What Is Payment?
Payment is the transfer of one form of goods, services, or financial assets in exchange for another form of goods, services, or financial assets in acceptable proportions that have been previously agreed upon by all parties involved. Payment can be made in the form of funds, assets or services.
How Payment Works
Today's monetary system allows for payments to be made with currency. Currency, which has simplified the means of economic transactions, provides a convenient medium through which payments can be made; it can also be easily stored.
For example, in the past, if an egg farmer with a large surplus of eggs wanted milk, he would need to find a dairy farmer who would be willing to take eggs as payment for milk. In this case, if a suitable dairy farmer weren't found in time, not only would the egg farmer not get his milk, but his eggs would spoil, becoming worthless. Currency, on the other hand, maintains its value over time.
Types of Payment
Payment can come in many forms. One form of payment is barter, the exchange of one good or service for another. Modern payments are usually done through currency, such as cash, check, debit, credit, or bank transfers. Payments may also take complicated forms, such as stock issues or the transfer of anything of value or benefit to the parties. An invoice or bill typically precedes a payment.
In US law, the payer is the party making a payment while the payee is the party receiving the payment.
Payees usually get to choose how they will accept payment; however, some laws require the payer to accept the country's legal tender up to a prescribed limit. Payment in another currency often involves an additional foreign exchange transaction, usually around 3% of the total payment being made.
The payee may choose to compromise on a debt and accept partial payment in lieu of full settlement of the obligation, or it may offer a discount at their discretion. The payee may also impose a surcharge, for example, as a late payment fee, or for use of a certain credit card, etc.
Acceptance of a payment by the payee extinguishes a debt or other obligation. A creditor cannot unreasonably refuse to accept a payment, but payment can be refused in some circumstances, for example, on a Sunday or outside banking hours. A payee is usually obligated to acknowledge payment by producing a receipt to the payer, which may be regarded as an endorsement on an account as "paid in full."