Content:

Student Notes on Business Documents

The complete process of supplying goods or services from the initial enquiry to eventual payment is
called a transaction.

Businesses need documents to:

 Ensure that there is no confusion about what has been taken place between the buyer and seller.
 Provide a record or proof of that activity at a later date.

Process of documentation
A person wishing to buy goods will try to find out information about those products. He will send a letter
(or many sellers), requesting information such as:
 Specifications (details of the goods)
 Prices
 Delivery period, etc.
 Primary procedures.

The enquiry may be a letter, or it may be a standard printed from on which the information required is
filled in. Sometimes rather than send enquiries direct to prospective suppliers, an intending buyer may
invite perhaps by advertisement, any number of people to make an offer (or tender) for supply of the
goods or services required.

A tender is a competitive quotation, one submitted in competition with other tenders.

The supplier who submits the tender which appeals most to the buyer will usually be sent a contract
which states exactly what has been agreed.

Quotation

Having received the enquiry the seller will send a quotation that says what he can offer. This can take
many forms. He might send a price list which gives a description and price, or he might send an
illustrated leaflet or catalogue with prices illustrated.

The seller may send a letter which gives details of prices as well as descriptions of the items to which the
enquiry relates. Where the seller is unable to quote a precise price, he quotes an estimated or expected
cost.

Apart from prices and specifications, the quotation also gives details of discounts offered.

 Trade discount: given to people in the same trade as the seller to enable them to make a profit on
resale.
 Quantity discount: given to encourage the buyer to place a large order.
 Cash discount: this is shown as ‘terms’ on many documents; it is given to encourage prompt
payment.
The quotation also includes details of the arrangements for carriage (transport) of the goods. In order
words it state who is required to pay for transport costs.

 Carriage paid (carriage outwards): The cost of transport of goods is included in the price, in other
words the seller pays transport costs.
  Carriage forward (carriage inwards): The cost of transport is not included in the price and must
be paid by the buyer of the goods.
 Ex works: This is similar to carriage forward in that when a price is quoted ‘ex works’, the price
refers to the goods at the factory, i.e., carriage is additional to the price.

The foregoing are the main terms that are used in quoting and trading, but there are some others that are
used (usually in abbreviated form) that you should be aware.

 C/F (cost and freight): cost includes freight charges.

 CIF (cost, insurance, and freight): same as above, but also includes cost of insurance whilst
goods are in transit.
 FOB: (free on board): cost includes freight charges, including loading on to ship.
 FOR (free on rail): same as above but includes loading on to the rail wagon.

Purchasing Order

If the buyer finds the quotation satisfactory, he will send the seller an official order, which advises him of
the:
 goods that are required
 place to be delivered
 date delivery required
 agreed price

To call the document requesting internal supplies an ‘order’ could be confusing, so to differentiate
between an internal and external order an internal request for supplies is called a requisition.

Acknowledgement of order

Having received the order from the customer, the seller sends an acknowledgement stating:
 that he has received the order
 that he is willing to supply the goods required
 when he expects to carry out delivery
The acknowledgement may be in the form of a letter or a printed form. It looks similar to the order
because it is sending back the same information as the order supplies.

Dispatch
Advice Note

The advice note is sent ahead of the goods to advise the buyer (‘consignee’) that the goods are on the way
to her and that she should expect their arrival. If the goods do not arrive within a reasonable period of
time dependent upon how far the goods must travel) then the buyer will notify the seller (‘consignor’) so
that he can make enquiries with the carrier of the goods.

The advice note is sent to the buyer’s office and may show prices as well as details of the goods being
sent.

Delivery note

The delivery note is usually packed in with the goods, and when the buyer unpacks the parcels, she will
check that she has received the items stated on the delivery note. Where a company uses its own vehicle
to deliver goods the driver will be given a carbon copy of the delivery note which he will get the receiver
of the goods to sign to confirm delivery.

If the goods are delivered by transport other than the seller’s own, then a document, very much the same
as the delivery note but called a consignment note, is given to the carrier to obtain a signature.

Charging
The invoice

This is one of the most important and probably the most well known of trading documents. It is sent from
the seller to the buyer to advise her how much she owes the seller for a particular delivery of goods.
The invoice states:
 the quantity of goods supplied
 the individual prices
 the total amount owed.

E & OE (errors and omissions excepted) – the seller is telling the buyer that he reserves the right to
correct any error made on the invoice at some later date.

Terms – 5% 7 days, 2.5% 28 days, otherwise net - This wording in the invoice refers to a cash discount
which the seller offers to encourage the buyer to pay the debt quickly. If the amount owed is paid within
seven days, the seller will allow 5% off the invoice price. If the buyer takes more than seven days, but
less than twenty- eight to pay, the

Pro-Forma Invoice
The pro-forma invoice is frequently used by the seller to charge a customer for goods in dispatch, but it
can also be used when goods are sent on ‘approval’ or on ‘sale-or-return’ basis.

Statement of account

The statement of account is sent by the seller to the buyer at the end of each month to summarize the
trading position since the previous statement was issued, and to request payment of the outstanding
balance. It shows all the following:
 the amount outstanding from the previous month’s statement;
 the date, value and document number of each subsequent transaction;
 the cumulative balance;
 payments received since the last statement was issued;
 current balance outstanding;
 discounts offered for prompt

Payment for goods and services

There are a variety of arrangements that may be made between the seller and the buyer for payment of
goods and services supplied, and these will be influenced by how well the seller knows the buyer. The
buyer may pay:

 In advance
o cash with order (CWO); or
o in response to a pro-forma invoice.
 Cash on delivery (COD)
 o The carrier will be expected to collect payment before handing the goods over.
 On receipt of invoice
o To gain the benefit of cash discounts offered by prompt payment
 Against statement of account
o Payment delayed until the end of the month to take full benefit of trade credit allowed.

Payment of debts

 By cheque – the most popular in business is for payment to be made by the cheque. Where the
buyer sends a cheque covering only some of the invoices listed on the statement a remittance
advice note will also be sent listing the invoices which the cheque is intended to pay.

 By cash - For small amounts, cash in the form of coins and bank notes may be used. These are
legal tender. This term refers to the universal acceptance of certain amounts of payment where
there is no doubt about their worth. In respect a cheque is not a legal tender, even though it is one
the frequently used methods of payment.

 Banker’s draft – This is a cheque drawn on a bank instead of a person’s bank account. A
banker’s draft is guaranteed by the bank. This makes the draft as good as cash because the bank
has guaranteed it for the customer, who has paid the value of the draft to the bank in advance.

Correcting Mistakes
Two documents are used to effect changes in invoice values, the credit note (usually printed in red) and
the debit note (printed in black).

Credit Note - This is sent by the seller to the buyer to correct an overcharge to give a refund. It has the
effect of reducing the charge made.

Reasons for issue include:

 an invoicing error has resulted in the customer being overcharged:
 some of the goods have been returned as faulty;
 too few goods were delivered;
 refund on returned packing material.

Debit Note - Sent by the seller to the buyer to correct an undercharge. The debit note has the effect of
increasing the charge made.

Reasons for issue include:

 an invoicing error has resulted in the customer being undercharged; too many goods were sent,
and the buyer has agreed.