Means of payment are the methods or ways the buyer may use to settle debts arising from a business transaction. There are various means of payment cash being one of them.
Cash refers to the use of notes and coins to make payments. Currency notes and coins are issued by the central bank of Kenya and are therefore legal tender.
Legal tender means everyone is obliged by law to accept them as a means of payment i.e. no one can refuse to accept them as they are backed by the law.
Notes and coins are available in different denominations as follows; Coins; 5cents, 50cents, sh.1, sh.5, sh.10 and sh.40. Notes; sh.10.sh.20, sh.50, sh.100, sh.200, sh.500 and sh.1000.
Coins are suitable for settling small debts and are acceptable as legal tender up to a certain maximum e.g. 50cents coins the maximum is sh20 and sh.1 the maximum is ksh.100.
Advantages of cash as a means of payment
- It is the only means of payment which is a legal tender that is they are issued by the center of a country and hence meeting legal requirements.
- Convenient for settlement of small debts since it is divisible into smaller denominations.
- Convenient to people with or without bank accounts hence it can be accessed by a large group of people.
- Cash is readily usable, if you have can you can easily use it to make purchases and other payments.
Disadvantages of cash as a means of payment
- Cash is not convenient to carry around, money is elusive thus attracting a lot of attention among the users which would make one unsecured.
- Cash can be lost or stolen easily as it is readily usable hence must be kept safely
- Payment is difficult to prove unless a receipt is issued hence difficult to keep up-to-date records.
Circumstances under which cash payment is appropriate
- Where the amounts involved are small.
- Where the payee (receiver) does not accept other means of payment and hence accepts only cash, this disqualifies all the other means of payment and qualifies.
- Where cash is the only means available.
- Where the payee requires cash(money) urgently cash can be the best option.
- Where there is a need to avoid expenses associated with other means of payment. Cash payment is free of transaction costs compared to other payment modes such as the use of credit cards that charge other expenses.