8. Credit Sales

Starting up

Discuss the following questions:

1. What is the difference between retailers and wholesalers?

2. Why do some people prefer to buy on credit?

3. What are the drawbacks of receiving credit?

Reading

1. Go through the following vocabulary notes to avoid difficulties in understanding.

net (n.) - pure profit	delay (n.) - hold-up
drawback (n.) - obstacle	accumulation (n.) - capital formation
inducement (n.) - motive

2. Read the text again and decide whether these statements are true (T) or false (F).

1. Cash discount is the way to encourage retailers to pay promptly.

2. A wholesaler helps to finance a retailer.

3. Credit widens the retailer’s profit margin.

4. Accumulation of bad debts is the chief danger in allowing credit.

5. There are three main groups of people who prefer to buy on credit.

6. Nowadays it is usual for retailers to offer their customers a cash discount.

7. It is impossible to secure payment of all accounts.

III. Now read the text and check your answers to the statements from ex. II.

Retailers frequently purchase goods from wholesalers on credit, the most common period being for one month. In order to encourage retailers to pay promptly a wholesaler may offer a cash discount payment which is made within seven days on monthly accounts he may possibly allow a smaller discount but if permit the delay beyond one month it will require the full amount to be paid, that is, will then be net.

A retailer who can obtain goods on credit will be able to run his business with a smaller amount of capital than would otherwise be possible. Since in such circumstances the wholesaler is helping to finance the retailer, he will, on the other hand, require a much greater amount of capital.

The drawback to receiving credit is that it narrows the retailer's profit margin, since in effect he has to pay a higher price for his stock. From the point of view of the trader allowing the credit the chief danger lies in the accumulation of bad debts plate allowing credit to his customers. Many retailers, especially those operating on a large scale, insist upon all sales being on a cash basis. In competition with these firms others can offer their customers an extra service in the form of credit. There are two main groups of people, who prefer to buy on credit 1) those who spend their wages quickly and so find themselves temporarily short of cash between pay days 2) those who find it more convenient - perhaps because they are paid monthly to pay at a longer interval, probably by cheque.

Thus, by granting credit the retailer hopes to enlarge his circle of customers, and so increase his turnover. Nowadays it is not usual, however, for retailers, unlike wholesalers, to offer their customers a cash discount as an inducement to pay promptly, although at one time it was not uncommon for a small discount to be allowed on customers’ monthly accounts. Indeed, those customers who pay for what they buy at the time of purchasing often have to pay rather more at a shop which grants credit than they would pay at one where all transactions are for cash. The reason is that the retailer who grants credit charges slightly higher prices than other retailers in order to cover himself against bad debts. However careful he may be in his selection of customers to whom to allow credit he will find it impossible to secure payment of all his accounts.

Text Comprehension

4. Answer these questions using the active vocabulary of the text.

1. How can a wholesaler encourage retailers to pay promptly?

2. What does buying on credit give to retailers?

3. What are the drawbacks to receiving credit?

4. What kind of people prefer to buy on credit?

5. What is the reason for the retailer to grant credit?

4. Read the text and find the English equivalents to the following Russian words.

a. маржа	f. оптовая фирма
b. сразу	g. добывать, приобретать
c. главный	h. закупать
d. запас товаров	i. стимул
e. предоставлять	j. скопление

4. Find the definitions of these words and phrases in the text.

1. to reduce (the regular price, cost, etc.) by a stated percentage or amount

2. the continuous growth of capital by retention of interest or earnings

3. an obligation to pay or perform something; liability

4. the minimum return below which an enterprise becomes unprofitable

5. to acknowledge the validity of smth.

4. Look for details in the text and choose the proper option.