e Business and financial management of the undertaking
E1 Methods of payment
Time
The time allotted to this subject is 2 hours.
Objectives In this lesson you will learn:
- The different methods of payment.
- The different means of credit.
- Documents and records used.
Introduction Payment by a customer for goods or services can be made to the producer or supplier in a number of different ways. Two of the most obvious ways are cash and cheques.
A substantial amount of business, however, is carried out by means of credit.
Credit can take many forms, ranging from the informal credit of taking time to pay an invoice to the legal contract constituted by an agreement of one form or another; e.g. a hire purchase or credit sale agreement.
Methods of
Payment
Cash The direct exchange of money for goods and services is the most common form of payment. Most small-scale transactions are performed in this way.
The term “cash” in fact includes cheques and other forms of direct payment in which an immediate payment is made to complete the transaction.
Credit Credit is the granting of the use or possession of goods and services without immediate payment.
There are two main types of credit: consumer and trade.
Consumer
Credit Credit extended formally and informally by shopkeepers, finance houses, and others to the ordinary public for the purchase of consumer goods.
Such credit includes:
· Paying for goods in arrears – e.g. within one month of supply – in effect a loan from the supplier. Provided he has advised the purchaser at the time of purchase, the supplier may charge interest on amounts not paid within the agreed period.
· Credit cards – allowing repayment over a period of time – in effect a bank loan.
· Hire purchase and credit sale agreements -- in a hire purchase agreement, the goods are hired to the user who is given an option to purchase them.
For all, except paying in arrears, interest or servicing charges will be made.
Trade credit Virtually all exchanges in manufacturing industries, services and commerce are conducted on credit. At the very least this takes the form of credit extended for a specified term, e.g. 14 days, one month, 60 days, by material suppliers to manufacturers to wholesalers to retailers.
Firms may allow small discounts on accounts settled within a shorter period than the term of credit allowed. Credit enables a producer to bridge the gap between the production and sale of goods, i.e. he may produce goods using raw materials he has not paid for and hopes to sell them before he has to pay for them. At the same time, however, he may allow his customers credit and so may himself be kept waiting for payment.
Documents
and records
Invoice The most important document in the transaction is probably the invoice, which reveals to the customer exactly how much is due for the delivery of goods. It is, in other words, the bill, prepared usually in duplicate. The customer will use his copy for recording the purchase in his records and for checking the goods. The supplier’s copy is a record of sale.
The invoice is often sent ahead of the goods, in which case it takes the place of an advice note – a document informing that goods are shortly to arrive. The expression “account rendered” is used to indicate that goods and services have been invoiced for payment.
Details include:
· order number;
· addresses;
· supplier’s VAT registration number;
· quantities, description and prices;
· terms of payment
· form of delivery.
In addition an invoice may include:
· An abbreviation for the term “Errors and Omissions Excepted” – a safeguard against clerical errors in the invoice. The customer will check the goods received against the invoice, inform the supplier of any inconsistencies and file the invoice for future reference.
A delivery note is a similar document without the price column. A delivery note in duplicate usually accompanies the goods and the customer receiving them will sign one copy. This copy will be retained by the carrier as a form of evidence of receipt and may be used when proof of delivery is required.
Credit note The credit note is the usual way to correct a fault in the transaction, which has resulted in the customer having paid too much, or having credit owing to him.
An amended invoice might be sent instead but in no circumstances should the original invoice be altered.
Often printed in red, the supplier sends a credit note to the customer crediting him with the amount shown for one or more of a number of reasons.
For example:
· goods overcharged;
· goods damaged;
· wrong or inferior goods sent and returned;
· refunds, e.g. on cases returned;
· invoice wrongly sent.
Debit note The counterpart to the credit note is the debit note where an adjustment is needed to an invoice when the customer owes an additional sum to the supplier.
A debit note might be used in the following circumstances:
· more goods sent than invoiced and retained;
· goods undercharged;
· better quality goods sent;
· omissions in the invoice.
The customer’s account would be debited accordingly with the additional amount.
Consignment
note and
waybill This is a formal instruction to the transport firm/department to accept the goods and deliver them to the customer. The driver will usually ask the customer to sign a copy of the consignment note as proof that the goods have been delivered. Thus it is similar in function to the advice note and the delivery note but is normally only used when the carrier is a third party – i.e. not the supplier or the customer.
A “waybill” or delivery sheet is normally made out by a carrier, detailing for his driver’s convenience the list of consignments received from various senders for delivery to particular customers on his delivery round. It will provide space normally in column form for: the consignment note numbers, names of senders, names and addresses of consignees, description of package(s) and weight, and whether any money should be collected.
It also has a space for the consignees to sign to record receipt of the consignment and whether the consignment was received in good order.
Summary There are a variety of methods to pay accounts and expenses. In this chapter the reader has been made familiar with alternatives.
Questions
1. A credit sale is a
a. payment by cheque
b. payment by Visa card
c. payment by giro cheque
d. payment by postal order
2. A carrier can encourage customers to pay more promptly is to
a. offer them a trade discount
b. offer them a cash discount
c. permit them to pay by credit transfer
d. permit them to pay in cash instead of by cheque
E10 Insurance
Time
The time allotted to this subject is 2 hours.
Objectives
In this lesson you will learn:
- The system of insurance.
- The concept of excess.
- The main rules of liability.
Insurance Insurance is overlooked in many firms but is particularly important to protect the risks that occur in business activities. Insurance can cover buildings and property, vehicles and equipment, personal sickness and accident, and life. There is also additional cover such as insurance against loss of money, goods in transit and other special risks such as public liability, employers’ liability and so on.
The cover provided in return for premiums paid (so the insurance company shoulders the risk) reduces the risk of ruination of a business in the event of a serious fire, for example, or the death of a partner or major share holder, or a substantial claim for damages resulting from the negligence of an employee (e.g. a driver causing death in an accident for which he was to blame).
It is important for the insured (the person or firm who has taken out the insurance) to be aware of any policy exclusions that may prevent him from obtaining compensation when it may have been expected. In particular, on vehicle insurance the insured should not any actions that can invalidate the cover, such as operating the vehicle outside the requirements of the law (i.e. in a defective state or with unlicensed drivers). The main types of insurance, both compulsory and voluntary, are given below:
Excess clauses Especially in vehicle insurance the insurers require the insured to bear the first portion of any claim. This amount is referred to as the excess (i.e. the excess on the policy). The excess is the amount deducted by the insurance company from the total amount to be paid in compensation.
Theft
(non-
compulsory) This type of insurance policy provides cover against loss of possessions by theft, but often to substantiate such a claim there needs to be evidence of forcible entry. Policy conditions vary but insurers may not accept claims unless there is sound evidence of a criminal act and the matter has been reported tot the police.
Fidelity
guarantee
(non-
compulsory) When employees are put in responsible positions, particularly if the may be required to handle money or valuables, a firm can take out a fidelity guarantee insurance policy. The insurers investigate the employee’s background and if acceptable they will then provide cover (by bond or guarantee) against the risk of the employee disappearing with money or valuables belonging to the employer.
Motor
vehicles
(compulsory) Basic motor vehicle insurance covers the insured against claims by injured parties for personal injury and medical expenses. This, together with mandatory cover for passengers and roadside property, is the minimum legal requirement. The insured person or organisation must have in their possession a current and valid certificate of insurance showing the cover provided and it must give particulars of any conditions subject to which the policy is issued; it should indicate:
· the vehicle covered by registration number or by specification
· the persons authorised to drive the vehicle
· the dates between which the cover is effective
· the permitted use of the vehicle
Insurance cover on a vehicle can be invalidated for a number of reasons including the non payment of premiums, employment of unlicensed or incorrectly licensed drivers, the use of a vehicle in an road unworthy condition, failing to report an accident to the insurers or admitting liability at the scene of an accident or otherwise being in breach of policy conditions.
Goods in
Transit
insurance
coverage Vehicle insurance covers risks of loss or damage to the vehicle itself, but not the load it is carrying. This is covered by a Goods in Transit policy which provides protection against loss or damage to the load based on a standard validation. Usually insurers need to be advised if exceptionally valuable or vulnerable loads are carried. Failure to do so can result in invalidation of the cover or refusal by the insurers to pay out claims. In any event the form could lose heavily if it is not adequately covered.
Goods in Transfer policies usually specify restrictive clauses that require vehicle owners to observe particular conditions as follows: vehicles must be fitted with anti-theft devices that must be put into operation when they are left –‘immobiliser clause’; and loaded vehicles must be left in a closed building or yard which is locked or guarded – ‘night risk clause’.
The phrase ‘goods in transit’ can refer either to the insurance taken out by the goods owner themselves to cover their consignments in transit or the insurance taken out by the carrier to protect their contractual liability to the goods owner under the contract of carriage. In practice, when a carrier tells a goods owner they are insured, they may have insured their contractual liability only and not the actual goods.
There is no legal compulsion to hold a Goods-in-Transit Policy. Nevertheless, statutes, the common law and conditions of carriage do impose onerous financial liabilities on hauliers.
For the purpose of meeting those liabilities, in the domestic haulage world, a Hauliers’ Goods-in-Transit Liability Policy is virtually a necessity.
For the purpose of meeting those liabilities in international haulage, a CMR liability insurance is required.
Owner’s
Position From the point of view of the owner of the goods, in both the national and international scene, the carrier has defences to claims made upon him. Even if the carrier has no defence to or limitation on the amount claimed, the goods owner, with their valid claim, has to rely upon the carrier having insurance or, failing this, the carrier having enough finance to meet the claim. The owner of the goods is, therefore, strongly advised to have his own goods-in-transit insurance under which any rights they may have against their carrier can be subjugated to the insurance company.
Carrier’s
Position Under CMR, as we have seen the carrier has certain defences to and limitations of a claim as follows:
- If the vehicle (carrying the goods) is being carried by sea, rail, inland waterway or air, and if the goods be lost or damaged peculiarly by that other mode of transport, the carrier’s liability is determined by whatever law or convention would apply to carriage by that other mode of transport.
- The carrier is under no liability at all to pay if the loss is caused by:
- the wrongful act or neglect of the claimant.
- instructions of the claimant given otherwise than as a result of a wrongful act or neglect on the part of the carrier.
- circumstances which the carrier could not avoid and the consequences of which he was unable to prevent.
- inherent vice of the goods.
- the use of open unsheeted vehicles when their use has been expressly agreed. (except in the case of specially equipped vehicles.)
- the lack of or defective condition of packing.
- handling, loading, stowage or unloading by the sender or the consignee.
- the nature of certain kinds of goods which exposes them to total or partial loss or to damage.
- insufficiency or inadequacy of marks or numbers.
- The carrier is relieved of liability if the claim is not made within specified time limits or if actions are not started within specified time limits.
Owner’s