UNIT 10. Selling on credit
BUSINESS TERMS
set an upper limit to the amount
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установить верхний предел на сумму
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finance business transaction
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финансировать сделки
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without reminder
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без напоминания
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pay on schedule
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платить по графику
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eventual losses
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возможные (конечные) потери
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equal payment
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равные платежи
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remit total price
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перечислить общую цену
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pick the credit customer
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выбрать клиента для кредитования
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collection agency
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агентство, занимающееся сбором денег
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reasons for nonpayment
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причины для неуплат
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revolving account
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автоматически возобновляемый счет
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total retail sales
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общий объем розничных продаж
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become overdue
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стать просроченным
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grant credit
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выделять кредит
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specified percentage
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специально установленный процент
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installment account
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счет для уплаты в рассрочку
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open account
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открытый счет
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certified copy of the statement
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заверенная копия счета
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down payment
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первый взнос
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budget account
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бюджетный счет
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TEXT
There are few axioms in the world of business, but one of them is "if you sell on credit you will increase sales, even to the same customers to whom you previously sold for cash only". This alluring proposition has great appeal to small business firms. Sales are the foundation of profits, and anything that will help to increase sales commands the attention of competent business owners.
Trade credit is credit extended from one business firm to another. Consumer credit is credit given by retailers to their customers, who are the final users of the products or services sold. Sales by manufacturers and wholesalers are almost always made on a credit basis. Retail sales on credit are about half of the total retail sales in the country.
Our business world could not operate without credit. There is not enough currency and coin in the country to finance business transactions carried on every day. Total bank deposits exceed the actual money in the country several times over. The key is credit extended throughout the economy. A good credit standing is essential to business success. Business owners must look for good credit standing of firms or individuals to whom they grant credit.
There are at least four basic types of consumer credit accounts.
Open accounts1 are ordinary charge accounts2. With this type of account the customer charges all purchases throughout the month and is expected to pay the total charges when a statement3 is sent by the firm. Most firms send out statements monthly, but full payment each month is not insisted upon.
Revolving accounts4. It would appear that revolving accounts were designed for customers who live with external indebtedness5. The firm sets an upper limit to the amount that may be charged, and any purchases below that limit are automatically approved for credit sale. The customer must then pay a certain amount or a specified percentage of the total charges at the end of each month.
Installment accounts6 were specifically designed to make possible the sale on credit of larger purchases. The customer makes a down payment7, preferably at least 20 % of the total purchase price, and the balance is spread over a monthly payment plan. Good business practice limits such payments to not more than 3 years. Many installment accounts are for a shorter period. Carrying charges are added to the amount due 8, usually up to 1 percent per month.
Budget accounts9 are designed to handle payments that ordinarily fall between short-term open accounts and longer-term installment accounts. No down payment is required, and customers are normally given 3 months to remit the total price in equal payments. Customers are expected to make payments without reminders in the form of statements from the seller.
Credit customers who do not pay on schedule cause the firm several problems. The best course of action when accounts become overdue is to minimize the eventual losses by taking the following steps:
– Send a second statement 60 days from purchase. This could include a note to the effect that10 "Perhaps our first statement was not received or was mislaid. We know you would not want your credit status impaired".
– Telephone the customer or send a telegram in 70 days, asking the reasons for nonpayment.
– Send a third statement in 75 days. Include a note to the effect that "Your credit status is at stake. We are forced to turn over accounts 75 days old to our collection agency or attorney".
– Send a registered letter in 80 days, including a certified copy of the statement, saying that the account is being referred to the collection agency.
– Turn the account over to the agency or the firm's attorney for legal action in 90 days.
Small firm owners usually have an advantage over large firm owners in this situation, since they know their customers better. If this is so, they can usually accomplish more through personal contact with the customer than by resorting to the steps just described. But the possible delinquent situation should always be anticipated by picking the right credit customers in the first contact.
Notes: 1. открытый счёт (амер.); текущий счёт (англ.); 2. кредит по открытому счёту; 3. выписка счёта, расчёт; 4. автоматически возобновляемый счёт; 5. задолженность; 6. счёт для уплаты в рассрочку; 7. первый взнос; 8. причитающаяся сумма; 9. бюджетный счёт, счёт потребительского кредита; 10. следующего содержания.
COMPREHENSION
1. Answer the following questions.
1) What are the main types of credit?
2) What is the difference between trade credit and consumer credit?
3) What are the basic types of consumer credit accounts?
4) How does a revolving account work?
5) Is an installment account different from a revolving account? How?
6) When would you recommend use of a budget account?
7) What is recommended to handle delinquent accounts?
2. In each of the following, select the word or phrase that best completes the statement or answers the question.
1) If after six months a business shows no profit, it will probably
a. fail c. require a partner
b. succeed d. sell at a profit
2) Long-term credit is usually used for
a. supplies c. new equipment
b. payroll cash d. inventory
3) The ability to pay back a loan is called the creditor's
a. character c. capital
b. capacity d. conditions
4) One of the advantages of a business selling goods on credit is a (an)
a. increase in working capital c. decrease in steady customers
b. increase in operating costs d. increase in sales volume
5) One of the disadvantages of a business selling goods on credit is a (an)
a. increase in operating costs c. increase in sales volume
b. decrease in working capital d. increase in steady customers
6) A customer buying a dining-room set would most likely use which one of the following types of credit?
a. charge account c. installment sales account
b. open account d. cash
7) One of the most popular forms of installment credit is the
a. bank account c. open account
b. revolving account d. charge account
8) The first step in collecting from credit customers is to
a. inform them of the amount due c. take legal action
b. close the account d. repossess the product
9) Credit is sometimes extended to a business by a supplier in the form of
a. credit c. a bank note
b. cash d. all of these
10) The ability of a business to buy goods and services when needed with a promise to pay later for the goods and services is called
a. capacity c. capital
b. credit d. income
11) Which of the following services is not provided by a bank?
a. loans c. assessments
b. savings accounts d. protection against bankruptcy
WORD STUDY
3. Match the words with their definitions.
indebtedness, down payment, currency, deposit, purchases, charge, statement, certified copy, price, to finance
1) Those goods that a business buys with the intention of selling by way of trade, not goods bought for use by the business.
2) The rate at which a commodity can be exchanged for another commodity or for money.
3) To provide or arrange means of payment.
4) A sum owed; debts in general.
5) Money or its equivalent deposited with a person or organization, especially a bank, for safe-keeping, or as security, or to bear interest.
6) Immediate payment; the first payment under a mortgage or hire-purchase agreement.
7) Any kind of money that is in general used as cash; any generally accepted means of payment.
8) A loose-leaf sheet supplied by a bank to each customer, giving details of all debits and credits made.
9) A copy of a document which has on it a formal declaration signed by an official that it is a true copy.
10) A sum of money that has to be paid as a price, especially for services.
4. Supply the sentences with the missing words.
payments, user, customer, price, statement, amount, attorney, advantage, non-payment, accomplish
1) She explained the ... of the new system over the old one.
2) The early computer ... had to learn to speak the language of the computer.
3) We estimate, month by month, the ... of cash that will be needed.
4) Was the ... of rent to be optional?
5) He later became a prominent ... .
6) How were they able to ... so much so quickly?
7) There were two ... in the shop at the moment I came.
8) I get a bank ... at the start of every month.
9) Oil ... are stable for the first time in years.
10) He was in prison for ... of fines.
5. Choose the best alternative to complete the sentence.
1) As soon as an item of stock falls below its minimum ... , the computer automatically re-orders.
a. standard b. level c. grade d. position
2) Often a discount is offered as an ... to get a customer to pay promptly.
a. investment b. incentive c. interim d. inventory
3) Remember that was only an ... . The final cost could be higher.
a. enquiry c. encouragement
b. estimate d. engagement
4) The market has reached ... point so we need to concentrate on finding new products.
a. full b. saturation c. filling d. boiling
5) We hope that business will ... when the tourist season starts.
a. set off b. get up c. pick up d. pick off
6) You'll probably find furniture polish among the ... goods.
a. house b. housing c. household d. housewife
7) They've pulled down the old market and built shopping ... .
a. premises b. precinct c. franchise d. retailer
8) When ordering, please quote the ... .
a. numbered catalogue c. figure
b. catalogue d. catalogue number
9) I've just received an ... note telling me that the goods have been dispatched.
a. advice b. advise c. invoice d. advisory
10) Every month account customers are sent a ... .
a. final demand c. request
b. statement d. stocktaking
11) In the UK, VAT (value added tax) is a tax on goods and ... .
a. services b. servants c. stockings d. stockists
12) If they don't ... their account we'll take them to court.
a. set up b. pay up c. settle d. pay for
13) By mistake we have undercharged so we'll have to send her a ... note for the amount.
a. debt b. credit c. debit d. creditworthy
14) If you take the sweater back to the shop they'll want to see the ... to show you bought it there.
a. receipt b. reception c. permit d. quotation
15) It's a ... market at the moment so you should be able to pick some up at a reasonable price.
a. open b. free c. buyer's d. seller's
6. Forms of selling. Match each selling technique to its definition.
1. door-to-door selling
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a) In return for payment and a share of sales revenue, an organization licenses its (well-known) name to be used by food outlets, retailers, and others. Hamburgers, pizza, and clothing are often sold under this system.
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2. franchising
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b) Famous for its foot-in-the-door approach, everything from encyclopedias through vacuum cleaners to brushes used to be sold in this way. Now less common, as people are not at home during the day, or if they are, may not answer the doorbell.
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3. inertia selling
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c) You choose things in a catalogue (or catalog in American English) and order by post, phone, or fax. Clothes have long been sold in this way (somehow they never look as good as in the catalogue), but now everything from computers to wine is.
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4. mail order
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d) Participants buy goods (but not Egyptian artifacts) or service from a company and then sell them to the general public. They can also make money by recruiting new participants and providing training or other services. Tupperware, with its famous suburban tea-parties, were the pioneers in this field.
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5. network marketing or pyramid selling
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e) People phone you at home or work and try to sell you things. When there has been no previous contact, this is known as 'cold-calling'. Alternatively, you may phone an organization in order to buy something in a catalogue you have received from them. Anything from insurance to computer service may be sold in this way.
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6. telesales or telemarketing
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f) Insurance cover against such things as sickness and unemployment, to cover loan repayments is sold using this technique: you have specifically to say that do not want this insurance when filling in the loan application. Banks rely on customers not opting out in this way in order to sell the insurance.
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GRAMMAR FOCUS
7. Complete the sentences with one of the following:
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much
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many
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few
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little
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fewer
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less
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1) ... people realize how ... tax they could avoid paying if they studied the tax laws.
2) ... people believe they pay too ... tax.
3) There is too ... time and too ... problems to talk about irrelevant issues.
4) There isn't ... evidence to support these figures.
5) You'll pay much ... tax in the Cayman Islands than most places.
6) Very ... tax authorities have clear plans for corporation tax in the future.
7) There are ... opportunities to avoid tax nowadays.
8) ... companies operate the FIFO method nowadays.
8. Complete the following sentences with one of the following prepositions:
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over
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at
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during
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since
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for
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in
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ago
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1) ... the last few months, sales have been disappointing.
2) We have been expecting an upturn ... the beginning of the last year.
3) ... the end of last year, there was a sudden down turn.
4) He was appointed finance director two years ... and ... then he has reduced the staff by 200.
5) We went through a difficult period ... the middle of April.
6) We have raised prices in line with inflation ... three years.
7) The dips of the price index happened ... April and July.
9. Change the following sentences from active to passive or vice versa.
1) The profit and loss account summarizes the profitability of the company.
2) This company pays £1.8 million in tax.
3) The preference shareholders received a fixed dividend of £50,000.
4) Earnings of £11.5 million are retained by the company.
5) The accountants calculate the taxable profit.
6) Considerable costs have been incurred by investing in property.
7) We will maximize our profits by deferring taxation.
8) Savings would have been made by reducing production capacity.
DISCUSSION
1. How would you explain the statement "The world operates on credit"?
2. What are the advantages to small firm owners of selling on customers' credit cards? What are the disadvantages?
3. Do you believe the statement that "a firm will sell more merchandise, even to its present customers, if credit accounts are made available"? How do you explain this?
4. What kind of policy would you establish to handle delinquent accounts? Why?
WRITING
1. Write a summary of the text.
2. Express in writing your vision of the role of selling on credit nowadays and its prospects.
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