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 operate in 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 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

Credit terms and conditions of Sale

GROUP 5
Date: 12th June 17
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 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.

Credit terms and conditions of Sale

GROUP 5
Date: 12th June 17
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.

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