Money orders are one of the financial instruments commonly used in payment activities to date.

Although this term is quite well-known, not everyone understands in detail how it works or its various types.

This article will discuss in more depth the definition of money orders, their functions, various forms, and how their mechanisms can be utilized in daily financial transactions.

What is a Money Order?

A money order is a payment order issued by one party to another party to pay a certain amount of money at a certain time.

This instrument is widely used in domestic and international transactions because it is considered safe and reliable.

According to the Big Indonesian Dictionary (KBBI), a money order is a postal letter to send money that can be cashed by the recipient at a bank.

Meanwhile, the Commercial Law Code (KUHD) defines a money order as a payment order from the drawer to the interested party to pay a certain amount of money at a specified time.

It should be noted that the rules regarding money orders in the KUHD are listed in Articles 100 to 173.

Etymologically, the term “wesel” comes from the Dutch language, wissel, equivalent to the English term, bill of exchange.

In practice, a money order is a valuable document that serves as a means of exchange, and some experts refer to it as an unconditional written order to pay a certain amount of money at a certain time in the future.

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Function of Money Orders in the Financial World

Money orders are financial instruments that play an important role in facilitating various forms of transactions, both domestically and abroad. One of the main functions of money orders is as a means of credit payment.

This means that money orders allow payments to be made after a certain period of time since being received by the recipient.

This is in accordance with the provisions contained in the Commercial Law Code (KUHD), specifically in Articles 100 to 173, which also regulate the legal requirements for using money orders.

In addition, before the digital banking system developed as it is now, money orders functioned as a means of sending money long distances.

At a time when banking services were not evenly distributed, especially in remote areas, money orders were the main choice for people in sending funds because the procedure was quite simple.

Another function is as a means of paying receivables. In practice, the party in debt can pay their obligations by submitting a money order to the creditor, with a predetermined nominal and due date.

Money orders are also often used to transfer money abroad, especially in the form of foreign currency, because they provide a sense of security and clarity in the process of sending funds.

Some types of money orders can also be transferred to other parties, and can even be cashed before maturity through a discount process at the bank.

This flexibility is what makes money orders remain relevant in the financial system even though there are now many digital payment alternatives.

Types of Money Orders You Need to Know

There are several types of money orders that are used according to the needs and context of the transaction. The two most common types of money orders used in everyday financial practices are as follows:

1. Postal Money Order

Is a payment order issued by the post office. This type of money order is used to send money from one region to another, especially when access to banking services is still limited.

The delivery process is carried out through the postal service network so it is considered safe and practical in the era before digital services developed.

2. Bank Money Order

A bank money order is a payment order issued by a bank or financial institution. This money order is more formal and is generally used in large-value transactions, including for international purposes.

Because it is issued by an official institution, a bank money order offers a higher guarantee of security in the payment process.

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How Money Orders Work in Payment Transactions

The way a money order works is generally quite simple and involves several important steps. The process begins when a person or company wants to make a payment to a recipient in a different location.

They then submit a request to a bank or financial institution to issue a money order.

The types of money orders issued can vary, such as a money order receivable, a money order due, or a credit order, depending on the type of transaction and the terms involved.

Once the request is received, the bank or financial institution will issue the money order according to the customer’s instructions.

This money order contains a promise of payment to the recipient in the agreed amount, and includes a specified due date.

The money order is then handed over to the recipient or forwarded through a designated payment agent or bank. The recipient can receive the money order directly from the giver or through the relevant bank or financial institution.

The recipient of the money order will then take the money order to the bank or financial institution to be cashed or collected.

Usually, the recipient will need to show proof of identity and other supporting documents so that the cashing process runs smoothly.

After that, the bank or financial institution will verify the validity of the money order and ensure that all the stated requirements have been met.

If everything is in accordance, the bank will make a payment to the recipient on the specified date.

After the payment is made, the bank or financial institution will reconcile the transaction in its financial records.

This includes deducting the balance of the customer who issued the money order and recording the payment in the bank’s financial records.

Advantages and Disadvantages of Using Money Orders

Money orders are a payment instrument that is often used in domestic and international transactions. Although it has many advantages, the use of money orders also has several disadvantages that need to be considered.

The following are some of the advantages and disadvantages of using money orders as a means of payment.

1. Advantages

1.Higher security compared to carrying cash

Money orders provide a better level of security because they do not involve carrying physical money.

With money orders, transactions are carried out through trusted financial institutions, reducing the risk of theft or loss of cash.

1.Easy to use in international transactions

Money orders, especially bank money orders, facilitate transactions between countries. This is the main choice for sending money abroad because the process is safe and reliable.

1.Reliable because money orders are issued by trusted institutions

Money orders are issued by financial institutions or banks that have a good reputation, so that the recipient can feel confident that the payment will be made as agreed.

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2. Disadvantages

1.Requires an administration fee to issue a money order

One of the disadvantages of money orders is that there is a fee to be paid to issue the money order. This fee can vary depending on the type of money order and the financial institution that issues it.

1.Not all places accept money orders as a means of payment

While money orders are safe and reliable, not all places or businesses accept them as a method of payment. This limits the flexibility of their use.

1.The process of disbursing funds can take time

Compared to electronic payments, the process of disbursing funds from money orders can take longer, especially if it involves cross-border transactions or additional administrative procedures at the bank.

Conclusion

Well, that was an interesting discussion about What is a Money Order? Get to Know Its Types and Functions Here which you can read in full at the Crypto Academy at INDODAX Academy.

In conclusion, a money order is a payment instrument that has many benefits, especially in large, long-distance, or international transactions.

By understanding the various functions, types, and how they work, it will be easier for you to use money orders for various financial transaction needs, both personal and business.

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FAQ

1.What is a money order?
A money order is a payment order issued by a certain party to pay a certain amount of money at a specified time to the intended recipient.

2.What is the difference between a money order and a bank money order?
A money order is issued by the post office for domestic transactions, while a bank money order is issued by a bank for more formal transactions and is often used in international transactions.

3.Can money orders be used for international transactions?
Yes, bank money orders are often used for international transactions because they provide a more secure payment guarantee.

4.How do I use a money order in a transaction?
The party wishing to make a payment will ask the money order issuer to make a payment order to the recipient. The recipient can then cash the money order at the bank or post office listed on the money order.

5.What are the advantages of using a money order?
The main advantage of a money order is its higher security compared to cash and its ability to be used in large transactions, both domestic and international.