SS2 Third Term Commerce Lesson Note – Credit

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WEEK 5

TOPIC: CREDIT

CONTENT:

1. Meaning of Credit
2. Sources of Credit
3. Functions of credit to Retailer, wholesaler and Credit instrument

Sub-topic 1: Meaning of Credit.

Credit is the ability of a person, individual or corporate entity to buy and enjoy goods and services and pay at a future date usually with interest. The credit worthiness of the buyer must be taken into consideration before granting credit so that it will not lead to bad debt. There should also be contractual agreement between the seller and the buyer.

BASIS FOR CREDIT SALES.

Credit can be granted based on the following

1. The income of the buyer
2. Sources of payment
3. Integrity of the buyer
4. Availability of guarantors
5. Present employment
6. Time of payment.

SUB-TOPIC 2: SOURCES OR TYPES OF CREDIT

Sources of credit are as follows:

• Loans: These are formal credits granted to a customer repayable at an agreed date, place and condition. Loan could also be given informally by friends. Loans require collateral securities
• Overdraft: This is a formal credit granted to customers with current accounts. An overdraft allows a customer to withdraw sums of money in excess of his credit standings. The amount overdrawn is redeemed subsequently as he makes future deposits with interest.
• Lease: This is the permission granted to a leaser to use to use equipment, land plant or machinery for a given purpose {e.g., for the production of goods or rendering of services} over a period of time at an agreed condition.

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