Payment
Encyclopedia
A payment is the transfer of wealth from one party
(such as a person or company) to another. A payment is usually made in exchange for the provision of goods, services or both, or to fulfill a legal obligation.
The simplest and oldest form of payment is barter
, the exchange of one good or service for another. In the modern world, common means of payment by an individual include money
, cheque
, debit
, credit
, or bank transfer, and in trade
such payments are frequently preceded by an invoice
or result in a receipt
. However, there are no arbitrary limits on the form a payment can take and thus in complex transactions between businesses, payments may take the form of stock
or other more complicated arrangements.
In law, the payer is the party making a payment while the payee is the party receiving the payment.
and provisioning
. Exchanging is to change coin
, money
and banknote
in terms of the price. Provisioning is to transfer money from one account to another. In this method a third party must be involved. Credit card
, debit card
, money transfers, and recurring cash or ACH (Automated Clearing House
) disbursements are all electronic payments methods. Electronic payments technologies are magnetic stripe card, smartcard, contactless card and mobile handset
. Mobile handset based payments are called mobile payments.
transaction in the United States requires a minimum of four parties (the purchaser, the seller, the issuing bank
, and the acquiring bank
). A cash
payment requires a minimum of three parties (the seller, the purchaser, and the issuer of the currency). A barter payment requires a minimum of two parties (the purchaser and the seller).
. Japan Credit Bureau
(JCB) is a payment provider for Japanese market. Maestro
and Cirrus
are international debit card payment providers.
and MasterCard
. Processing payments, including the extending of credit, produced close to $500 billion in revenue.
s are the fastest growing payment technology. In 2001, debit cards accounted for 9 percent of all purchase transactions, and this is expected to double to 18.82 percent in 2011
s have been one of the primary means of payment for purchasing goods and services in the U.S. In 2001, checks accounted for 25 percent of the U.S.-based payment mix; in 2006, this is projected at 17 percent.
In the USA, a check as a form of payment can legally be refused for any reason (or no reason). Simply put: A payment via check is not a "payment" until the check was cashed and clears the banks.
Example: You cannot order a fast food meal, throw a check on the counter and just leave with the meal, if they do not accept your payment via check, you would be committing larceny by taking the meal.
in a taxpayer's calculation of taxable income
.
Cash
payments occur at the time of payment. This is the easy case, but payments in other forms can be trickier. Payment also occurs when the taxpayer transfers property or performs services in lieu of making a cash payment. Payment by check is deemed to occur when the check is delivered, as long as the check is honored on presentation by the payee. This rule is enforced even where presentation does not occur until the next taxable year, and even though the taxpayer could stop payment on the check in the meantime. Postdated checks, however, are not considered payment when delivered. Generally, payment by credit card
occurs at the point of the sale and not when the taxpayer is billed by the credit card company or when the taxpayer pays the bill.
Party (law)
A party is a person or group of persons that compose a single entity which can be identified as one for the purposes of the law. Parties include: plaintiff , defendant , petitioner , respondent , cross-complainant A party is a person or group of persons that compose a single entity which can be...
(such as a person or company) to another. A payment is usually made in exchange for the provision of goods, services or both, or to fulfill a legal obligation.
The simplest and oldest form of payment is barter
Barter
Barter is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. It is usually bilateral, but may be multilateral, and usually exists parallel to monetary systems in most developed countries, though to a...
, the exchange of one good or service for another. In the modern world, common means of payment by an individual include money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
, cheque
Cheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...
, debit
Direct debit
A direct debit or direct withdrawal is an instruction that a bank account holder gives to his or her bank to collect an amount directly from another account. It is similar to a direct deposit but initiated by the beneficiary...
, credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
, or bank transfer, and in trade
Trade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
such payments are frequently preceded by an invoice
Invoice
An invoice or bill is a commercial document issued by a seller to the buyer, indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer. An invoice indicates the buyer must pay the seller, according to the payment terms...
or result in a receipt
Receipt
A receipt is a written acknowledgment that a specified article or sum of money has been received as an exchange for goods or services. The receipt is evidence of purchase of the property or service obtained in the exchange.-Printed:...
. However, there are no arbitrary limits on the form a payment can take and thus in complex transactions between businesses, payments may take the form of stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
or other more complicated arrangements.
In law, the payer is the party making a payment while the payee is the party receiving the payment.
Payment methods
There are two types of payment methods; exchangingFinancial transaction
A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...
and provisioning
Provision (accounting)
In financial accounting, provision is a word that creates an ambiguous account title. In U.S. GAAP, provision means an expense, while in IFRS, International Financial Reporting Standards, it means a liability. So, in the U.S., Provision for Income Taxes means the same thing as Income Tax Expense,...
. Exchanging is to change coin
Coin
A coin is a piece of hard material that is standardized in weight, is produced in large quantities in order to facilitate trade, and primarily can be used as a legal tender token for commerce in the designated country, region, or territory....
, money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
and banknote
Banknote
A banknote is a kind of negotiable instrument, a promissory note made by a bank payable to the bearer on demand, used as money, and in many jurisdictions is legal tender. In addition to coins, banknotes make up the cash or bearer forms of all modern fiat money...
in terms of the price. Provisioning is to transfer money from one account to another. In this method a third party must be involved. Credit card
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
, debit card
Debit card
A debit card is a plastic card that provides the cardholder electronic access to his or her bank account/s at a financial institution...
, money transfers, and recurring cash or ACH (Automated Clearing House
Automated Clearing House
Automated Clearing House is an electronic network for financial transactions in the United States. ACH processes large volumes of credit and debit transactions in batches. ACH credit transfers include direct deposit payroll and vendor payments. ACH direct debit transfers include consumer payments...
) disbursements are all electronic payments methods. Electronic payments technologies are magnetic stripe card, smartcard, contactless card and mobile handset
Handset
On a telephone, the handset is a device the user holds to the ear to hear the audio sound. Modern-day handsets usually contain the phone's microphone as well, but in early telephones the microphone was mounted directly on the telephone itself, which often was attached to a wall at a convenient...
. Mobile handset based payments are called mobile payments.
Parties involved
Payments may be classified by the number of parties involved to consummate a transaction. For example, a credit cardCredit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
transaction in the United States requires a minimum of four parties (the purchaser, the seller, the issuing bank
Issuing bank
An issuing bank is a bank that offers card association branded payment cards directly to consumers.-Detail:The issuing bank assumes primary liability for the consumer's capacity to pay off debts they incur with their card....
, and the acquiring bank
Acquiring bank
An acquiring bank is the bank or financial institution that processes credit and or debit card payments for products or services for a merchant. The term acquirer indicates that the bank accepts or acquires credit card transactions from the card-issuing banks within an association...
). A cash
Cash
In common language cash refers to money in the physical form of currency, such as banknotes and coins.In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately...
payment requires a minimum of three parties (the seller, the purchaser, and the issuer of the currency). A barter payment requires a minimum of two parties (the purchaser and the seller).
Payment providers
The infrastructure and electronic clearing methods are formed by the payment provider. Global credit card payment providers are Visa and MastercardMasterCard
Mastercard Incorporated or MasterCard Worldwide is an American multinational financial services corporation with its headquarters in the MasterCard International Global Headquarters, Purchase, Harrison, New York, United States...
. Japan Credit Bureau
Japan Credit Bureau
Japan Credit Bureau is a credit card company based in Tokyo, Japan. Its English name is .Founded in 1961, JCB established dominance over the Japanese credit card market when it purchased Osaka Credit Bureau in 1968, and its cards are now issued in 20 different countries...
(JCB) is a payment provider for Japanese market. Maestro
Maestro (debit card)
Maestro is a multi-national debit card service owned by MasterCard, and was founded in 1990. Maestro cards are obtained from associate banks and can be linked to the card holder's current account, or they can be prepaid cards...
and Cirrus
Cirrus (interbank network)
Cirrus is a worldwide interbank network operated by MasterCard Worldwide, and was founded in 1986. It links MasterCard, Maestro, Diners Club credit, debit and prepaid cards to a network of over 1,000,000 ATMs in 93 countries....
are international debit card payment providers.
Global payments market
In 2005, an estimated $40 trillion globally passed through some type of payment system. Roughly $12 trillion of that was transacted through various credit cards, mostly the 21,000 member banks of VisaVISA (credit card)
Visa Inc. is an American multinational financial services corporation headquartered on 595 Market Street, Financial District in San Francisco, California, United States, although much of the company's staff is based in Foster City, California. It facilitates electronic funds transfers throughout...
and MasterCard
MasterCard
Mastercard Incorporated or MasterCard Worldwide is an American multinational financial services corporation with its headquarters in the MasterCard International Global Headquarters, Purchase, Harrison, New York, United States...
. Processing payments, including the extending of credit, produced close to $500 billion in revenue.
Debit cards
In the U.S., debit cardDebit card
A debit card is a plastic card that provides the cardholder electronic access to his or her bank account/s at a financial institution...
s are the fastest growing payment technology. In 2001, debit cards accounted for 9 percent of all purchase transactions, and this is expected to double to 18.82 percent in 2011
Checks
Historically, checkCheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...
s have been one of the primary means of payment for purchasing goods and services in the U.S. In 2001, checks accounted for 25 percent of the U.S.-based payment mix; in 2006, this is projected at 17 percent.
In the USA, a check as a form of payment can legally be refused for any reason (or no reason). Simply put: A payment via check is not a "payment" until the check was cashed and clears the banks.
Example: You cannot order a fast food meal, throw a check on the counter and just leave with the meal, if they do not accept your payment via check, you would be committing larceny by taking the meal.
Determining actual payment for U.S. tax purposes
For tax purposes, it is important to determine the timing of actual payment and whether it qualifies as a deductionTax deduction
Income tax systems generally allow a tax deduction, i.e., a reduction of the income subject to tax, for various items, especially expenses incurred to produce income. Often these deductions are subject to limitations or conditions...
in a taxpayer's calculation of taxable income
Taxable income
Taxable income refers to the base upon which an income tax system imposes tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. The amounts included as income, expenses, and other deductions vary by country or system. Many systems provide that...
.
Cash
Cash
In common language cash refers to money in the physical form of currency, such as banknotes and coins.In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately...
payments occur at the time of payment. This is the easy case, but payments in other forms can be trickier. Payment also occurs when the taxpayer transfers property or performs services in lieu of making a cash payment. Payment by check is deemed to occur when the check is delivered, as long as the check is honored on presentation by the payee. This rule is enforced even where presentation does not occur until the next taxable year, and even though the taxpayer could stop payment on the check in the meantime. Postdated checks, however, are not considered payment when delivered. Generally, payment by credit card
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
occurs at the point of the sale and not when the taxpayer is billed by the credit card company or when the taxpayer pays the bill.
See also
- Accounting
- APACSAPACSThe UK Payments Administration Ltd is a United Kingdom trade organisation that brings together all payment systems organisations and gives banks, building societies and card issuers a forum where they can work together on non-competitive issues...
(The UK Payments Association) - BusinessBusinessA business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
- CommerceCommerceWhile business refers to the value-creating activities of an organization for profit, commerce means the whole system of an economy that constitutes an environment for business. The system includes legal, economic, political, social, cultural, and technological systems that are in operation in any...
- Financial transactionFinancial transactionA financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...
- MoneyMoneyMoney is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
- TradeTradeTrade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...