GROUP 5

Date: 12th June 17

Credit terms and conditions of Sale have components of
Credit Terms
Factors effecting credit terms
Conditions of sale
Types of credit terms
Cash discounts
Late payment interest
Progress payments
Retentions
Consignment accounts
Methods of Payment.

Credit means receiving something of value now and promising to pay

for it later, often either with the fee or without the fee and Credit terms
are generally the agreement between a seller and buyer that lists the
elements such as the timing, amount of payments the buyer will make
in the future and so on.

Credit is involved in trading for a range of reasons as it simulates sales

that lead to execution, and then growth between parties of buyer and
seller. Besides, offering credit could add value to the relationship
between seller and buyer, simultaneously, promote customer loyalty
and encourage recurring sales. However, granting credit involves both
benefits and costs for the seller.

If Sales on credit takes place between buyer and seller, credit terms
are the most important as the terms of credit on offer are the hub of
the contract. Basic credit terms stated could be total credit amount,
repayment plan, discount for cash or early payment, the amount or rate
of late payment penalty and so on. But, if credit terms are not
considered from all different perspectives, it could be costly for the
business for the fact that most businesses operatein a competitive
environment, where attention to every aspect of trading is vital to
success or even survival.

A number of factors can influence the choice of credit terms, subject to

means of the trade or product. To name a few, the sellers strength in
the market, the credit terms that the seller gets from the suppliers, the
availability of the capital needed to finance sales, the volumes of sales
and the range of customers, the profit margin, any special payment
arrangements, Competitive pressures, the character of the market and
so on.

The print that appears on the reverse side of order acknowledgements

or quotations may be small in size, but are big in content and

Credit terms and conditions of Sale

GROUP 5
Date: 12th June 17
importance, as it illustrates conditions of sale, covering from
shortages, breakages, interest, title to goods, storage or temperature
control to a variety of other matters.

Every order, whether written or verbal, has all the ingredients of a

contract in the eyes of the law and a wide range of legislation are also
covered to achieve fair-trading for both parties. Credit terms are also
an integral part of the contract terms and must be free from duress.

The sellers conditions of sale for long-term agreements are best

established by a written contract, which reflects the commitments of
both sides. To be en- forceable in law, a sellers conditions must be
known to the buyer at or before the time the contract is made via
brochures, catalogues, price lists, written quotations, special letters or
verbally, delivery notes, invoices and statements subsequently issued
by the seller.

There is a fundamental relationship between the credit terms on offer

and the sales to be obtained. Credit periods should be as short as
possible to obtain the sale, and as straight as possible to ease the sale
process.

The great transactions are retailing on cash or credit of sales and

Trade credit are on open account terms that represent the seller, but a
period of credit. An invoice is sent for each transaction, and the seller
waits until the due date for payment.

Payments related to delivery are Cash with order, Cash in advance,

Cash before shipment, Cash on delivery, Payment due on delivery, Cash
next delivery, Payment 7 days after delivery, Payment 10 days after
delivery, Payment of all supplies Monday to Sunday, Payment of all
supplies made within 15 days, Payment of all supplies made within 25
days, Payment of all invoices dated in one month by the end of the
following month, Monthly credit but payment by the 7th of the following
month, As for monthly account but with one extra calendar month, and
Payment due by the 30th (or 60th or 90th) day calculated from the date
of invoice.

Other credit terms are such as where payment is made by the

representative or van salesperson, where payment is effected by
offsetting the value of supplies by purchases, specified amounts or

Credit terms and conditions of Sale

GROUP 5
Date: 12th June 17
percentages, or installments, when deciding credit terms, and recent
years that cheque clearance periods.

The impact of cost is cash discounts and they benefit seller and buyer.
The main considerations for cash discounts are as below.
the sellers cost of waiting versus cost of the discount, the sellers
need for payment due, the cost of the discount taken by some
customers who pay on time, where seller afford early payment
discounts should be announced at the same time as a price increase,
this being a way for the buyer to offset increased cost.

In late payment interest, types of charges as per the sellers opinion

are to pay late and simply pay extra for the extended credit or to pay
recovery costs for unauthorized late payment when the credit risks are
high.

Regarding Late Payment legislation, the rate of interest stipulated

under the Late Payment of Commercial Debt (Interest) Act 1998 is plus
8%. Eg. If the base rate were 4%, for example, then interest could be
charged at the rate of 12% but it does not oblige businesses to charge
interest and does not replace any existing clause, which a company
may have in its terms and conditions. Businesses can negotiate
contracts freely between themselves.

Conditions in contract negotiation stage are that the company has the
intention to charge interest, should state the terms and conditions at
the contract negotiation stage and include some notation on the
invoice as a reminder. After the contract stage if a buyer has got into
genuine difculties, it is possible for interest to be negotiated when the
supplier is willing to support through a restructuring and the debt is
being rescheduled.

There are many different methods of payment and if I could start with
the method of cash, it is a quick method of payment with less security.
Cheque is a form of bill of exchange and it is the most convenient and
flexible method of payment system. The method of Debit card is a form
of electronic cheque that is based on EFTPOS, Electronic Funds
Transfer at Point of Sale.

When it comes to Bankers draft, it is a Cheque which should have the

words Bank (or Bankers) Draft printed across the top and the full
financial standing of the bank replaces that of the customer. Travelers
cheque is issued by the banks in foreign currency and the risk is
limited to the face value of the cheque but great care should be
exercised by the holding traveler.

Credit terms and conditions of Sale

GROUP 5
Date: 12th June 17

Eurocheque are travellers, but they have to look for the EC Logo in
banks, shop windows, hotels, garages, etc. Postal order is particularly
useful for sending money through the post when individuals do not
have a bank account but It is only suitable for small transactions and
are increasingly rare in commercial trading situations. With bank
standing order, the customer instructs his bank to make a series of
fixed amount payments to the sellers bank account, usually at monthly
intervals.

However, Direct debt is the method of payment that operates reverse

way to the standing order and there are many advantages to direct
debt, such as payment is made accurately on due date, account
queries are brought to light earlier as customer do not want to be
debited for disputed items, customers are relieved of the task and
costs of making payments, customers have no hassle from suppliers
chasing overdue accounts, and there is no risk of stopped deliveries
due to late payment

Lastly, in regards with Bank transfer, if the supplier gives the customer
details of his bank account, the customer can arrange to make
payment via BACS ( Bankers Automated Clearing System).

Credit terms and conditions of Sale