Home trade | Business Studies Form 1

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Home trade - Business Studies Form 1



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1. A document used to demand payment
2. Documents used to reply a specific letter of inquiry.
3. A document issued when payment is made.
4. An illustrated reply to a general inquiry

Home trade
By the end of this topic, you should be able to:

a) explain the meaning and importance of trade

b) classify trade

c) explain the forms of home trade
d) discuss the types and functions of retailers

e) discuss the types and functions of wholesalers

f) describe the documents used in home trade.

g) explain the means of payments used in home trade and the circumstances in which they are used.

h) explain the terms of payment used in home trade and circumstances in which they are used.


What is Home Trade?

Definition

Home Trade is the buying and selling of goods and services within a country, with an aim of making profit.

Definition of trade

Trade is buying and selling of goods and services with an aim of making profit.

It may also involve exchange of goods for goods or services eg in barter trade.

A Central Business District

CLASSIFICATION OF WHOLESALERS

Wholesalers can be classified according to the following;

(a) Range of products handled

(b) Geographical area covered.

(c) Method of operation

FUNCTIONS OF WHOLESALERS.

the following functions should be audio

(A) LINKAGE

-Acts as a link between the producer and retailer.

(B) STORAGE

-Provides storage to ensure continous supply.

(C) BULK BREAKING

-Buy in large quantities from producers and sell in smaller quantities to the retailers.

(D) TRANSPORTATION

-Help in reducing transportation cost for the producers by providing quick frequent delivery to the retailers. This also helps in reducing the risks for the retailers.

(E) PRICE STABILITY.

-They maintain price stability by storing excess supply when production is high and increasing supply when production is low.

(F) PROVISION OF CAPITAL

-Provide working capital to manufacturers by making prompt payments.This enables manufacturers to produce in large quantities.

(G) MARKET RESEARCH.

-Assist in conducting market research and offer advice and useful information about the market conditions and the products to the manufacturers.

(H) PRODUCT PROMOTION.

-Undertake the responsibility of branding and packaging of products hence take the burden of advertising.

  Classification of trade

(a) Home trade

(i) Retail trade

(ii) Wholesale trade

(b)Foreign or international trade

(i) Export trade

(ii) Import trade

Functions of wholesalers

(a) Linkage

They act as a link between the producers and retailers.

(b) Storage

They provide storage of goods to ensure continuous supply.

(c) Bulk breaking

They buy in large quantities from producers and sells in smaller quantities to the retailers.

(d) Transportation

They help in reducing transportation cost for the producers by providing quick frequent delivery to the retailers. This in turn helps in reducing the risks for the retailers.

(e) Price stability

They maintain price stability by storing excess supply when production is high and increasing supply when production is low.

(f) Provision of capital

They provide working capital to manufacturers by making prompt payments for the goods they take.This enables manufacturers to produce in large quantities.

(g) Market research

They assist by conducting market research and offering advice and useful information about market conditions and the products to the manufacturers.

(h) Product promotion

They undertake the responsibility of branding and packaging of products hence take the burden of advertising.

WHOLESALE TRADE.

Wholesaling refers to buying goods in large quantities from manufacturers or producers and selling them in convenient quantities.

Types of Retailers

Differences between large and small scale retailers

Large scale retailers                                                small scale retailers

Differences between large and small scale retailers2

Large scale retailers small scale retailers
Require large amount of capital to start and run requires small amount of capital
Employ people to run them mostly run by owners
They are highly inflexible highly flexible
Usually occupy large spaces in big building usually occupy small spaces
Have stores to hold their stock do not usually own storage facilities
Mostly purchase their stock from manufacturers purchase goods from wholesalers

FUNCTIONS OF RETAILERS.

this should be accompanied by audio explanation

(A) AVAILING GOODS TO CONSUMERS

(B) STORAGE OF GOODS.

-buys goods and stores them until they are needed by the consumers.

(C) BULK BREAKING

-buys goods in large quantities from wholesalers and sells the in smaller quantities as desired by the consumers.

(D) FINANCING.

-may sometimes finance the consumers by providing them with credit facilities.

(E) AFTER SALE SERVICES

-provide to the customers such services as transportation ,installation,repairs and maintainance.

(F) ADVICE

-due to the regular contact with consumers of various products,the retailer is able to interpret the consumers wants and therefore in a position to advice the wholesaler or the manufacturer about the consumers needs.

(G) PRODUCT PROMOTION

-the retailer will help in promoting the products through such activities as displays.

Functions of retailers


 

 

 

 

 

 

 

 

(a) Availing goods to customers

They bring goods nearer to the customers and avails them when needed.

(b) Storage of goods

They buy goods and stores them until they are needed by the consumers.

(c) Bulk breaking

They buys goods in large quantities from wholesalers and sells the in smaller quantities as desired by the consumers.

(d) Financing

They may sometimes finance the consumers by providing them with credit facilities.

(e) After sale services

They provide to the customers such services as transportation ,installation,repairs and maintainance.

(f) Advice

Due to the regular contact with consumers of various products, the retailer is able to interpret the consumers wants and therefore in a position to advice the wholesalers or the manufacturers about the consumer needs.

(g) Product promotion

The retailer will helps in promoting the products through such activities as displays.

Documents used in home trade

A document refers to written/printed materials that may be used as record or evidence. It therefore follows that a business record is an evidence/record used to show that exchange of goods or services have taken place between the buyer and the seller. These documents can be either from the seller or the buyer.

Click on the button on the bottom left below to read more

Letter of Enquiry;
this is a document sent by a potential buyer to a potential seller seeking to find out more about details about goods which the seller has.

Quotation; it is used to reply to an inquiry which is specific in nature.


Price list; This is used to reply to a general inquiry. It contains names and prices of branded goods.


Catalogue; Used to reply to a general inquiry in a colorful and illustrated manner

.
Advice note; Is used to inform the buyer that the goods are on the way



Delivery Note ; Accompanies the goods when they are being sent to be received by the buyer

Invoice; demand for payment from the buyer for all the credit transactions.

Credit note; This a document sent to correct an overcharge in an invoice

Debit note; correct an undercharge in an invoice


Means of payment

Means of payment refers to form or manner in which payment is made for goods and services.
There are various means of payment currently in use. The means of payment can be put into four groups.

  • Means issued by the central bank
  • Means provided by the post office
  • Means provided by commercial banks
  • Means which arise from private arrangement between traders and buyers.

Mean of payment

Means of payment refers to form or manner in which payment is made for goods and services.
There are various means of payment currently in use. These means of payment can be put into four groups. These are

  • Means issued by the central bank
  • Means provided by the post office
  • Means provided by commercial banks
  • Means which arise from private arrangement between traders and buyers.

MEANS OF PAYMENT  PURPOSE

Central bank

Cash; i.e. currency notes and coins)

1. When settling small debts
2. When the receiver does not have a bank account
3. When it is possible to conclude a deal on the spot
4. When it is readily acceptable to all people

Post office

Money orders;
A document that facilitates the transfer of money from one person to another
through the post office


Postal orders.
It is a pre-printed means of payment used by the post office to send money

Postage stamps

Circumstances when postage stamps are used


1. When security is highly needed
2. When sending small amounts of money
3. When convenience is a necessity because post offices are spread all over the country
4. When cost is a consideration since they are cheaper compared to a bankers cheques.
5. When sending payment to places not served by banks especially in rural areas.
6. When sending money to people and organization without bank accounts.

7. When there is need to cash money at any post office.
8. When there is need to send small amounts of money
9. When identification of the bearer is not required
10. When one needs to make small payments
11. When there is need for guaranteed payment

Commercial banks

Cheque; This is a written order by an account holder to his bank to make a specified payment to the named person.

Circumstances when used

1. When security is required
2. When future reference is required
3. When dealing with large sums of money since it is convenient to carry
4. When there is need to transfer payment to a third party


Bank drafts/bankers cheque
This is a cheque drawn by a bank to a payee to guarantee payment of the amount indicated on the cheque

Credit transfer bank order) 
This is a means used to make payment to a large number of people using one cheque



Standing orders;
This is an instruction given by an account holder to his bank to be making periodic payment of a specific amount to a named person or institution for a specified period until the order is cancelled.
Travelers cheque
This is a cheque drawn by one bank to another requesting the latter to pay a specified sum of money to a named bearer, who usually will have bought the cheque from the issuing bank

Telegraphic transfers.
This is a faster and safer means of transferring money through a commercial bank, herby a person instructs a bank to transfer money by filling his/her name in a form and name of the payee, amount and bank where payment will be made

Circumstances under which they are Used

1. When security is paramount
2. When there in need for guaranteed payment since they are issued against cash
3. When urgency is desired as it is more readily acceptable
4. Where payment by personal cheques is not acceptable

5. When there is need to reduce transaction costs for example using one cheque to make several payments

6. where there is need for convenience in making payment for fixed and regular payments eg payment of insurance premium

7. when there is need for convenience when traveling since they enable a person to travel without having to carry lots of cash
8. when there is need for diversity that is can be used locally and internationally

9. when there is need for urgency
10. when there is need for security since the payee has to give proper identification before being paid

Exercise
The following statements relates to hire purchase. State whether the statement is true or false.
Instructions

Using drag and drop show whether the following statements are true or false

Statement  true false

  • The buyer cannot resell the goods before completing the payments
  • There is no deposit to be made
  • Goods can be repossessed by the seller incase of defaulting payment
  • The buyer owns the goods after the first installment
  • An agreement to buy with no option of returning
  • Goods are bought at a higher price
  • Only involves durable goods

Answers
True
False
True
False
False
True
True.


Terms of payment

This refers to agreement or arrangement of how goods and services will be paid for.

Cash terms of payment

This is where the buyer receives goods or services and pays for them immediately

Spot cash; this is where the payment is made at the time of exchange.
Cash on delivery; this is where the payment is made when goods are delivered.
Cash with order; payment is made when ordering for goods.
Prompt cash; where payment is expected within a few days, usually 7 days This is to enable the buyer to examine the goods delivered.

Circumstances under which cash terms of payment are used

  • When the buyer is new to the seller.
  • When there is no trust.
  • When the buyer has history of not paying
  • When the seller does not have enough stock.
  • To avoid debt and collection expenses
  • In case of mail order shops that transact business through post office.
  • To avoid debtors rec0ords maintenance cost.
  • In case it is the policy of the firm.

Deferred payments

These are payments which have been postponed to a stated future date. 
Open credit; this is where payment is made after an agreement period of time   
Installment buying; this includes credit sales and hire purchases, hire purchase refers to where the buyer is required to pay deposits and balance is made in equal installments. The hire purchase price is higher than cash price. This is because of interest charged. The good is on hire to the buyer until the last installment is made.
Credit sales; this refers to where the buyer pays the buyer gets the ownership of the goods immediately the first installment is made
Simple credit; credit extended for a maximum period of one week 
Trade credit; credit extended by traders to other traders.
Budget accounts. It is allowed to an approved customer who must operate an account with the seller. This agreement is made on maximum credit to be allowed to the buyer depending on deposit made. The buyer and the seller agree on schedule of payment to clear outstanding balance.
Monthly accounts. Credit extended for a period of one month e.g. to salaried people
Credit card . The credit card is given only to credit worth persons on application to credit card companies. The card allows the buyer to get goods and services from specific traders up to a given limit set by credit card company
The credit company pays the trader and recovers the money from the credit card holder. The credit card holder is charged for the services offered

Circumstances under which deferred terms of payment are used

  • Incase of trusted salaried customers
  • Incase of availability of adequate stock.
  • When the seller wishes to attract more customers
  • When the seller wishes to retain more customers
  • When the seller knows the customers well
  • Incase of a customer who buys goods regularly from the seller

 Circumstances under which cash terms of payment are used

  • When the buyer is new to the seller.
  • When there is no trust.
  • When the buyer has history of not paying
  • When the seller does not have enough stock.
  • To avoid debt collection expenses
  • In case of mail order shops that transact business through post office.
  • To avoid debtors records maintenance cost.
  • In case it is the policy of the firm

Credit facilities.
The credit card is given only to credit worth persons on application to credit card companies. The card allows the buyer to get goods and services from specific traders up to a given limit set by credit card Company
The credit card company pays the trader and recovers the money from the credit card holder. The credit card holder is charged for the services offered



Deferred payments
These are payments which have been postponed to a stated future date. 
 

Open credit;
this is where payment is made after an agreement period of time 
 

Installment buying; installments. The hire purchase price this includes credit sales and hire purchases. Hire purchase refers to where the buyer is required to pay deposits and balance is made in equal e is normally higher than cash price. This is because of interest charged. The good is on hire to the buyer until the last installment is made.
 

Credit sales ; this refers to where the buyer pays the buyer gets the ownership of the goods immediately the first installment is made

Simple credit; credit extended for a maximum period of one week 
Trade credit; credit extended by traders to other traders.

 

Budget accounts.
It is allowed to an approved customer who must operate an account with the seller. This agreement is made on maximum credit to be allowed to the buyer depending on deposit made. The buyer and the seller agree on schedule of payment to clear outstanding balance.
 

Monthly accounts.
Credit extended for a period of one month e.g. to salaried people

Credit facilities
. The credit card is given only to credit worth persons on application to credit card companies. The card allows the buyer to get goods and services from specific traders up to a given limit set by credit card Company
The credit company pays the trader and recovers the money from the credit card holder. The credit card holder is charged for the services offered

Circumstances under which deferred terms of payment are used

  • Incase of trusted salaried customers
  • Incase of availability of adequate stock.
  • When the seller wishes to attract more customers
  • When the seller wishes to retain more customers
  • When the seller knows the customers well
  • Incase of a customer who buys goods regularly from the seller


Exercise


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