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.
- The seller provides a written document with details of products, prices, and terms.
- Quotations serve as offers that can be accepted by the buyer.
- Buyer’s acceptance of the quotation.
- Formalizes the purchase/sale agreement.
- Specifies quantity, price, delivery terms, etc.
- 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.
- 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.
- 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.
- 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.