The website has the complete lesson note for all the subjects in secondary school but this piece showcases the SS2 Commerce Lesson Note on Credit Instrument. You can use the website search button to filter out the subject of interest to you.
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Credit Instrument
Credit instruments are defined as written agreements between creditors and debtors. It is used as evidence of repayment in credit transactions.
They include the following:
- Bill of exchange
- Promissory notes
- Letter of credit
- Credit Cards
- Debentures
- Trading cheques
- Vouchers
- Hire purchase contract
- Bonds
- I owe you {IOU}
- Mortgage agreements
- Lease agreements
- Bank draft.
Advantages of Credit Sales
- Credit sales increases turn over as customers buy more when they are required to pay in future.
- It enables customers to enjoy goods which they could otherwise not afford.
- It encourages saving habit as buyers have to save in order to redeem their instalmental payment.
- It facilitates the payment of durable goods.
Disadvantages of Credit Sales
- Goods bought on credit are often more expensive than cash payments
- Customers are often tempted to buy more than they are really needed.
- It leads to more clerical work and record keeping at extra cost.
- It encourages/leads to bad debt
- It may tie down capital for a long time.
- The buyer may likely lose the goods if he defaults in the last instalment.
- The seller may lose the goods or balance if buyer dies or change contract address without notice
- The seller may lose the goods or balance if buyer dies or change contact address without notice.
- There is fear of deflation in monetary value at the time of maturity of debts.
- There is the cost of litigation in case of default.
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