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What is a Method of Payment?

Mary McMahon
By
Updated May 16, 2024
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A method of payment is a form of remittance deemed acceptable by a merchant. Most merchants allow several methods of payment with the goal of providing their customers with options. If a customer cannot pay via an acceptable method, it may be possible to make a special arrangement, depending on policies set by the merchant. Some examples of payment methods include cash, credit cards, and lines of credit.

Merchants are allowed to decide on the methods of payment they want to accept. They can choose to reject methods they feel are impractical or unsafe for their businesses. Cash, money orders, checks, debit cards, credit cards, wire transfers, and lines of credit are all payment methods in use around the world. Merchants typically post a policy providing information about available payment methods and people can also ask for information. If a payment method is accepted, merchants can also choose to decline individual customers using that method for reasons of safety, concerns about fraud, and other issues.

Companies that do business internationally or in areas where people are likely to be from foreign countries may have to consider issues like accepting foreign currency or bank drafts, or working with customers who bank overseas. These methods of payment can create more work and potential liability for a merchant and may make a merchant reluctant to accept them, especially for small transactions where the added work may not counterbalance the profits.

From a merchant's perspective, considerations involved when deciding on what methods of payment to allow can include transaction fees, safety, convenience, and customer satisfaction. Customers may be concerned with convenience, potential rewards for certain types of payments, and their own safety and liability. For example, foreign travelers may be prefer to limit the cash they carry, and thus would be reluctant to do business with stores that only accept cash as a method of payment.

A merchant may need to take certain steps to start accepting a particular method of payment. Credit and debit cards, for example, require an agreement with a merchant services company to process card transactions. This agreement includes the use of equipment like credit card terminals and comes with fees. In other cases, merchants do not need to take any additional measures to start accepting a new method of payment. If a merchant decides to start taking money orders, for instance, this is very easy to implement. If customers are not sure about a method of payment, they can ask before a transaction to allow time to make alternate arrangements, if necessary.

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Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By lluviaporos — On Nov 15, 2014

@irontoenail - My mother recently told me that I was lucky I never had to learn how to balance a checkbook since I've always been able to get cash out of a machine whenever I wanted it.

I never even really thought about how recently cash machines would have seemed like the latest technology and most places would have processed credit cards by taking a print of them rather than just swiping them into a machine.

By irontoenail — On Nov 14, 2014

@Fa5t3r - Most people theorize that the next big shift in payment methods will be into either people's phones (which is already happening) or into some kind of biological marker.

I've seen phones for sale that have an electronic wallet of some kind so that you can wave them next to a machine and make an electronic payment wherever it's accepted and it's the next step, really, after the implementation of credit cards that can be waved and pay small amounts instantly.

But ultimately, I think payments will end up being either a method of determining your identity through fingerprinting or iris matching or something like that, or perhaps through some kind of electronics built into people, like a chip implanted in their skin.

I know it sounds extreme now, but they've already made a lot of advances with that kind of integration and I don't think it's as far fetched as it seems.

By Fa5t3r — On Nov 13, 2014

I realized this month that I haven't actually taken out cash for anything. Every time I've had to pay for something, I've either done it online, or done it with a card rather than with cash money. It's very convenient but it's also a little bit disconcerting how quickly this change seemed to happen.

Even in the last few years it seems like the method of payment has changed in every store and even in outdoor markets until they all just accept cards without question, even for small amounts of money.

It's not something I would have been able to imagine a few decades ago and it just makes me wonder what will happen next.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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