Explain the following business terms: (a) standing order (b) bank draft (c) legal tender (d) money order (e)I.O.U

Answer Details

(a) Standing order

A standing order is a written instruction given by a customer to his bank to pay a fixed sum of money to a named person or organisation at regular, stated intervals (for example, monthly rent or subscriptions) until the instruction is cancelled. The amount stays the same until the customer changes it.

(b) Bank draft

A bank draft is a cheque drawn by a bank on itself (or on another bank) at the request of a customer who has paid for it. Because payment is guaranteed by the bank, it is a very safe means of settling large debts, especially where the two parties do not know each other.

(c) Legal tender

Legal tender is money that must, by law, be accepted in settlement of a debt within a country. A creditor cannot refuse it. In practice notes are legal tender up to any amount, while coins are legal tender only up to limited amounts.

(d) Money order

A money order is a document bought from a post office or bank for a specific sum of money, which the sender posts to a named payee who then cashes it at a post office or bank. It is a safe way of sending relatively large amounts of money by post.

(e) I.O.U

I.O.U stands for "I Owe You." It is a simple written and signed acknowledgement by a debtor that he owes a stated sum of money to a named creditor. It is evidence of a debt but is not a legally negotiable instrument and does not itself promise a date of payment.