) to the credit card company.
A standing order is a request to your bank to make fixed regular payments (weekly, monthly, etc) from your bank account to a creditor’s bank account – should this be within the same bank or another bank. Your bank will then make sure that the payment will be regularly debited from your account as you requested until you cancel the standing order. For example, you could set up a standing order to debit your account R100 on the 1st of every month to be paid into the creditor’s bank account (until the full amount is paid).
A standing order will prevent the need for regular cheque writing and give you the peace of mind that you will not miss a payment deadline (if this is the case). There are costs involved to set up or cancel a standing order.
1. You set up a standing order with your bank.
2. The amount is regularly debited (as you requested) from your bank account.
3. The amount will continue to be regularly debited until you cancel the standing order.
A creditor, with your permission, can set up a direct debit with your bank that will debit money from your account directly into theirs on request. This can be used for one-off payments (such as an on-line shopping purchase) but perhaps most common with regular payments such as paying off a loan. Direct debits are also popular for regular payments where the amounts change each month (or week, etc), for example cell phone bills. Creditors usually prefer this method when it involves regular payments as they are comforted by the guarantee of being paid each month (or week, etc): given that you have enough money in your account.
1. You give your bank account details to the creditor.
2. The creditor contacts your bank to and confirms your agreement of a direct debit.
3. The creditor requests the money from your bank account.
4. The amount is immediately debited from your account.
BACS (Banks Automated Clearing System)
A BACS payment can be set up (by you) to electronically transfer money direct from your bank account to a creditor’s bank account. This will involve obtaining the creditor’s bank details to set up such a payment. Money from your account can then be credited to the creditor’s bank account as and when you need to. A BACS payment can usually take up to two working days to clear. BACS payments are popular for paying staff. Wages are transferred direct from the business bank account to the employees’ bank accounts. In fact, today, it is the most common way for an employee to be paid.
1. You obtain the bank details of the creditor.
2. You set up a BACS payment with the bank.
3. You credit the creditor’s bank account with the required amount – debited from your account.
A banker’s draft is similar to a cheque with the exception that the money has already been debited from your account – thus giving the creditor satisfaction that they will be paid the amount required. You must give notice to the bank that you require a banker’s draft (usually 24 hours) so that they can prepare the draft and check that you have enough money in your account. There may also be a small fee to pay for issuing a banker’s draft. On picking up the bankers draft from your bank, the amount is immediately debited from your account. When the creditor deposits the banker’s draft in their account, they will be credited the stated amount (which has already been debited from your bank account). Banker’s drafts are common when making a purchase of a large amount i.e. buying a car.
1. You contact the bank (with 24 hours notice) to request a banker’s draft for the required amount.
2. On agreement, the bank processes your request and produces the banker’s draft.
4. You visit the bank and collect the banker’s draft in addition to paying a small administration fee.
5. The amount is debited from your bank account.
6. You give the banker’s draft to the creditor.
7. They deposit the banker’s draft into their account that is credited with the stated amount.
If you have access to Internet banking, you can often make payments to creditors on-line. This is a very convenient way of paying bills and transferring money between accounts. Internet banking can usually accommodate for a number of payment methods – set up and managed by you – such as standing orders and BACS payments.
Telephone Banking Just like Internet banking, you can make payments to creditors using telephone banking. This is a very convenient way of paying bills and transferring money between accounts. Telephone banking can usually accommodate a number of payment methods such as standing orders and BACS payments.
HSBC is the only bank that currently has a TV banking service (via Digital Sky Television). If you are a HSBC customer and you are registered to use TV banking, you can make some payments using this service.