Terms of trade

SPECIAL TRADE TERMS AND MEANS OF PAYMENT TERMS OF QUOTING PRICE.

1. CIF (Cost, Insurance and Freight): A price quoted CIF simply means that it includes the cost of goods insurance, carriage to the port of destination but exclude delivery from the dock to the purchaser’s premises. The importer is responsible for other charges.
2. FOB (Free on Board): It simply means the cost of goods and the expenses incurred for putting goods on board a ship are included. That is all the expenses incurred until the goods have been placed on a ship are borne by the seller while the buyer is responsible for the cost of unloading the goods.
3. FOR (Free on rail): This price quotation is used when rail transport is used. It means that the seller bears all the charges including leading the goods on rail. The buyer has to pay subsequent charges.
4. FREE Dock: This is an exporter’s price quotation, which includes the cost of the goods but transport charges only is for the docks from which the goods are to be shipped.
5. F (Cost and Freight): “Cost and freight” means that the price quoted covers carriage of the goods to the importer’s destination but excludes payment for insurance.
6. A.S. (Free Alongside Ship): This means that the price quoted includes all charges involved in conveying the goods to the ship but does not include cost of loading the goods onto the ship.
7. Free On Quay (F.O.Q): This means that the price quoted includes all charges and expenses involved in delivering the goods to the quay. The buyer takes responsibility for loading onto the ship.
8. FRANCO: “Franco” means that the price quoted covers all charges involved in carrying the goods up to the warehouse of the importer.
9. Ex-Ship: “Ex-Ship” is a term of sale which indicates that the seller is the one who bears the cost of carriage until the goods have been properly unloaded from the ship at the port of destination.
10. Carriage Forward: A price which is quoted “Carriage Forward” represents only the cost of the goods to which the cost of transportation will be added at a later date. This applies in a situation when the seller cannot estimate the cost of transport, but he will nevertheless deliver the goods to the destination of the buyer and add transport later.
11. Cash On Delivery (C.O.D): “Cash on delivery” means that the buyer may not be allowed to take possession of the goods until he has made payment for them. This term of sale is used in order to sustain the seller’s right to repossess the goods even if the goods are in the possession of the buyer or his agent.

DISCOUNT: This can be defined as an amount of money that is taken off the price of a product in order to encourage bulk purchases and immediate payment.

REASONS FOR GRANTING DISCOUNTS

1. To encourage bulk purchases.
2. Helps to avoid the risk of bad debts.
3. To encourage prompt payment.
4. Discount attracts customers.
5. It avoids tying down of capital.
6. To provide for the retailer’s profit.

TYPES OF DISCOUNT

1. Trade Discount: This is an allowance given by the manufacturer or wholesalers to retailers in form of deduction from catalogue price of goods supplied to cover the retailer’s margin.

Feature of Trade Discount

1. Allowed for quantity purchases.
2. Appears in the day book alone.
3. Allowance off the invoice price.
4. It must be deducted before cash discount.
5. Cash Discount: This is a percentage allowance for prompt payment of an account or for payment within a specified period of time.

Features of Cash Discount.

1. It is conditional.
2. Appears in the accounting records.
3. It ensures prompt payment.
4. It is deducted after trade discount has been deducted.

3. Quantity Discount: This type of is discount given to buyers who purchase goods in large quantity in a single delivery. Most quantity discount arrangements apply to either single order or single delivery. Quantity discount are deductions from the list price by a seller to encourage customers to buy in large quantity or to make most of their demand from him.

Features of quantity discount.

1. It is given to buyers who buy in large quantity.
2. It applies to a single order.
3. It is an additional way of reducing price.
4. It is based on the size of the purchases.

4. Seasonal Discount: It is a discount given to customer who places an order during the slack season. This discount may be offered to stimulate sales at special times of the year e.g off-peak period.

Features of Seasonal Discount

1. It is offered at special time of the year.
2. It is offered to stimulate sales.

Items of Payment.

1. Prompt cash.
2. Cash on delivery.
3. Cash with order.
4. Spot cash.
5. Monthly account.

Means of Payment.

2. Bank drafts.
3. Standing order.
4. Credit transfer.
5. Credit cards
6. Direct debit

Post Office System Of Payment

1. Postage Stamps: This is used in paying small amount on items being bought such as in sending for samples. It is a means by which small sum can be sent by post.
2. Postal Order: This is another means of payment. It is not a negotiable instrument. There are different denominations. It is useful for the transmission of small sums of money by post. It can be cashed at the post if it is not crossed. The commission charged is called poundage.
3. Money Order: This is a means of payment provided by the post office for people wishing to transmit sums of money to obtain money order, it is necessary to complete a form at a post office giving particulars of the sender and the payee. It is useful when the sender had no current account.
4. Telegraphic Money Order: A means by which a sum of money can be sent from one place to another without wasting time. Here, the issuing officer sends a telegram to the payee’s post office, the payee having to give proof of his identity before being paid.
5. Postal Giro: This is a means of making monetary transfers provided by the post-office as an alternative to postal order or money order. Accounts will be opened with the post office. Debts between accounts holders can be settled by transfers from one account to another and no interest is paid.

ASSIGNMENT

1. State the reason for granting discount
2. Explain the type of discount