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Question

Difficulty: MediumBanking: Functions and Services to Trade

A commercial trader in Port Harcourt instructs his bank to transfer specific amounts of money directly from his account into the bank accounts of five different suppliers at once, using a single consolidated payment instruction. Which commercial banking service is the trader utilizing?

  1. A
    Standing order
  2. Credit transferAnswer
  3. C
    Direct debit
  4. D
    Bank draft

Answer

Credit transfer
Credit transfer (or bank credit transfer) enables a bank customer to instruct their bank to pay amounts directly into the accounts of one or more specified creditors using a single payment form, making it convenient for paying multiple suppliers or wages simultaneously.

Step-by-Step Solution

1
Analyze the payment scenario
The trader initiates a single transaction instruction to credit multiple suppliers' accounts at once.
Identifying who initiates the payment and how the funds are disbursed determines the exact banking service.
2
Compare payment mechanisms
Credit transfer allows an account holder to settle several accounts in one operation through bank clearing systems.
Unlike standing orders (fixed regular amounts) or direct debits (creditor-initiated variable collections), credit transfer is a debtor-initiated method for settling multiple debts.

Key Concept

Credit Transfer Facilities in Commercial Banking
Estimated Time:1m 0s
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Topics

Banking: Functions and Services to Trade

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