Documents Used in Home Trade 4

A cheque can be dishonored due to the following reasons:


i. Insufficient funds in the account

ii. If the signature on the cheque differs from the drawers specimen signature in the bank.

iii. If the cheque is stalc i.e. presented for payment after six months from the date of issue.

iv. If the cheque is post dated-meaning the cheque is presented for payment earlier than the date on the cheque

v. If the amount in figures is different from the amount in words

vi. If there are alterations on the cheque which are not countersigned by the drawer

vii. If the cheque is torn, dirty or defauld making it illegible

viii. If the account holder(drawer) is dead and the bank is aware of the fact

ix. If the drawer instructs the bank not to pay the particular cheque

x. If the cheque contains errors which need to be corrected

xi. If the drawer becomes bankrupt or insane

xii. If the drawer has closed his/her account.

Advantages of using cheques

i) They are more secure than notes and coins because if they are lost or stolen, they can be traced to the person who cashed them.

ii) They are convenient to carry and can be used to pay large sum of money which would be otherwise inconvenient to pay using cash

iii) They can be transferred to a third party to make payment/cheques are negotiable

iv) Payment can be made by cheque without the need to travel to make payment

v) They provide a record of payment because of the counterfaits.The counterfaits acts as proof that payment has been made.

vi) Under special circumstances, they can be cashed or discounted before maturity.

Disadvantages of using cheques

i) Cheques can be dishonored

ii) Requires the payee to go to the bank and in some cases to have an account

iii) The drawer pays some charges e.g. charges for the cheque book

iv) Can only be issued by an account holder/the drawer must have an account

v) They are not readily acceptable by everybody

vi) They do not provide immediate cash

Circumstances under which a cheque is appropriate as a means of payment

  • Where the amount of money involved is large
  • Where the policy of the business demands so
  • Where a cheque is the only means available
  • Where there is need to avoid other risks associated with other means of payments

    b) Bank drafts/Banker’s cheques

    -This is a cheque drawn on a bank i.e. a cheque drawn by one bank to another requesting the latter bank to pay a named person or institution a specified sum of money and charge it to the drawing bank It can also be drawn by a bank on the request of a customer.

    The customer fills in an application form obtained from a bank and hands it over to the bank together with the money she wants to transfer and a commission for the service.
    -The bank then prepares the cheque and gives it to the applicant who can then send it to the payee
    -A bank draft has the drawing bank’s guarantee for payment.

    It is therefore more readily acceptable than personal cheques.

    -It is suitable when urgency is desired in the payment as it is more readily acceptable.

    c) Credit transfer

    This is a means of payment provided by commercial banks to their current accounts holders who want to pay many people using one cheque/at the same
    time

    -One cheque is drawn and is usually accompanied by a list of the people to be paid, the amount to be paid to each person and the addresses of the bank branches where the payment is to be made.

    - The bank then ensures that a credit transfer is affected to the various bank branches and each payee is paid
    - A credit transfer is usually used by employers to pay salaries to their staff members.

    d) Standing order

    This is an instruction to a bank by an account holder to pay a named person or an organization a fixed amount of money at regular intervals over a specified period of time or until stopped

    - It is a very useful means of payment for business people as it enables them to regularly pay their recurrent bills e.g. water, insurance, electricity, loan payment, hire purchase payment e.t.c

    e) Traveler’s cheques

    This is a cheque drawn by one bank to another requesting the latter to pay a specified sum of money to a named
    bearer, who usually would have bought that cheque from issuing bank.

    The cheque holder pays the value of the cheque plus the charges for the services to the issuing bank.

    -Travellers cheques are usually issued in fixed denominations and are very convenient for travel purposes, hence their name.

    They enable a person to travel without having to carry a lot of cash.

    The cheques are also readily acceptable as a means of payment

    f) Telegraphic Transfers

    This is a method /means of transferring money offered by commercial banks to anybody who wants to send money to another

    The sender is required to fill an application form and provide the following information among others:

    -His/her name -The amount of money to be remitted

    -Name of the payee -The bank where the money would be paid

    The applicant is charged a commission and telegraph fee.

    The paying bank sends a telegram to the payee who has to identify himself/herself before the payment is made

    The method is fast and safe.

    g) Debit cards

    These are plastic cards issued by financial institutions e.g. banks that enables a person to purchase goods and services from any business that accepts them.

    Debit cards are used to make payments from money held in ones accounts and are therefore an alternative to cash payments. Examples are ATM cards.

    h) Electronic Fund Transfer (E.F.T)

    EFT is a method of transferring money from one account to another where computers are used.

    The sender is required to fill an electronic fund transfer form provided by the bank which instructs the bank to transfer money from
    his/her account to a named account.

    Information is then sent to the payee’s bank electronically and the amount in the account is increased accordingly.The method is very fast.

    iii. Means of payments provided by the post office

    The post office provides means of payments that can be used to transfer money from one person to another

    The means of payments provided by the post office to facilitate payments
    includes,


    a. Money orders

    b. Posta pay

    c. Postal orders

    d. Postage stamps

    e. Premium bonds

    a) Money orders

    A money order facilitates the transfer of money from one person to another through the post office (and/or bank)

    A money order is usually for a specified sum of money usually purchased with cash from the post office

    A person wishing to send money using this method visits a post office and completes an application form. Some of the details contained/given in the form include:

  • The amount of money to be remitted
  • Name of the payee
  • The name of the post office where the money order will be cashed
  • Name and address of the sender
  • Whether the money order is to be ordinary or sent by telegraph
  • Whether the sender wishes to be informed if the money has been paid
  • Whether the money is to be paid through a bank account or at the post office counter.

    The application form, money to be remitted and commission for the service is handed to the post office cleark who prepares the money order and gives it to the sender who may post it or send it to the payee.

    -Telegraphic money orders, the post office sends a telegram to the payee informing him/her to go to the post office and claim the money.

    -Before payment is made, the payee must;

  • Identify himself/herself by producing an ID card
  • Identify the person who sent the money.

    -The sender of the money is left with a counterfoil which serves as evidence that money was sent and it can be used to reclaim the money if it did not reach the payee

    -Money order may be open or crossed. A crossed money order bears two parallel lines drawn diagonally on its face and must be deposited in the bank account of the payee.

    It cannot be cashed over the counter at the post office.

    -An open money order can be presented for payment at the post office counter.

    Circumstances under which money order is appropriate

    a) Where it is the only means available

    b) Where other means are not acceptable

    c) Where there is need to avoid inconveniences or risks associated with other means

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