Business Documents and Means of Payment – SS3 Commerce Lesson Note (Second Term)

Means of payment are the methods people use to settle transactions and debts, for example between a debtor and a creditor.

Behavioural objectives

By the end of the lesson, students should be able to:

1. Define means of payment.
2. Enumerate the various means of payment.
3. Highlight the terms of payment.
4. Name the main business documents and state the use of each.

Instructional techniques and materials

Instructional techniques

• Identification
• Explanation
• Questions and answers
• Demonstration
• Videos from source

Instructional materials

• Videos
• Loudspeaker
• Textbook
• Pictures

What are means of payment?

Means of payment are the ways by which debts and transactions are settled between people in business or financial dealings.

• Debtor: the person who owes money.
• Creditor: the person who is owed money.
• Documents of debt: some means of payment, such as promissory notes, also acknowledge that a debt exists.

What are the main means of payment?

There are four groups of means of payment: the banking system, the post office system, the businessmen’s system and legal tender.

What are the means of payment in the banking system?

There are six main bank means of payment: cheque, bank draft, standing order, credit transfer, credit card and direct debit.

• Cheque: a written order by the drawer to a bank to pay on demand a stated sum to the payee named on it.
• Bank draft: a cheque issued by a bank for payment to a named payee, which guarantees payment.
• Standing order: an instruction from an account holder to his bank to make regular payments to someone else.
• Credit transfer: an instruction to a bank to credit the accounts of persons who bank with the same bank or other banks.
• Credit card: a card issued to approved customers that lets them buy goods on credit and pay later, usually monthly.
• Direct debit: an arrangement in which the bank debits a customer’s account with a sum at the request of a creditor.

• Note on bank drafts: a creditor who will not accept a personal cheque may ask for a bank draft instead.

Who are the parties to a cheque?

What are the means of payment in the post office system?

The post office system offers postage stamps, postal orders, money orders, telegraphic money orders and postal giro.

• Postage stamps: small printed labels bought at the post office to pay for postal services.
• Postal order: a fixed-value order bought at the post office and paid to a named person.
• Money order: an order bought at the post office to send money to a person in another place.
• Telegraphic money order: a money order sent by telegraph when the money is needed quickly.
• Postal giro: a system for transferring money between people who hold accounts with the post office.

What are the means of payment used by businessmen?

Businessmen mainly use the bill of exchange, the promissory note and the IOU.

• Bill of exchange: a written order by a drawer to a drawee to pay a stated sum to a payee on demand or on a fixed date.
• Promissory note: a written promise by one person to pay a stated sum to another on demand or at a fixed date.
• I owe you (IOU): an informal written acknowledgement of a debt, signed by the debtor.

What is legal tender?

Legal tender is money which by law must be accepted in payment for goods and services and in the settlement of debts.

• Backing: it has the backing of the law.
• Coins: metal money, such as naira and kobo coins.
• Bank notes: paper or polymer money, such as the naira notes.

What are electronic means of payment?

Electronic means of payment move money through bank systems without cash or paper.

• ATM or debit card: a card that takes money directly from the holder’s bank account.
• POS terminal: a machine in a shop that accepts card payment.
• Online and mobile transfer: payment made from a bank app, internet banking or USSD code.

What are the terms of payment?

Terms of payment are the conditions that state when and how a customer must pay for goods or services.

• Payment in advance (PIA): the customer pays before the goods or services are supplied.
• Net days: the customer must pay the full amount within a set number of days after the invoice date, such as 15, 30, 60 or 90 days.
• End of month (EOM): payment falls due at the end of the month in which the invoice is issued.
• 21st of the month following the invoice (21 MFI): payment falls due on the 21st day of the month after the invoice date.
• Cash on delivery (COD): the customer pays in cash when the goods arrive.
• Cash next delivery (CND): the amount is paid when the next delivery is made.
• Cash before shipment (CBS): the customer pays before the seller ships the goods.
• Cash in advance (CIA): the customer pays in full before the goods are delivered.
• Cash with order (CWO): the customer pays at the time of placing the order.
• Stage payments: the customer pays in parts at stages agreed with the seller.
• Forward dating: the invoice carries a later date, so the credit period starts later.
• Accumulation discount: a discount given on the total of a customer’s purchases over a period.
• Partial payment discount: a reduction given to a customer who pays early.
• Rebate: a refund given to a customer after purchase, often on proof of purchase such as a receipt.
• Contra: an amount the customer owes is set off against an amount the seller owes the customer.

What are business documents?

Business documents are written records used at each stage of a buying and selling transaction.

Evaluation

1. Define means of payment.
2. List and explain the various means of payment.
3. Highlight five terms of payment.
4. State the difference between a debit note and a credit note.

Assignment

List the six means of payment in the banking system and explain any three. Then define legal tender and give two examples.