Standard Of Deferred Payment

Standard Of Deferred Payment 

Let's start with defining the phrase "delayed payment" before going to the standard of deferred payment. According to the definition of deferred payment, a user can defer or delay a payment, suggesting that they can pay for the goods or services at a later time. Consider the "buy now, pay later" situation, in which the sale occurs initially and the money is paid in installments afterward. A "standard of deferred payment" is a function in economics that defines a widely accepted method of evaluating a debt. This helps a person to buy things now and pay for them later. In economics, the ideas of "store of value" and "unit of account" directly impact the standard of deferred payment as a function of money. On the other hand, money must maintain and hold value to act as a postponed payment standard.

How money is used as a standard for deferred payment? 

Money acts as a standard for future payments is referred to as "money as a standard of deferred payments." Every day, millions of transactions are completed that does not result in instant payment. Money stimulates these types of transactions and helps in capital building and economic progress. The use of money as a standard of deferred payment has made borrowing and  lending  easier. Financial institutions have resulted as a result of this.Future payments and contractual commitments, such as salaries, loans, and interest payments, were extremely difficult to make under the barter system. For example, as per standard of deferred payment example, it was impossible to decide whether a laborer's wages should be paid in food grains or any other product. This is due to the difficulty of valuing labor services in terms of a  commodity. Similarly, payback will become difficult if a loan is obtained in a commodity. However, money being better than the barter system allows for postponed or contractual payments such as salaries, interest payments, and so forth.

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How does deferred payment work?

Payments that have been postponed in whole or in part due to financial constraints are known as deferred payments. The Standard of deferred payment can be performed in various ways. For example, some deferred payments maintain employees with a company, while others assist financially disadvantaged students to finish their education. Deferred payments on real estate also contribute to the preservation of neighborhoods.

For examples:

According to AG Web, a standard deferred payment is sometimes utilized in agriculture for tax purposes. For example, a farmer may frequently defer payment for his crops until the following tax year, giving him more flexibility in his tax burden and more cash flow to pay seasonal labor. This sort of postponement is akin to an installment sale, and only agriculture items and a few other goods are subject to this reporting. Farmers can also shuffle their delayed payments about to end up in lower tax brackets on occasion.

Students in colleges and universities occasionally face financial difficulties. Students can set up delayed payments through the university's financial department rather than leave school. In some circumstances, submitting money as deferred payments are still subject to late fees. Students on delayed payment plans at the University of Wisconsin, for example, get more time to make their payments, but they also have to pay late fees.

A standard of deferred payment is used in real estate to get no-interest loans that do not require installments. Instead, the borrower surrenders the title to the property in exchange for the loan. The loan must be paid off in full when the house sells or when the borrower moves out of the house. This type of loan is most commonly encountered in places where residents require funds to renovate older homes. Instead of forcing the homeowner to leave the area, lenders pay for the repairs through the loan, allowing the neighborhood to remain intact. If the borrower dies, the entire debt is repaid when the property is sold. During the COVID-19 lockdowns, home loan forbearance and mortgage deferment became popular ways to save money.

What is the problem of standard of deferred payments? 

Contracts involving standard of future payments or credit transactions are difficult to execute under the barter system for the following reasons:

• At the time of repayment, the borrower may not be able to get products of identical quality.
• There may be disagreements over which commodity should be utilized for repayment.
• During final repayment, the repaid commodity may lose or gain value.

Deferred payments in the form of commodities are therefore extremely difficult. As a result, items can no longer be used to hold revenue for long periods of time.

With so many obstacles, barter exchange could not be sustained for long. As a result, money as a deferred payment can be used for exchange or the buying and selling of products. Money acts as a standard for deferred payment and explains money differently. The most acceptable definition of money is one that encompasses all of its functions.

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What are the 6 functions of money? 

• Medium of Exchange:

Money is used as a way of exchange and a payment method. Money is used in all types of economic transactions, including the exchange of commodities and services. Money serves as a 'medium of exchange,' ensuring that the transaction of goods and services between buyers and sellers runs smoothly. This money function overcomes the 'Tack of Double Coincidence' problem that was produced by the barter system, or commodity-commodity trades.

• Measure of Value:

Money, as a unit of account or a standard of worth, is critical in establishing a common 'measuring rod/yardstick' for all economic transactions. It assists us in determining the 'price' of goods and services in comparison to other commodities. Unfortunately, this 'measurement' was incredibly difficult under the barter system, and as a result, people would sometimes abandon the deal before it was completed.

• Store of Value (Purchasing Power):

Money is a type of 'store of value.' Wealth, or accumulated income, can be held in various assets, but money is considered the finest way of storing wealth/assets. Money is the most liquid asset among all other assets. Liquidity refers to an asset's ability to be swapped for something else of equal or greater value without loss of value or time.

• The Basis of Credit:

The lifeblood of a modern company is credit. Credit is built on the foundation of legal tender money by banks using their basic deposits. As a result, borrowers can use their funds to purchase products and services when they are most required.

• A Unit of Account:

Money's usage as a unit of account is one of its characteristics. According to the implication, money is used to measure and record financial transactions and the worth of commodities and services generated in a country through time. Gross national product is the monetary value of goods and services produced in an economy during a certain accounting year. According to J. R. Hicks, Gross national product is a collection of products and services that were reduced to a common base by being assessed in terms of money.

• Standard of Deferred Payments:

The last function of money is the standard of deferred payments, also known as future payments, debt payments, and deferred payments, which is crucial in today's complicated economies. Money is preferred as a deferred payment standard because its value is relatively steady over time and changes are predictable. Other items are perishable and lose their worth over time.

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