There are many different payment methods open to businesses, and choosing the correct method for each payment type is important. This choice will not only need to be the best for the supplier, but also the best for the business making the payment.
The first payment method a business can use is cash. This is normally only used for small value transactions, such as milk and tea, the reason being that having lots of cash on the premises can be a security risk, increasing the risk of theft and fraud.
When payments are made in cash, it is also harder to trace transactions, which could cause problems during audits.
Another payment method is using cheques. This method of paying suppliers is starting to be phased out, however, as it is costly and takes time for the payment to clear. It can take three days for a cheque to clear, and banks charge to write cheques and to cash them. It also takes time for cheques to be written, signed, and posted, and further time to bank the cheque.
Another reason fewer organisations are using cheques is that they are open to fraud through forgery.
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Businesses also have the option to use BACS (Bankers’ Automated Clearing Services) as a payment method. This is paid from a bank system into the bank of the recipient. This method will have one payment leave your bank account, but this can contain payments to multiple recipients.
Companies often use BACS to pay staff, as it is simple, safe and secure (unless someone who shouldn’t knows your password).
Like individuals, businesses have the option to pay their suppliers via internet payments. These are good for fast, one off payments. However, trying to pay multiple suppliers this way each month can be time consuming.
Businesses can also use credit cards to pay for items. This is useful for one off payments to companies who will not give you credit terms. However, it can be an expensive method if the credit card is not paid on time, which can be helped by good cash flow management.
The payment methods used by businesses to pay suppliers and other sources need to be thought through carefully. Decisions should be made not simply based on the preferences of those being paid, but through analysis of the business’s needs, weighing up the cost, the time and the possibility of fraud.
If you would like to learn more about business payment methods, speak to us about finding the right course to enhance your knowledge and career prospects.