• 4 MIN READ
A Glossary of Essential Payment Terms in Finance
November 30, 2023
There is a great deal of terminology found in the finance industry, just as there is in many other highly specialised areas. It can be difficult for a person outside of the financial industry to understand what the experts are talking about. When delving into the field of finance, it is essential to understand some of the fundamental concepts that underlie business operations and financial management.
To make it easier for you to get into the financial industry, this article sheds light on several critical financial terms. We aim to bring clarity to facilitate the effective management and execution of financial transactions.
Anti-Money Laundering (AML)
Building strong partnerships with other businesses is essential, not just in the financial industry. To verify that a business is not carrying out illegal activities or financing terrorism or weapons, an information verification option has been introduced.
AML includes the principles of anti-money laundering. Financial institutions use these principles to identify, store, and share information about business owners and their income. Particular attention is paid to those organisations that have cash assets, hold money in different accounts across several banks, transfer it abroad, or invest in securities through brokers.
Batch processing involves grouping transactions into a batch. What distinguishes batch processing from transaction processing is that there’s no user interaction. The traditional method involves processing transactions one at a time and requires user interaction.
The main advantage of batch processing is the speed (one block instead of successive small transactions is processed). This is why it has become a favourite with specialists in banking, finance, retail, and other fields. Batch processing is used for tasks like report generation, database updates, and security backup creation.
This is a way to send money to multiple recipients at the same time online. Instead of entering payment information for each recipient separately, the company or person making the payment can upload a spreadsheet with all the data and press “send”.
Bulk payments are used by organisations to pay up to 5,000 recipients in one package. Importantly, the location, currency, and payment methods do not make a difference. Such payments are instant and help organisations save time and money.
Have you been fooled by a fraudulent merchant? Chargeback will help you get your money back. This may happen when you have paid for a product or service but have not received it. In such a case, the bank allows any cardholder to fill out an application form and receive a refund from the supposed supplier.
In the last century, it was found that chargeback was more effective against fraudsters than any consumer protection regulation. Payments are forcibly debited from the seller’s account by the bank and returned to the buyer without deductions.
Customer Due Diligence (CDD)
Customer validation is somewhat similar to AML, except in this case, it’s the customers, not the business, who are being validated. This is necessary for companies to minimise risks and not to cooperate with fraudsters. This is sometimes referred to as Know Your Customer (KYC) verification, although CDD is actually a more general concept, and KYC is part of it.
Depending on their field of activity, some companies are obliged to perform Customer Due Diligence as stipulated by legislation. Additionally, financial institutions may be required to conduct Enhanced Due Diligence, EDD, for example, when the organisation includes politically exposed persons or uses new payment technologies.
Direct debit provides a great solution for subscription systems. This mechanism allows a third party to withdraw funds from a customer’s bank account upon the customer’s authorisation. It can also be used for regular, recurring payments, such as utility bills, customised rent payments, or deductions for savings. Direct debit provides punctuality and consistency of payments, as well as convenience for customers.
Merchant Services Payment Processing
This term refers to the services that help businesses accept and process digital payments. It includes managing credit and debit card transactions and point-of-sale systems. The mechanism is common yet complex. It includes payment gateway integration and collaboration with the payment processor.
The execution goes like this: the customer enters their card data, the data is sent to the payment processor, it handles authorisation by submitting the details to the bank, the bank approves or rejects the transaction, and the result is visible to the customer and the merchant. Payment processing services offer flexibility and convenience to both businesses and consumers.
Companies that sell their goods abroad should be able to process payments in the currency of the target country. Their websites, if localised, will display prices in the local currency, and customers expect to pay without converting their money into USD or GBP.
Multi-currency payment processing means that after the customer pays, their funds are automatically converted into the vendor’s national currency and credited to the vendor’s account. The result is that the payment goes through successfully, and there’s a win-win situation for the customer and the seller where neither party has to worry about manual conversion.
Any company may need to competently organise regular payroll payments. This task consists of several steps: calculating salaries for each employee (this is the responsibility of the accounting department), setting up regular payments, if you are comfortable with this format, and making these payments through a payment service. Payroll data is strictly accounted for and included in the company’s financial statements. The process is governed by the laws of the country where the organisation operates.
Wire transfer is a fast and secure method for fund transfers. In the UK, it’s called simply a bank transfer. It may be used for both domestic and international transactions, and it is especially convenient when transferring large amounts of money.
A wire transfer is irrevocable, and banks usually charge a transaction fee. The amount your recipient will ultimately get can vary widely, with specialised FinTech companies invariably winning out over traditional banks because their fees are lower. It is critical to track and document both amounts — the one sent by you and the other received by the recipient.
Enhancing Business Efficiency with Payrow’s Financial Tools
Understanding complex concepts related to finance is not just a matter of literacy; it’s about using these tools to optimise operations, reduce time consumption, eliminate human errors, and improve overall business performance. This is where Payrow’s services may come in handy.
Opening an account with Payrow allows SMEs, start-ups, e-commerce businesses, and individuals to take advantage of the benefits of payment automation. Invoice your customers, send recurring payments, and process transactions in the UK and worldwide. We will be glad to increase your business management efficiency at the lowest possible cost.
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