What is a Method of Payment?

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.