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Payment methods (Cheques (The use of cheques has been in decline for…
Payment methods
Cheques
A cheque is a written instruction from an account holder to their bank to pay a specified sum of money to a named beneficiary
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The standard form is a slip which contains pre printed information such as the branch of the bank on which the cheque is drawn, the sort code number of the branch on which the cheque is drawn, the account number and name of the drawer
The cheque number, sort code and account number is included at the bottom of each pre printed cheque in ink that can be read electronically when the cheque passes through the genera; cheque clearing system
The customer completes the cheque by hand when they wish to make an instruction to pay a beneficiary by completing the name of the payee, the amount of the payment in words and numbers and signs and dates the cheque
The use of cheques has been in decline for several years as electronic methods have become more popular. In December 2009 the Payments Council set a target date for closing the general cheque clearing system by October 2018. The Payments Council announced that a decision to continue with the closing of the general cheque clearing system would be made in 2016 as long as viable alternatives to cheques has been put in place
Many stakeholder groups including charities and pensioner lobby groups objected to the closure of the general cheque clearing system. In July 2011, the Payments Council announced that it had decided that the cheque would stay and that the 2018 target date had been withdrawn
In offshore centres, cheques are seen as convenient and cost effective for companies (especially property holding companies) to settle invoices
Banker's drafts
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Before a person can request their bank to issue a banker's draft they are required to have cleared funds available in their account in order to cover the amount of the draft
The customers account is immediately debited with the amount of the draft and the banks own account credited
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As bankers drafts are drawn on the account of the bank, they provide addition comfort to the payee that they are unlikely to be returned unpaid due to a lack of funds
Often used for transactions involving large amounts of money where the payee wished to eliminate the risk of the cheque bouncing
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Direct Debits
An instruction from a customer to their bank authorising an organisation to collet varying amounts from their bank accounts, provided the customer has been given advance notice of the collection amounts and dates
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Standing orders
An instruction to a bank to make payments for a fixed amount to the same beneficiary at a UK bank or building society account on a regular basis, for example every month on a particular date during the month
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Online banking has made it extremely easy for customers who have access to the online banking facility to set up standing orders online
The bank follows the customer's instructions and continues to make the payments until the customer cancels the standing order or a specified final payment date is reached
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Cash
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Prior to the introduction of legislation on the proceeds of crime, customers could visit their bankers in offshore centres and deposit or leave with large sums of cash
Bank cards
Debit cards
Plastic cards that allow a customer to pay for goods and services and have largely replaced the need for people to write cheques
The card sends an instruction to the cardholder's bank to debit their account and credit the payee's account for the cost of the goods or services
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At the point of payment (when used in person), the cardholder hands their card to the sales, who will ask the cardholder to key their private identification number into a machine
Prior to the introduction of PINs, the retailer would have asked the cardholder to sign a sales voucher
From Feb 2006, cardholders have been required to use their PIN. Without it their card may be declined
Since 1 January 2005, if the use of a Chip and PIN device could have prevented a fraud and a retailer does not use one, the retailer may bear the cost of the fraudulent transaction. Prior to this date, the UK card issuer suffered he cost of any fraud. The liability shift
Credit cards
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The cost of goods or services is not taken directly from the cardholder's bank account. Instead the card funds up to a personal spending limit which varies from cardholder to cardholder and from bank to bank
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The cardholder can use the credit card to access these funds directly from the bank when purchasing goods and services
The cardholder can then choose how much to repay the bank each month, subject usually to a minimum amount (which could be as low as £5)
Any unpaid balance on the credit card incurs interest, usually at a very high rate
Cheque guarantee cards
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For a cheque to be guaranteed, a cheque guarantee card would have to be handed over with it and the rules of the scheme complied with
The Payments Council decided that as the use of cheque guarantee cards was in decline, it would set a closure date for the scheme. It was withdrawn on 30 June 2011
ATM cards
An ATM is a machine that can be located outside a bank which enables customers to gain access to some banking services 24 hours a day, 7 days a week
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The customer accesses their services by inserting their ATM card into the machine and entering their PIN
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