Personal Finance


What is payment?

To pay means to pay money. The term disbursement can be used to describe funds paid to a business’ operating budget, loan amounts to borrowers, or dividend payments to shareholders. Payments made by an intermediary, such as a payment made by a lawyer to a third party on behalf of a client, can also be called a payment.

For businesses, spending is part of cash flow. It is a record of daily expenses. If cash flow is negative, meaning spending is higher than income, it could be an early warning of bankruptcy.

A payment is the actual delivery of funds from a bank account.

key takeaways

  • A payment is the actual delivery of funds from one party’s bank account to the other party’s bank account.
  • In business accounting, expenses are payments made in cash over a specific period of time and recorded in the general ledger of a business.
  • This payment record shows how businesses spend their cash over time.
  • Paying dividends to shareholders is often called a payout.
  • Student loan payments made to a school account on behalf of a student are called payments.

How payments work

In bookkeeping, payments are payments made by a company in cash or cash equivalents over a set period of time, such as a quarter or a year. Bookkeepers record and post each transaction to one or more ledgers, such as the cash payment journal and the general ledger.

Payment entries include the date, payee name, debit or credit amount, payment method, and payment purpose. The business’ overall cash balance is then adjusted to account for expenses.

Expenses are records of money flowing out of the business and may differ from actual gains and losses. For example, companies that use the accrual accounting method report expenses when they are incurred, not necessarily when they are paid, and report income when they are received, rather than when they are received.

The types of items listed in the ledger depend on the business. Retailers have payments for inventory, accounts payable, and payroll. Manufacturers have deals on raw materials and production costs.

Managers use the ledger to determine how much cash has been paid and track it. For example, management can see how much cash is spent on inventory compared to other costs. Since the ledger records the number of checks written, managers can also see if any checks are missing or recorded incorrectly.

Expenses are cash outflows. It can be any form of payment.

Payment Types

There are other, more obscure uses of the term payment, including controlled payments and delayed payments (also known as remote payments).

controlled payment

Controlled payments are a cash flow management service offered by banks to their corporate customers. It allows them to review and reschedule payments on a daily basis. This gives them the opportunity to maximize the interest they earn on the cash in the account by delaying the exact time when a certain amount is debited from the account.

delayed payment

Late payment, also known as remote payment, is the deliberate delay in the payment process by using a check drawn from a bank in a remote area. On days when the bank can only process the payment after the original paper check has been received, this can delay the debit of the payer’s account by up to five business days.

The widespread acceptance of electronic checks in place of original paper checks makes this strategy difficult to implement.

Payment and Withdrawal

Withdrawals from retirement accounts are called expenses. Once the money is paid, it is recorded on the account as a withdrawal of the balance.

As mentioned above, a payment is a payment. However, withdrawals are the result of a specific type of payment.

If you withdraw money from a retirement account, you will receive a payment. This payment represents a withdrawal of the balance in your account.

Let’s say you’re a retiree and you withdraw 10% of the $100,000 balance in your traditional IRA account. The $10,000 you receive is a payment from your IRA. It also represents a withdrawal of $10,000 or 10% from your account, which now has a balance of $90,000.

Generally speaking, a retracement is a measure of a decline from an all-time peak. A 10% reduction in army size can be described as a 10% reduction in force. An oil company that exploits 3% of its proven oil reserves will record a 3% reduction in its supply.

Payment example

When dealing with legal cases, lawyers must keep records of payments made on behalf of clients. This may include paying various third parties for costs incurred in the case, including court fees, private investigator services, courier services and expert reports.

Properly recording these expenses is critical in legal cases in order to accurately determine a client’s loss and understand what is being claimed. Lawyers must notify clients and insurance companies before incurring high payments, and clients must reimburse lawyers.

student loan payments

Student loan payments are the payment of loan proceeds on behalf of the borrower (i.e. the student). The school and the loan servicer notify the student in writing of the expected payment, including the loan amount and its effective date.

Federal and private student loans are typically paid two or more times during the school year. Students will receive credit for tuition and fees and will receive any balances by check or direct deposit.

Positive and Negative Spending

Loan payments may be positive or negative. A positive payment results in a credit to the account, while a negative payment results in a debit to the account. Negative payouts may occur if financial aid funds are overpaid and subsequently withdrawn from the student’s account.

Payment FAQ

Below are answers to some frequently asked questions about payments.

What is a loan payment?

Loans are disbursed when the agreed-upon amount is actually paid into the borrower’s account and becomes available. Cash has been debited from the lender’s account and credited to the borrower’s account.

Is the payment a refund?

In the lingo of the U.S. Department of Education’s Office of Federal Student Aid, a disbursement is the actual disbursement of funds into an account that will support a student’s studies in the upcoming semester. If the loan amount exceeds the actual cost of tuition and fees, a refund of the excess will be paid directly to the student.

What is the difference between payment and payment?

A payment is a payment. The word payment means a completed payment. That is, it is correctly recorded as a debit to the payer and a credit to the payee.

What is the payment fee?

Payment fees are generally fees charged by suppliers to cover payments made by suppliers on behalf of customers in the course of their work. For example, FedEx may pay duties and taxes for shipments on behalf of the customer, and then add the payment to the customer’s bill for payment.

bottom line

A payment is a payment that has been completed and recorded. That is, it has been debited from the payer’s account and credited to the payee’s account.

In business, regularly recording all cash payments is an important way to keep tabs on business expenses.

In the wider world, the term disbursement is used in a variety of situations, from the crediting of student loan funds to the finalization of retirement account withdrawals.

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