Payment

SEC Release IA-1092

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 previously agreed by all parties concerned. Payment can be made in the form of funds, assets or services.

How the payment works

The current monetary system allows for payments in foreign currency. Money, which has simplified the means of economic transactions, provides a practical means by which payments can be made; it can also be easily stored.

For example, in the past, if an egg producer with a large surplus of eggs wanted milk, he would need to find a dairy producer who would be willing to take eggs as payment for milk. In this case, if a suitable dairy producer was not found in time, not only would the egg producer not get his milk, but his eggs would spoil, becoming worthless. Money, on the other hand, retains its value over time.

Payment types

Payment can take many forms. One form of payment is barter, the exchange of one good or service for another. Modern payments are usually made in foreign currency, such as cash, checks, debits, credits, or bank transfers. Payments can also take complicated forms, such as inventory issues or the transfer of something of value or benefit to the parties. An invoice or bill usually precedes a payment.

Under American law, the payer is the party making a payment while the beneficiary is the party receiving the payment.

Recipients can generally choose how they will accept payment; however, some laws require the payer to accept the legal tender of the country up to a prescribed limit. Payment in another currency often involves an additional exchange transaction, usually around 3% of the total payment made.

Special considerations

The beneficiary can choose to compromise the debt and accept a partial payment instead of the full settlement of the obligation, or he can offer a discount at his discretion. The beneficiary may also impose a supplement, for example, as late fees, or for the use of a certain credit card, etc.

Acceptance of payment by the recipient extinguishes a debt or other obligation. A creditor cannot refuse without valid reason to accept a payment, but the payment can be refused in certain circumstances, for example on a Sunday or outside bank hours. A beneficiary is generally obliged to acknowledge receipt of the payment by producing a receipt to the payer, which can be considered as an endorsement on an account as “paid in full”.

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