Introduction
Trading activity, in which all businesses are engaged, involves the transfer of money as goods and/or
services are bought and sold.
Transferring Money
This can be received or paid by a business or organisation by various methods, including the following:
●​ Cash
●​ Cheques
●​ Credit/debit cards
●​ Bank giro credit (BGC) transfer
●​ BACS- Bankers’ Automated Clearing Service
●​ Standing order
●​ Direct Debits
●​ Contactless payments
●​ Paying-in slips
Cash
Receiving Cash
Security is a problem for businesses receiving cash:
●​ It must be counted and checked to ensure it corresponds with any documentation showing the
amount to be received.
●​ It must be stored safely and taken to the bank as soon as possible.
●​ Counterfeit money can be in circulation and detection equipment could be needed to prevent this
fraud.
●​ There should be regular internal checks to ensure persons handling cash are honest and funds
don’t go astray.
Paying by Cash
Businesses should use non-cash methods like cheques or BACS for safer payments. While some firms
still pay weekly wages in cash, this poses security risks. Small purchases can be handled through the petty
cash system.
Cheques
Receiving Cheques
Cheques received from well-established credit account customers should be examined for ensure
that the:
●​ Cheque is drawn payable to the receiver.
●​ Correct amount is stated in both words and in figures.
●​ Cheque is dated and isn’t out-of-date or post-dated.
●​ Cheque hasn’t been properly signed.
Paying by Cheque
When paying by cheque, an authorised signatory must approve and sign it. Banks verify
signatures to prevent fraud and money laundering. Larger businesses often require two
signatories. The account must have sufficient funds, or the cheque won’t be processed. The
drawer writes the cheque, the payee receives it, and the drawee is the bank.
Completed cheque-
Security of Cheques
Business cheques have two vertical lines with "A/c payee only," ensuring payment goes only to
the payee's account.
Cheque Clearing
A cheque takes time to clear or be processed after being sent from one business to another, typically
taking 4-5 days.
Credit Cards
Credit Card Payments
Credit cards allow customers to buy goods without cash or cheques, including online and phone
purchases. Issued by Visa, Mastercard, etc., businesses use electronic terminals to process
transactions, with funds credited to their accounts.
When customers are remote from the business they will have to provide the following
information:
●​ Card number-16 digit and often the card holder will have to provide the three digits of the
security number shown on the reverse of the card
●​ Expiry date of the card
●​ A name printed on the card
Credit Card Issued by Organisation orBusiness
Business Credit Cards used by employees for expenses like travel and hotels, with charges billed
to the company. Spending limits are set, and receipts must be submitted for verification.
Debit Cards
Function like credit cards but directly transfer funds from the buyer’s account to the seller’s.
They require sufficient account balance and are widely used, including for ATM withdrawals.
Bank Giro Credit (BCR) Transfer
Electronic Payments: Secure and convenient, funds go directly to business accounts. Payments
require listing payee details and using bank giro credits or BACS for transfers.
BACs (Bankers’ Automated Clearing Service)
BACS, owned by the Bank of England, high street banks, and building societies, provides a computerised
payment transfer system for businesses to pay wages, suppliers, dividends, and more. Payments follow a
three-day processing cycle, with pre-set schedules for transactions like salaries.
Businesses must send remittance advice to suppliers when using BACS to confirm payments and avoid
confusion. Likewise, they should receive remittance advice from customers to identify covered invoices.
Standing Order
The steps necessary to make payments by a standing order are as follows:
●​ Payer (person making the payment) instructs the bank in writing to pay a certain amount,
on a particular day to a specific organisation
●​ Bank makes payment via the computer banking system
The payer can instruct the bank to cease or amend the payment at any time by giving written
notification.
Direct Debit
This widely used payment method applies to both fixed and variable amounts. Many businesses
offer discounts to encourage its use.
The system of operation is as follows:
●​ The payee (proposed receiver) of the money sends a mandate to the payer.
●​ The payer completes the mandate and returns it to the payee.
●​ The payee sends the mandate to the payer's bank who will arrange to send the money to
the payee's bank via the computer banking system.
Direct debits allow payees to withdraw varying amounts from the payer's account, often for
insurance, business rates, or loans. Payees typically notify payers of increases.
This method is preferred by payees as they control payments, and cancellations must go through
them. While convenient for both parties, payers should be cautious when authorizing direct
debits.
Contactless Payments
In the UK, contactless payments allow quick transactions up to £30 using debit or credit cards.
This convenient method is growing in popularity for small payments.
To make a payment:
(i) identify the contactless logo at the retail outlet or similar
(ii) hold your card to the machine reader
(iii) make sure the amount on the machine is correct and does not exceed £30 (sterling)
(iv) a green light on the machine shows that the transaction has been accepted.
Receipts are not normally given but the purchaser can request one if required
Paying-in Slips
A paying-in slip is used to deposit money into a business's current account. It records cash and
cheque details and is submitted to the bank with the funds.
Introduction to Payroll
The payroll is a list of employees that specifies the wage or salary that each employee receives.
The responsibility for producing the payroll depends on organisational size, as a large one will
have a wages department, and a small one may have a wages clerk.
Said person must ensure payments are:
●​ Accurate○​ Correct basic payment for work done.
○​ Additional entitlements such as bonus, overtime, expenses, etc. included correctly
○​ Correct deduction of taxes, national insurance and other deductions.
○​ Reliable wage-cost information for the employer
●​ Regular and on time○​ Enables the employees to meet their own financial commitments and plan future
expenditure
○​ In contrast, late or irregular payment would harm the morale of employees and
cause them to doubt the financial stability of the organisation.
●​ Confidential○​ Staff involved in preparing the payroll must not divulge any of its contents except
to authorised people, for example, company executives, government officials
○​ Staff must be able to discuss with an employee that particular employee's
wage/salary details.
●​ Secure○​ The handling of cash and cheques must be carried out in a secure environment to
prevent loss, theft or loss of confidentiality.
○​ Checks must be built into the procedures to guard against the possibility of fraud
by wages staff.
○​ The distribution of wages must be organised so that the employee receives his or
her own wage and not someone else's.
○​ All employee records must be kept in a secure place
Time Cards and Time Sheets
Time cards track employee hours by recording arrival and departure times using a punch
machine. Time sheets are created from these records, essential for businesses paying wages
based on hours worked. Some companies use sign-in books instead. Fixed annual salaries don’t
require strict timekeeping. If overtime is paid at time and a half, calculations adjust accordingly.