Chapter 8 Methods of Payment

Chapter 2 Food PresentationChapter 8 Methods of Payment

AT A GLANCE

By the end of this chapter, you will be able to:

• List the various methods of payment• Describe how each method of payment

works• Explain the advantages and

disadvantages of the different methods• Explain how to use credit responsibly• Decide which method of payment to use

1


• We can make payments in many ways

• The method of payment used depends on:– The item we are buying– The cost of the item– The methods of payment

accepted by the seller

2

Making payments


• Payment using banknotes and coins

• Most common method of payment

3

Cash

Advantages

Disadvantages

• Widely accepted• Fast and convenient

• Cash can be lost or stolen when we carry it

• Coins are heavy to carry around

• Have to exchange currency when we visit another country

• Cannot be used for online transactions


• A cash value is stored in the card and payments are deducted from this value

• E.g. NETS CashCard, EZ-Link Card

4

Stored-value card

Advantages

Disadvantages

• Convenient to carry around

• Quick and easy to use

• Lost card can be used by anyone

• Not all stores accept stored-value cards

• Need to top up the card whenever the stored value runs low


• A card issued by the bank• The purchase amount is deducted immediately

from bank account when we pay with debit card

5

Debit card

Advantages

Disadvantages



• Lost card can be used by anyone

• Not all stores accept stored-value cards

• Need to top up the card whenever the stored value runs low


• A written and signature-authorised payment slip

• Issuing cheque = instructing the bank to deduct money from bank account to pay the person or company listed on the cheque

6

Cheque

Advantages

Disadvantages

• Convenient and safe to carry around

• Can be issued for any amount and is useful when paying for expensive items

• Can be sent through post

• Signature on cheque can be forged

• Some stores do not accept cheques

• Banks impose a charge for cheque books


• Payment using electronic means• Amount is deducted from bank

account once transaction is approved• E.g. GIRO, Internet banking, NETS

7

Electronic transfer

Advantages

Disadvantages


• Payment can only be authorised by a Personal Identification Number (PIN)

• Cannot make payment if the amount in bank account is insufficient

• May forget PIN and not be able to make payment


• A form of borrowing which allows the buying of goods and services on credit

• The card holder is usually billed once a month for the amount spent using the card

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Credit card

Advantages

Disadvantages


• Most credit cards can be used overseas

• Can be used for online transactions

• Interest will be charged for late payment

• May buy on impulse• Signature on the card

can be forged if card gets stolen

• There is usually a credit limit for each card


• Payment in parts or percentage over an agreed period of time

• Used in the payment of expensive items such as cars, electrical appliances, furniture

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Hire purchase and instalment

Hire purchase Instalment

Ownership

Ownership of the item belongs to the buyer only when the last payment has been made

Ownership of the item belongs to the buyer immediately

Retrieval Seller can take the item back if the buyer fails to complete the payment

Seller cannot take the item back but can claim against the buyer by charging a higher interest rate


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Hire purchase and instalment

Advantages

Disadvantages

• Need not make full payment at the time of purchase

• Allows us to pay a manageable amount at regular intervals

• The total cost paid for the product can be higher than the original price due to the interest charged

• For hire purchases, the item will be repossessed and extra costs such as termination fee may be charged if payment is not completed

• For instalment purchases, there can be a late payment charge


• Credit cards, hire purchases and instalments are forms of borrowing that allows us to buy goods and services first and make payment later

• This form of borrowing is known as credit• Examples of credit usage:– Credit cards– Loans such as housing loans– Services such as utilities and telephone

bills

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Using credit responsibly


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Advantages and disadvantages of credit

Advantages Disadvantages

Provides convenience Incurs additional costs such as fees and interest

Receives goods and services before actual payment is made

Encourages overspending

Meets emergencies May lead to inability to pay off amount owed

Takes advantage of sales and promotions

May lead to bankruptcy


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Responsible use of credit

Ways to use credit wisely:

1. Use credit only when we can afford it

2. Plan our expenses carefully

3. Keep track of the amount of money spent

4. Pay our bills promptly to avoid late payment charges

5. Avoid having more credit cards than necessary

6. Prepare for emergencies by saving up and not spending more than the credit limit


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Payment methods to use

When deciding which payment method to use, we can ask these questions:

Is the price of the item or service

high?

Do I have money for

what I want to buy?

What methods of payment

does the store accept?

Expensive items cashless payment methods e.g. debit card, electronic transfer

If yes pay with cash or cashless methodsIf no pay using credit

Expensive items Some shops may accept credit cards


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Payment methods to use

• Automated self-service kiosks– E.g. AXS Station, Self-service

automated machine (SAM), iNETS Kiosk– Payment of bills and fines, top up

prepaid card, ticketing, government eServices

• Internet (online transactions)

Documents

Chapter 8 Methods of Payment