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Jersey Consumer Council

Consumer News

Methods of Payment

October 26, 2015 Money Matters No Comments
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Methods of Payment

A payment is the transfer of money 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.

Common means of payment by an individual include: –

  • Money
  • Cheque
  • Debit
  • Credit
  • Bank Transfer

Exchanging and Provisioning

There are two methods of payment

  • The term exchanging relates to the process of changing coin, money and banknote.
  • The term provisioning relates to transferring money from one account to another. In this method of payment, a third party must be involved.

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. Debit card, Credit card, money transfers and recurring cash or disbursements are all electronic payments methods. Electronic payment technologies are magnetic stripe card, smartcard, contactless smart card and mobile handset. Mobile handset based payments are called mobile payments.

Safer Ways To Pay

A consumer should be entitled to make a payment for any selected good worry-free. In this economic climate however, this has become an ever-escalating issue – Business’ are going bust and as a result many consumers are being left out of pocket.

It has become more important than ever therefore, to protect your goods. A business will often ask you to pay a deposit/full amount in advance and it is therefore paramount that you select the right method of payment:

Credit Card

If you are purchasing goods or services (between the value of £100 – £30’000) it is advisable to use your credit card, as you will be granted extra protection if problems arise.

One can make a claim against their card provider under Section 75 of the Consumer Credit Act (A credit card company is jointly liable for any breach of contract or misrepresentation – whether the case is a faulty product, non-delivery or if the retailer goes bust).

Furthermore, it doesn’t matter if the consumer hasn’t paid the payment for the product in full.

The card company is still liable even if you have only put down a partial payment on your credit card (i.e. a deposit). For example, if you ordered a new stereo system from an electronics outlet and paid a £200 deposit with your credit card and a further payment of £2’300 by cheque, you would be covered for the whole £2’500 if the firm went out of business, and you never received your product.

“Chargeback”

If the goods you’ve bought cost under £100, you may still be covered by “chargeback”. This can be used in cases whereby your good fail to arrive, arrive damaged or where the business goes bust. It provides a useful tool on both debit/credit cards and can result in valuable, hidden protection on your purchase. You have 120 days to make a claim through chargeback.

PayPal

If using your credit card to deal with an online payment processor such as PayPal, it is important to check the terms and conditions of the seller. In this instance, the company that deals with your credit card payment is not the same as the one that provides the goods/service.

However, as long as the company/individual you are buying from has a “Commercial Entity Agreement” the consumer may still be able to claim under Section 75.

* Since October 1st 2010, all ecommerce merchants who accepted PayPal needed to accept the new Commercial Entity Agreement in order to continue receiving Visa and Mastercard funded payments. 

PayPal does offer it’s own buyer protection scheme and it’s worth checking to make sure you are covered for your purchase.

Debit Cards

Debit cards offer the same convenience as credit cards and can be used in similar scenarios. The fundamental difference between a debit card and a credit card account is where the cards pull the money. A debit card takes it from you banking account and a credit card charges it to your line of credit.

Minimum Spend

One of the downsides to using a debit card is the minimum spend barrier. In certain retailers/bars, you will often be made to spend over £10 to use your debit card and if you don’t manage that, you will be charged a fee.

Less protection and Keep a track on your statements!

If you always pay by debit card, it can be perilously easy to lose track of transactions – This will inevitably result in racking up fees, bouncing into your overdraft and ending up in the red.

Debit Cards don’t provide the same level of security on purchases as credit cards. Whilst, you have a form of protection for Visa debit cards (The Chargeback scheme), you don’t have the added bonus of Section 75 of the Consumer Credit Act.

Cash or Cheque

Making cash/cheque payments to a retailer for a product, carry a higher amount of risk, were the company go bust. It is therefore advisable to follow these five tips in order to try and make your payment more secure: –

1’ Inquire whether it is possible to pay a small deposit for the item and get a receipt.

2’ Confirm that you will pay the balance as close as possible to the delivery date.

3’ If you are in a shop and they insist that you pay in full before delivery, write your name and address on the packaging if the item is in stock. As a result, were the business to go bust, you may still receive your goods.

4’ If the goods aren’t in stock, get written confirmation from the business of the expected delivery date.

5’ Think carefully before deciding to pay the full amount in advance.

6’ Ensure you get a written agreement from the retailer that you have paid for the product. This will give you added protection were a problem to arise.

à There had been reports of cheques being phased out by October 2018 but this target has now been abandoned. The UK Payments Council announced on 12 July 2011 that cheques will continue for as long as customers need them. Whilst, the majority of retailers no longer accept cheques (Marks & Spencer and Boots for instance) they are still widely used for charity donations and to pay tradesmen.

Credit Agreements

A credit agreement is often arranged when buying higher value goods. It is a legal contract in which a bank arranges to loan a customer a certain amount of money for a specified amount of time. It outlines the rules and regulations, including the interest that must be paid on the loan.

It is important to get the shop to arrange the credit agreement for you as if the company were to go bust, you may have a case against the finance company (goods costing between £100 – £30’000).

Shop goes bust – But my goods are Faulty…

A manufacturer’s guarantee usually lasts for 12 months (from the date of purchase) and they are the people to contact to explain your problem.

An extended warranty

An extended warranty is a prolonged warranty offered to consumers and may be offered by both retailers and manufacturers. Before taking out a warranty, one should make sure they check the terms and conditions carefully (ensuring the document has the business contact details). Also, get a receipt for any payments you make.

As long as the warranty company is independent of the trader and is still in business, this advice should assist in claiming against the warranty if the retailer has gone out of business.

Business goes bust …

If a business were to go bust, a licensed insolvency practitioner (IP) would normally be appointed to handle matters. This would involve dealing with all creditors, including customers and suppliers. If you are owed by the company you become known as an “unsecured creditor”.

  • In this event, the unsecured creditors usually obtain a pari passu (equal/fair) distribution of the assets (dependant on secured creditor and preferential creditor terms). They will usually realize the smallest proportion of their claims.

Major companies such as, Blockbuster, HMV and clothing outlet Republic have all recently gone belly-up and if you are employed by an insolvent company, you may have a right for a pay-package.

www.gov.uk/your-rights-if-your-employer-is-insolvent/overview

*24’000 out of 26’000 Woolworth employees were awarded 60 days pay after the high-street chain collapsed in 2008.

Insolvency – When an individual or organization can no longer meet its financial obligations with its lenders as debts become due. This can in turn lead to insolvency proceedings, in which legal action will be taken against the insolvent entity, and assets may be liquidated to pay off outstanding debts.

Licensed IP – Usually an accountant or solicitor has to be licensed to deal with the affairs of an insolvent company. They are there to try and recognize a fair, balanced result for everyone involved.


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