TERMS AND DATINGS

CHAPTER 6
 TERMS AND DATINGS
 Commodity as a factor
The nature of the commodity generally circumscribe the terms of sales
 Geographic considerations
The seller recognizes the distant location of the buyer.
 Seasonal dating
The “regular terms” of trade usually apply to shipments of orders received
for delivery at once.
 Terms in retail trade
Most sellers grant credit to their buyers who continue to extend their
patronage through the years.
 Standing of the customer
It need not be stressed herein that there exist a correlation between the
grant of credit and the time of payment.
LACK OF UNIFORMITY IN TERMS
 As a general observation, terms vary in different trades. In fact, at times,
even within the same trade, business houses sometimes differ in the
terms granted.
 Furthermore, it is possible that the same seller may differ in the terms
granted to customers, and sometimes in the terms granted to the same
customer.
 Experience, however, has shown time and again that advantages so
obtained are of short duration
FACTORS IN FIXING TERMS

THE COMMODITY AS A FACTOR

 The nature of the commodity generally circumscribe then terms of sales.
 Perishable products are generally sold on the cash basis, or close to cash
terms. In the case of the latter, they are subject to very short terms
 Basic necessities are saleable which are sold on cash basis.
 Luxuries and non-essential items are sold on credit, and are oftentimes
offered with discount.
 Piano, household appliances are often sold on installment basis which
cover long periods of payment.
 Construction materials obtained by manufacturing firsm are on deferred
payment.
 Transactions that largely involve labor which is paid on cash by the seller
are usually kept on cash or very short terms.
 Heavy agricultural equipments are sold on installment basis through a
financing company.
 GEOGRAPHIC CONSIDERATIONS
 In a number of instances, the seller recognizes the distant location of the
buyer, and accordingly makes a concession in the matter of terms. This
may be represented by an extra 30 days time in which to pay the bill, or
by allowing a longer period for the taking of the discount. Thus, where
the discount would ordinarily be deductible only if the bill is paid 15 days
from its date.
 In such cases, the terms are sometimes expressed as “15 days, R.O.G.”
that is. 15 days from receipt of goods.
 SEASONAL DATING
 The “regular terms” of trade usually apply to shipments of orders received
for delivery at once. However, in many lines of a seasonal nature, it is
necessary to place so-called “advance” orders, that is, orders for the later
delivery, to coincide with the market demand.
 Such orders give the manufacturer or importer time to get the
merchandise ready thus to enable him better to plan to operate more
economically. He may receive the orders in advance, which are to be
shipped at a certain date,
 TERMS IN RETAIL TRADE
 The terms of retail credit may vary from one retailer to another. As a
common practice, though, such buyers are required to make monthly
payments to cover part of their outstanding obligations.
 STANDING OF THE CUSTOMER
 In need not to be stressed herein that there exists a correlation between
the grant of credit and the time of payment. Until such time as payable is
made, credit risk is ever present.
 For this reason, some conservative businessman refuse to sell goods on
credit to those customers with doubtful character and certainly with
unknown capacity to pay. In some cases, the seller may opt to sell to him
a very limited quantity of goods on credit terms.
 Sometimes, the credit period may be reduced, that is from 45 days to 15
days or so.
 CASH TERMS
 Where it is intended to extend credit under any terms whatsoever, it
should be made clear that goods shall be delivered to the buyer only
when the seller obtains receipt of funds corresponding to value of goods
ordered. This practice is in accord with “Cash before Delivery” or the
abbreviated term, CBD.
 This applies specifically to transactions in which the seller receives the
cash payment as a condition to delivery of goods, an ironclad protection
of the seller’s interest.
 The most common practice in business transaction is known popularly
under the abbreviated term COD known as “Cash on Delivery”.
 OTHER TERMS:

END OF MONTH (E.O.M.)

 This arrangement springs from the need of the active buyer for
convenience in making payments, and from the desire of sellers to
encourage the concentration of business.
 This makes it necessary for the buyer to issue checks to the seller
throughout the month in order to earn discounts.
 It also helps facilitate the seller’s bookkeeping.
 Under this arrangement, it is understood that all shipments made during a
particular month are to be considered as though they were made on the
last day of the month, and the terms run from the last day.
 A modification of the EOM arrangement is sometimes adopted. This
provides for two payments a month. Under the plan, all bills dated first to
the fifteenth of the month are considered as dated from the sixteenth to
the end of the month are considered as dated last day of the month.
 DISCOUNTS
 An integrated part of the terms is the discount.
 Apart from determining the maturity bills, the terms may also provide
insights into the periods prior to maturity when cash discounts may be
taken.
 The cash discount refers to the amount allowed for payment prior to the
maturity of the bill. Such payment reduces the credit risk of the seller,
and enables him to have earlier possession of funds. For this reason,
he allows a discount, which is usually in excess of the rate of the bank
interest.
CASH AND TRADE DISCOUNT:
CASH DISCOUNT
 A cash discount, strictly speaking, is the price for the earlier payment of
funds. It arises where the terms allow the buyer to pay on a certain
date, net, or prior thereto, less a discount. The discount is the bonus
offered to induce the earlier payment of the bill.
 TRADE DISCOUNT
 A trade discount, on other hand, is intended as an allowance from the
price, when published price lists are issued, the discount render the price
greater flexibility in relation to varying quantities purchased to changing
market conditions.
 Furthermore, the discount may be an allowance offered at the end of a
given period for purchases in excess of its stipulated amounts. As a
marketing strategy, it is intended for the development of string business
ties between the seller and buyer. It helps build long and lasting
relationships between them.
 Trade discount is distinctly an element of price.