Non-cash money - what is it and how does it work?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Non-cash money is finance located in bank accounts assigned to individuals or legal entities and used by them to pay for purchases, services or conduct monetary transactions. Non-cash money turnover includes absolutely all payments made without printed banknotes. In other words, financial transactions are carried out through the corresponding records of the state of the accounts of payers and recipients without the use of cash.

The essence and purpose of non-cash money

The functions of non-cash money are no different from the properties of cash, so their purpose is described by five features:

1. A measure of value. It is formed when the price is formed, i.e. the value of goods expressed in monetary terms. Due to this, the products are compared with each other. Pricing is influenced by the conditions of production and exchange. In order to be able to compare prices, it is necessary to reduce them to a common denominator or a single unit of measurement.
2. Means of circulation. The expression of the value of goods in monetary terms is necessary for their sale. And in market relations, exchangegoods and services is impossible without financial intermediation.
3. Means of payment. This feature includes the previous one. With the development of loans, it is becoming stronger, and cashless payments only strengthen its position.
4. A store of value. Formation of a certain reserve
5. World money, finance used in international settlements.

The most common in the modern economy are only 3 functions: means of calculation, savings and a measure of value. And money as a means of circulation recedes into the background. In many ways, non-cash money contributes to this situation. This payment tool is becoming more relevant.

Cashless payments

So, the movement of cash and non-cash money is significantly different. But there is nothing complicated in non-cash payments. The mechanism of how non-cash money works is quite transparent.

Just the necessary amount is withdrawn from one account and credited to another. Such transfers are impossible without the participation of banks, but they greatly simplify the movement of money. There is no need to have large amounts of cash and ensure their safety. This method is ideal for business transactions.

Types of non-cash payments

Non-cash money is finance that requires documentary support in the form:

• Payment order. The document obliges the bank to transfer the specified amount from the payer's account to the recipient.
• Letter of credit. A special account thatthere is an amount sufficient to pay for specific goods and services, which is transferred to the seller only after providing supporting documents on the fulfillment of the terms of the transaction.
• Collection order. Used to collect debts. The creditor is obliged to present the necessary documents to the bank to confirm his right to access the debtor's funds.
• Checkbook. This type can be attributed to cash-non-cash transactions, since finances are not necessarily transferred from the account of the check holder to the account of the bearer of the check, but can be issued in cash, but only within the limits of the amounts on the account of the owner of the checkbook.
• Electronic money. These types of non-cash transfers are also carried out through the mediation of financial organizations and must be carried out taking into account all the requirements of the law.

Controls and regulates the movement of non-cash funds of the Central Bank of the Russian Federation. As a rule, transactions carried out with accounts within the country are completed in two business days.

Electronic money

Electronic money widely used in recent years also belongs to non-cash money. Their main advantage is mobility. They are also used to pay for goods and services. You can use them anytime, anywhere. The only condition for access to such finance is the availability of the Internet.

The turnover of electronic money occurs through various payment systems. They may install additionalrules for the circulation of funds, but these requirements should not contradict the conditions fixed by the Central Bank. In fact, electronic money, like other non-cash transactions, is transferred from one account to another.

Cashless settlements of citizens

Individuals use bank cards as opposed to cash, which can, in turn, be debit, credit or even mixed.

On a credit card there are bank funds provided to the client on certain conditions and requiring a return. To issue a credit card, the solvency of a person is checked and an agreement is concluded that specifies all the conditions for using this credit product.

Debit cards are often used for everyday transactions: cash withdrawals, payment for goods, money transfers. But this is done within the limits of the client's personal finances only, without involving bank funds. Such cards are used in payroll projects.

Mixed cards perform the same functions as debit cards, but have a limited overdraft, i.e. additional (loan) funds. The amount of the overdraft is negotiated by the bank separately.

The difference between cashless payments

Everyone knows how settlement transactions are made when there is cash. Non-cash forms of money have their own characteristics.

The main difference lies in the presence of the bank. In addition to the seller and the buyer, all transactions are accompanied and controlled by the financial institution that opened the account.

Benefits anddisadvantages

The following advantages can be distinguished in the transfer system:

1. All transactions with funds in the account are supported by bank documentation, so they can be tracked and proven if necessary.
2. It is possible to conduct several financial transactions at the same time, even requiring the payment of additional fees and commissions.
3. There is no way for counterfeiters to change banknotes.
4. The cost of storing, accounting and transporting money is reduced.
5. Unlimited storage of finances in a bank account.
6. No need to purchase and maintain a cash register.

But there are also disadvantages in the cashless payment system, including:

1. Paying commission fees for bank intermediary services.
2. Danger of technical failures that will block funds and make their circulation impossible.
3. The need for a constant cash flow to pay bank services and other basic payments on time, which is inconvenient for small entrepreneurs.

Nevertheless, non-cash money is convenient, and with the right approach and choice of bank, negative points can be minimized.