How Do Credit Sales Helps Or Affects A Business

In principle, the seller should record the credit sales transaction when the ownership of goods is transfered to the buyer. However accountants practically record transactions at the time of sales, invoice is prepared and the goods/service is been transfered to the buyer.

TYPES OF CREDIT SALES:

Credit Instruments.

LOAN. is a money borrowed from financial institution or individuals and its subject to repayment with interest. And before loan can be given out there must be a qualateral being set out by the collector of the loan in respect of indemnity when he pays back the money he borrowed. The qualateral might be one of his valuable asset though, not worth same as the price of the loan he/she is lending. Loan is always higher in price than the qualateral been set out for it, qualateral is an asset inwhich the individual collecting a loan brings to the financial institution or an individual to hold before the repayment of the loan is been recieved.

BANK OVERDRAFT. This is a credit facility offered by the bank to customers who are current account holders to withdraw cash more than what they are having in their account. Subjected to repayment.

BOOK-ME-DOWN. This is a credit system, it is common with low income earners. workers buy goods from sellers and their names are booked(written down in a record book) they pay as soon as they receive their salaries.

TRADE CREDIT. Its a credit system where whole saler allow retailers to collect goods without mmaking immediate payment. Also manufacturers also collect money from wholesalers inorder to produce for them.

CREDIT CARDS. This system allow the holder of the particular card to make purchases without using cash. Credit cards are sponsored by companies where people pay money before the card are issued to them. On every purchases made when the card is swiped on the credit card machine, the account of the credit card owner will be debited.

MORTGAGE. This a credit system where by credit is given to people by mortgage bank or building societies to build a house,purchase a house or land. In the case of repayment, multiple years is been given to the collector by mortgage bank or building societies depending on the mode of agreement between them.

HIRE PURCHASE. The seller allows the buyer the possession of the goods after making an initial payments. The balance of the amount is paid instalmentally based on the agreement between the seller and the buyer. Ownership of the goods is not transfered to the buyer until the final instalment is paid. For example, the cash price of a mercedes benz car is $580,000 and the hire purchase price is $774,900 and the buyer deposited $180,000 at first and he is subjected to pay the rest cash in three years time instalmentally, which is, first year $198,000 second year $198,000 and the third year $198,900. From the amount been deposited by the buyer and the three instalmental payments when added together, it arrives at the amount($774,900) of the mercedes benz sold. At this time ownership is been transfered to the buyer and if there is default in payment by the buyer after those 3years agreed between them of payments to be made. The seller has the right to collect his property (mercedes benz) from the buyer. Court order!

HOW CREDIT SALES HELPS A BUSINESS.

SALES AND PROFIT. When credit sales are made in a business it increases sales and due to to more goods been bought on credit at the time of settlement of of debt by the debtors, the business enjoys more profit.

IT REDUCES RISK OF HOLDING STOCK fOR LONG. When goods/services are sold on credit it saves the business from holding for too long, goods that are pose to have been sold out due to no cash sales made. Credit sales aslo helps in (FIFO) first in, first out of goods in business to avoid goods staying too long in the warehouse or store. The aid of credit sales sell out the goods that came into the store first so there can be space for new goods to come in. It reduces the risk of rotten goods or breakdown of bulky goods.

HOW CREDIT SALES AFFECTS A BUSINESS.

1.LEADS TO ADDITIONAL EXPENSES IN RECOVERY OF MONEY. sometimes when goods are been sold out on credit, the seller losses more money on miscelleneous expenses on the road of trying to track his his debtors to recover his money of goods sold on credit.

2.INVOLVEMENT IN COURT ACTIVITIES. Due to payments not made by the debtors and the seller sues the debtor to court, there is still charges that will be collected from the seller before he recovers his money.

3,BAD BEDT. This arises where the debtor leaves that vecinity or perhaps died, the seller cannot recover his money.