Commerce Keypoints: Purchase and Sale of Goods

Commerce Keypoints: Purchase and Sale of Goods; The purchase and sale of goods is a complex process that involves a number of steps and documents.

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Commerce Keypoints: Purchase and Sale of Goods

I. Procedure and Documentation (a) Enquiry:

  • The initial stage of the purchase/sale process.
  • Buyer requests information regarding products, prices, terms, etc.
  • Inquiries can be made through letters, emails, or phone calls.

(b) Quotation:

  • The seller provides a written document with details of products, prices, and terms.
  • Quotations serve as offers that can be accepted by the buyer.

(c) Order:

  • Buyer’s acceptance of the quotation.
  • Formalizes the purchase/sale agreement.
  • Specifies quantity, price, delivery terms, etc.

(d) Invoice:

  • Document issued by the seller to the buyer after the delivery of goods.
  • Contains details of the transaction, such as itemized list, quantity, price, payment terms, etc.

(e) Proforma Invoice:

  • Preliminary invoice provided by the seller before the actual shipment of goods.
  • Helps the buyer with budgeting and obtaining necessary import licenses or permits.

(f) Statement of Accounts:

  • A periodic summary of transactions between buyer and seller.
  • Details invoices, payments, outstanding amounts, etc.

(g) Indent:

  • A formal document issued by the buyer to the seller.
  • Specifies the details of the goods required, quantity, quality, delivery terms, etc.

(h) Consular Invoice:

  • Document required by some countries for import/export purposes.
  • Certified by a consular representative to authenticate the details of the transaction.

(i) Bill of Lading:

  • Document issued by the carrier (shipping company) to the shipper (seller).
  • Acknowledges receipt of goods and serves as evidence of the contract of carriage.

(j) Certificate of Origin:

  • Document stating the country of origin of goods.
  • Required for customs clearance and determination of import duties.

(k) Consignment Note:

  • Document used for the transportation of goods by road or rail.
  • Contains details of the consignor, consignee, goods, and delivery terms.

II. Terms of Trade (a) Trade Discount:

  • Reduction in the list price offered to the buyer as an incentive.
  • Given to wholesalers or retailers based on the volume of goods purchased.

(b) Quantity Discount:

  • Discounts are offered based on the quantity of goods purchased.
  • Encourages bulk buying and provides cost savings to the buyer.

(c) Cash Discount:

  • Discount offered for prompt payment.
  • Encourages timely payment and helps improve cash flow.

(d) Warranties:

  • Guarantees provided by the seller regarding the quality, performance, or durability of the goods.
  • Protects the buyer against defects or malfunctions.

(e) C.O.D. (Cash on Delivery):

  • Payment is made at the time of delivery of goods.
  • Commonly used for small or one-time purchases.

(f) C.I.F. (Cost, Insurance, and Freight):

  • Pricing term for international trade.
  • The seller is responsible for the cost, insurance, and freight charges until the goods reach the destination port.

(g) F.O.B. (Free on Board):

  • Pricing term for international trade.
  • The seller is responsible for the goods until they are loaded onboard the vessel at the port of shipment.

(h) E.O.E. (Errors and Omissions Excepted):

  • Indicates that the seller is not responsible for any errors or omissions in the transaction.

III. Terms of Payments (a) Cash – Legal Tender:

  • Payment is made in the form of physical currency (notes and coins).
  • Immediate and final settlement.

(b) Credit:

  • The buyer is allowed to make deferred payments for the goods or services purchased.
  • Types and Functions of Credit:
    • Trade Credit: Extended by suppliers to buyers to facilitate purchases.
    • Bank Credit: Loans or overdraft facilities provided by banks to support business activities.
    • Installment Credit: Payment of the purchase price in installments over a specific period.
    • Revolving Credit: Pre-approved credit limit that can be used repeatedly.
    • Letter of Credit: Payment guarantee issued by a bank on behalf of the buyer.
  • Merits of Credit:
    • Increased purchasing power.
    • Flexibility in managing cash flow.
    • Enables business growth and expansion.
  • Demerits of Credit:
    • Risk of bad debts.
    • Additional interest or finance charges.
    • Dependency on credit availability.

These class notes provide an overview of the topics. It is important to delve deeper into each sub-topic during class discussions to gain a comprehensive understanding.

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Commerce Keypoints: Purchase and Sale of Goods