Standard of Deferred Payment - A Function of Money

Before we talk about the standard of deferred payment, let us first understand the deferring payments meaning. The deferred payment definition states that a consumer can defer a payment, meaning he/she can pay for a product or service at a future point in time.
To simplify the deferred payments meaning, the “buy now, pay later” is a typical example of a deferred payment, where the sale takes place, and the payment is made later in installments.

What is the standard of deferred payment?

In Economics, the “standard of deferred payment” is a function of money that indicates a widely accepted way to value a debt such that a person can acquire goods at present and pay for them in the future. The Standard of deferred payment is considered to be a direct result of two other functions of money namely “store of value” and “unit of account”. However, for money to function as a deferred payment standard, it must retain value, it must also store value.

Definition of Standard of Deferred Payment

The Standard of deferred payment is one of the four functions of money. Here,  money is used as a standard benchmark or a contract for specifying future payments for current purchases. In other words, the standard of deferred payment is an accepted way to settle the debt in a given market.  

The Standard of deferred payment and accounting dissertation conveys contrast from the elements of cash which is a quick mechanism of trade or store of significant worth; while the Standard of deferred payment goes about as a medium by which future installments will be made.

Functions of money

There are four basic functions of money:

• Unit of account:

As mentioned above, money serves as a unit of account, providing a common measure of the value of goods and services being exchanged. Everybody around the world thinks about cash being profitable. It's a painful way for sellers to esteem stock and endeavors and buyers to choose if the estimation of the incredible benefits exchanging for money.

• A medium of exchange:

Apart from serving as a unit of account, money readily acts as a medium of exchange to facilitate transactions. It fills in as a medium trade that is acknowledged in all exchanges, by all gatherings, paying little respect to whether they want every others' products and enterprises. In contrast to the trade framework, where the trading of products relied on a twofold fortuitous event of needs, cash is free from any such reliance and enables a client to fulfill his/her arrangement of necessities.

• Standard of deferred payment:

As mentioned earlier, the standard of deferred payment is also one of the functions of money. Money facilitates the acts of borrowing and lending. Since money enables current transactions to be discharged in the future, it has become a standard of deferred payments.

• A store of value:

Money also serves as a store of value or a store of purchasing power. It tends to be held over some undefined time frame and used to back up future installments. More­over, when individuals set aside some cash, they get the confirmation that the cash spared will have esteem when they wish to spend it later on.

How Does The Standard Of Deferred Payment Work?

Learn with deferred payment examples

If we go by the typical deferred payment meaning, deferred payments are the payments that are postponed for the future. In the case of the standard of future payments, money enables current transactions to be discharged in the future. You’ll be able to understand this concept of deferred payment better with the help of a standard of future payment example.

Let’s take the example of a business and consumers where the money would be used as a standard of deferred payment. Suppose, a business, say, an electronic store starts running promotional sales and offers. That’s when it would use deferred payments to entice new customers. Wondering how? Well, the store would probably offer a deferred payment plan for the first five months when a consumer buys a new appliance. Due to this, the customer would be required to make only interest payments for the first five months. Once these five months end, the customer is required to make regular payments for the duration of the consumer agreement.

Relation of Debt with Standard of Deferred Payment

Debt is a form of deferred payment. Since the value of money fluctuates over time via inflation and deflation, the value of deferred payments (the real level of debt) also fluctuates. A device is termed "legal tender" if it serves as a medium to pay off debts. The US dollar is one of the best examples of “legal tender” as it is not backed by gold or any other commodity but can be used to pay off debts.

So, these were the basics of the “Standard of deferred payment”. By now, you must have also learned the means of deferred payment. Sound quite easy, don’t they? Well, that’s not what a student pursuing a higher degree in Finance would think. That’s because such students find it quite hard to juggle the lengthy syllabus, exam pressure, and an additional burden of assignments on topics like “Standard of Deferred payment” with suitable deferred payment examples. There may be a lack of clarity of crucial concepts, and various deferral of payment means even after attending long lectures. That’s when there’s a need to rush to the library to search for the best books that define the deferred payment meaning and elaborately explain the means of deferred payment like:

• Money and Banking: A Policy-Oriented Approach By Dean Croushore (published by Cengage Learning, 2006)

• ECONOMIC ENVIRONMENT OF BUSINESS By Veena Keshav Pailwar (published by PHI Learning Pvt. Ltd., 2011)

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Most Popular Questions Searched By Students

1. What is the problem with the standard of deferred payments?

The problem with the standard of deferred payments is that it is theoretically intractable to figure out how to integrate both capital and consumer products and income in the same index number and give each an appropriate weighting. Income is a flow across time, whereas capital is a stock that exists at a particular point in time. 

2. How is money used as a standard for deferred payments?

The term "money as a standard of deferred payments" refers to the use of money as a reference point for future payments. There are millions of transactions every day in which the payment is not made right away. Such exchanges are encouraged by money, which also aids in capital production and the expansion of the economy.

3. What is the most important part of a deferred payment plan?

An arrangement to pay for something later is known as a deferred payment. The commitment you make to repay the whole amount at a later date is the most crucial component of a deferred payment plan. Usually, this is done in a number of installments. Deferred payments don't have interest because they aren't loans.

4. What are the disadvantages of a deferred payment plan?

Deferred payments are never written off and must still be paid in full, so it's crucial to consider whether you'll have the money to cover them later. Additionally, interest is accrued on the standard of deferred payments over time, typically on a compound basis. This always results in you paying more than the initial expense. 

5. How does money act as a standard of deferred payment?

Money acts as a deferred payment standard. It means that future payments can be expressed in monetary terms. Credit is offered in monetary terms. Because its value may alter over time, the standard of deferred payment differs from the medium of exchange function. If payment is to be delayed, it should be expressed in a unit whose value is expected to remain stable. 

6. What are the benefits of deferred payments?

Borrowers must be educated on the benefits and drawbacks of deferment periods. The following are the benefits of the standard deferred payment plans:

• You can save more money with a deferred payment plan.
• A deferred payment plan can also help you enhance your mental health and reduce stress.

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