Premlal C R
UNIT-3
CUSTOMER CREDIT
Credit
Credit denotes delay in payment. The concept of
credit in business signifies buying now paying later. The buyers are allowed a
fixed period of time to repay the purchase price after the goods are delivered,
it is called credit period.
Needs of
Customer credit.
1. To acquire goods instantly without having money in the hands of
buyer.
2. To postpone the payment by the buyer.
3. To increase sales of the seller.
4. To attract the consumers to the shop.
ADVANTAGES OF
CUSTOMER CREDIT
Advantages to
the buyers.
1. It helps top get goods without having instant payment.
2. It enables the buyer to postpone the payment.
3. It is suitable to get high valued goods at nominal payment-
installments
4. It enables the lower income people to buy standard goods.
5. It brings good relationship between the buyer and the seller.
Advantages to
the sellers.
1. It increases the sales of certain goods.
2. It helps to maintain regular customers.
3. It reduces the warehousing costs.
4. It increases the revenue of the seller.
5. It brings good relationship between the seller and the buyer.
DISADVANTAGES
OF CUSTOMER CREDIT
Disadvantages
to the buyers.
1. It increases the purchasing habits among the buyers.
2. It brings unusual liabilities to the buyers if they purchase
without being aware of purchase price.
3. It brings the burden of over payment of interests.
4. Further credit would be allowed based on the credit worthiness
of the buyers
Disadvantages to the sellers
1. Chance of bad debts will be high
2. It brings over burden to maintain accounts for each customer.
3. It increases the liability due to any faults in sold products
4. It makes difficult to recover the sold products if any delay is
occurred from the buyers.
TYPES OF
CUSTOMER CREDIT
Customer credits are broadly classified into two categories. They
are long term and short-term credits.
SHORT TERM
CREDITS.
Short term credits are credits which should be
settled within one year.
1. Credit
account or Trade credit
Credit account is an informal method of credit
by which regular customers are allowed to take delivery of goods at any time
without paying immediately. Normally the buyers settle the dues at the end of
each month. The seller has to prepare each credit account for the buyers
individually for entering the delivery and payment. No need of interest in the
allowed credit period.
2. Credit card.
This is a plastic
card issued by the bank in association with the credit card companies. This
card can be used for purchasing goods up to a limit without having cash in
hand. End of each month the card holder should repay the due amount to the
issuing bank. High rate of interest would be charged on the due amounts.
Eg:- VISA, Master,
American Express, etc
3. Store card
Store cards are similar to credit cards, except that while credit
card can be used anywhere, store card can only be used in a specific store or
group of stores. It is issued by the group of specific stores for their
customers. The card holders are given a credit period to settle the dues. High
rate of interest is the main disadvantage of store card.
LONG TERM
CREDITS
1. Hire
purchase agreement.
In this agreement the goods are hired to the
users who are given with an option to purchase them at the end of the hire
period. Consumer durables such as freezers, stereo, washing machine, air
conditioner, furniture, etc can be sold in this method. In this method the goods do
not become the property of the buyer until the last payment has been made.
Buyer can pay the purchase price in installments as rent. When the installment sum
equal to the original full price plus interest has been paid, the buyer may
then exercise an option to buy the goods at a predetermined price or return the
goods to the owner.
2. Conditional sale agreement.
In this method, the buyer takes the possession of a product by paying the purchase price in equal installment. But itsownership and the right of repossession
remains with the seller
until the buyer pays
the full purchase price.
Capital goods such as machinery and equipment, land and building can be sold in this method.
3. Deferred payment
(Extended credit)
In this method, on payment of first installment
or deposit the goods become the property of the buyer. Less expensive goods and
second-hand goods are sold under this method. It brings high burden of bad
debts to the sellers.
Difference
between Hire purchase and Deferred payment.
|
Hire purchase
agreement
|
Deferred
payment
|
|
1. It is an
agreement to hire the goods with an option to buy.
2. Buyer
becomes the owner of the property after paying the full amount.
3. Seller can
repossess the goods if the buyer makes any delay in payment.
4. It is
suitable for consumer durable goods.
5. Less
chance of bad debts to the sellers.
|
1. It is an
actual sale.
2. Buyer
becomes the owner of the property as soon as he pays first installment.
3. Seller
cannot repossess the goods which sold once.
4. It is
suitable for second hand and less expensive goods.
5. High
chance of bad debts to the sellers.
|
Difference between credit card and debit card.
|
Credit card
|
Debit card
|
|
1. Issued by
the banks linked with credit card companies.
2. It is type
of short term credit.
3. Interest
is payable to the banks.
4. Rate of
interest is variable and high.
5. Card
holders have to pay later.
|
1. Issued by
the banks may or may not linked with credit card companies.
2. It is not
a credit at all.
3. No need of
interest payable to the banks.
4. No need of
interest payable.
5. Card
holders have to pay before using it.
|
