INTRODUCTION TO COMMERCE

Commerce refers to the activity of buying and selling goods and services, typically on a large
scale.
It encompasses various aspects of trade, including the exchange of goods, services, or money
between businesses or individuals.
Commerce involves transactions that occur both locally and globally, facilitated through various
channels such as physical stores, e-commerce platforms, marketplaces, and financial institutions.
It also includes activities such as marketing, advertising, logistics, and finance that support the
exchange of goods and services in the marketplace.
Importance of Commerce
o Economic Growth: Commerce drives economic growth by facilitating the exchange of
goods and services, which leads to increased production, consumption, and employment
opportunities.
o Globalization: Commerce enables countries to participate in the global economy by
promoting international trade, investment, and exchange of ideas.
o Wealth Creation: Through commerce, individuals and businesses generate income and
accumulate wealth by selling products or services.
o Specialization and Efficiency: Commerce encourages specialization and division of labor,
allowing businesses to focus on producing goods or services in which they have a
comparative advantage.
o Innovation: Commerce fosters innovation by creating incentives for businesses to develop
new products, services, and technologies to meet changing consumer demands and stay
competitive in the market.
o Infrastructure Development: Commerce drives the development of infrastructure such as
transportation networks, communication systems, and financial institutions, which are
essential for facilitating trade and economic activity.
o Job Creation: Commerce creates employment opportunities across various sectors,
including retail, manufacturing, transportation, finance, and marketing, thereby contributing
to livelihoods and reducing unemployment rates.
o Standard of Living: Commerce improves the standard of living by providing access to a
wide range of goods and services, improving consumer choice, affordability, and quality of
life.
BRANCHES OF COMMERCE IN MANAGEMENT
Commerce encompasses several branches within the domain of management, each focusing on
specific aspects of commercial activities. Here are some key branches of commerce in
management:
1) Marketing Management: It focuses on identifying and satisfying customer needs and
wants through the strategic planning, implementation, and control of marketing activities.
It involves market research, product development, pricing strategies, distribution
channels, and promotional efforts aimed at maximizing customer satisfaction and
achieving organizational goals.
2) Financial Management: It involves managing the organization's financial resources to
achieve its financial objectives. This branch of commerce encompasses financial
planning, budgeting, financial analysis, capital budgeting, risk management, and financial
reporting. The primary goal of financial management is to ensure optimal allocation of
resources and maximize shareholder wealth.
3) Human Resource Management: It focuses on managing the organization's human
capital to achieve its strategic objectives. It involves activities such as recruitment,
selection, training, performance management, compensation, and employee relations.
HRM aims to attract, develop, motivate, and retain a skilled and engaged workforce to
drive organizational success.
4) Operations Management: It is concerned with designing, managing, and improving the
processes that create and deliver goods and services to customers. It involves activities
such as production planning, inventory management, quality control, supply chain
management, and process optimization. Operations management aims to increase
efficiency, reduce costs, and enhance customer satisfaction.
5) International Business Management: It deals with the management of businesses that
operate across national borders. It involves understanding the complexities of global
markets, international trade regulations, cultural differences, foreign exchange
management, and international expansion strategies. International business management
aims to capitalize on global opportunities while mitigating risks associated with operating
in diverse markets.
6) E-commerce Management: It focuses on managing online business operations,
including online retailing, digital marketing, website management, payment processing,
and customer relationship management in the digital realm. It involves leveraging
technology and digital platforms to reach customers, drive sales, and enhance the overall
online shopping experience.
7) Entrepreneurship and Small Business Management: It focuses on the creation,
development, and management of small businesses and startups. It involves activities
such as business planning, financing, risk assessment, innovation, and growth strategies.
Entrepreneurship and small business management aim to nurture entrepreneurial ventures
and foster innovation and economic growth.
SCOPE OF COMMERCE
Scope means area of study. Commerce has two major areas of study:
1. Trade
2. Aid to Trade/Auxiliaries to Trade
Trade
This is the voluntary exchange of goods and services or both.
In general, it is the buying and selling goods or service with the purpose of earning profits.
Trade can be classified into two categories:
1) Internal Trade/Home Trade
This trade that is carried out within the country. It is divided into two:
a) Whole sale - this is a trader who buys in bulk (large) quantities from the producers
and sells it in small quantities to the retailers or straight to the consumers.
b) Retailers - this is a trader who buys in small quantities from the wholesaler or
producer and sell it to the consumers.
2) External Trade/Foreign Trade
This is the exchange of goods and services across the national borders. It is divided into two:
a) Imports - This is buying goods or services from foreign countries and selling them in
the country.
b) Exports – This is selling local goods or services to foreign countries.
Aid to Trade/Auxiliaries to Trade
Aids to trade are the services that facilitate trade. In other words, they are the services that make
buying and selling very easy.
The following are the aids to trade in commerce:
1. Insurance: Insurance covers risks. It is an aid to trade because it encourages business to
people to take risky business ventures.
2. Banking: The two main functions of a bank is to save money and lend money. This
money accepted and saved for customers are lent to businessmen as capital. In this way
the bank is an aid to trade.
3. Transportation: Transport helps trade by moving goods from one place to another. For
example, it moves goods from where they are surplus to where they are scarce.
4. Warehousing: This is concerned with storing goods in safe condition until they are
demanded. Warehousing aids commerce because it is the means through which
wholesaler keep goods before they are demanded.
5. Advertising: This is the activity that is concerned with informing members of the society
that particular good or services exist, their quality and functions. Advertising is an aid to
trade because it creates awareness and demand for goods and services.
 6. Communication: This is any form of interaction (i.e. discussion), letter, telephone etc
between buyers and sellers with the intentions to sell or buy. An example is a letter of
enquiry about the goods available in the warehouse.
Production is the process of making or manufacturing goods and products from raw materials or
components. In other words, production takes inputs and uses them to create an output which is
fit for consumption – a good or product which has value to an end-user or customer.
These materials are the various factors of production. Consider a simple example of paper
crafting. To make an origami, we need paper, money to buy it, and the most important technique
of folding.
Let us understand what we mean by the factors of production and their types.
Factors of Production
Anything that helps in production is the factor of production. These are the various factors by
mean any resource is transformed into a more useful commodity or service.
They are the inputs for the process of production. They are the starting point of the production
process. Factors of production are the parameters which affect the output of production.
Land
It refers to all natural resources. All natural resources either on the surface of the earth or below
the surface of the earth or above the surface of the earth is Land.
One uses the land to produces goods. It is the primary and natural factor of production. All gifts
of nature such as rivers, oceans, land, climate, mountains, mines, forests etc. are land.
The payment for land is rent.
Characteristics of Land as a Factor of Production
 The land is a free gift of nature.
 The land has no cost of production.
 It is immobile.
 The land is fixed and limited in supply.
Types of Land
1. Residential
2. Commercial
3. Recreation
4. Cultivation
5. Extraction
 6. Uninhabitable

Labor
All human effort that assists in production is labour. This effort can be mental or physical. It is a
human factor of production. It is the worker who applies their efforts, abilities, and skills to
produce.
The payment for labour is the wage.
Characteristic
 It is a human factor.
 One cannot store labour.
 No two types of labour are the same.
Types of Labor
1. Unskilled
2. Semi-skilled
3. Skilled
4. Professional
Capital
Capital refers to all manmade resources used in the production process. It is a produced factor of
production. It includes factories, machinery, tools, equipment, raw materials, wealth etc.
The payment for capital is interest.
Characteristics
 Capital is a manmade factor of production.
 It is mobile.
 It is a passive factor of production.
Types of Capital
1. Fixed
2. Working
3. Venture
Entrepreneur
An entrepreneur is a person who brings other factors of production in one place. He uses them
for the production process. He is the person who decides
 What to produce
 Where to produce
 How to produce
A person who takes these decisions along with the associated risk is an entrepreneur.
The payment for land is profit.
Characteristics
 He has imagination.
 He has great administrative power.
 An entrepreneur must be a man of action.
 An entrepreneur must have the ability to organize.
 He should be a knowledgeable person.
 He must have a professional approach.
TYPES OF PRODUCTION
Production can be classified into two;
 Direct production
 Indirect production
Direct production
 Refers to the production of goods and services for one’s own consumption.
 It is also known as subsistence production.
Examples of direct production may include cases where one grows food products for
his/her own use or where one makes clothes for his/her own use
Characteristics of Direct Production
a. Goods produced are of low quality
b. Encourages individualism
c. Leads to low standard of living
d. Can be very tiring
e. It does not encourage invention and innovation
 f. A lot of time is wasted as one moves from one job to another
g. Cheap tools are used in production
h. It is mostly done on small scale
i. Goods and services are produced for one’s own use
j. The rate of production is low
Advantages of Direct Production
a. Requires less finances
b. Required goods can be produced directly
c. Specialization is not necessary hence the producer can engage in several other activities
Disadvantages of Direct Production
a. It cannot satisfy all the needs of the producer
b. Poor quality goods are produced
c. Improvement of the quality of goods may not be possible
d. It discourages creativity and innovation
e. Variety of goods cannot be produced
f. Results in poor living standards
g. The rate of production is quite low
Reasons for the Popularity of Direct Production
a. Most producers rely on poor technology
b. Most producers have low incomes
c. Negative attitude towards commercialization of production activities
d. Poor resource endowment
e. Lack of international trade
Assignment
1. Research on what is Indirect Production
2. Advantages and Disadvantages of Indirect Production
SPECIALIZATION AND DIVISION OF LABOUR
Specialization happens when a worker only performs one task or a narrow range of tasks. In the
case of firms, specialization refers to different firms specializing in producing different goods or
services.
Division of labour refers to different workers performing different tasks in the course of
producing a good or service.

TRADE
MEANING OF TRADE
This is the buying and selling of goods and services with the aim of making a Profit.
Importance of trade:
Trade plays a vital role in any economy. The various roles played by trade in the economy
include:
1. Helps people to acquire what they cannot produce.
2. Avails a variety of goods and services thereby improving the people’s living standards.
3. Creates an outlet for goods thereby enabling the producers to dispose of their surplus
produce.
4. Creates employment opportunities.
5. Encourages specialization and division of labor.
6. Promotes peace, social relations and understanding the parties involved since they depend
on one another.
7. Provides revenue to the business and the government in form of taxes and fees charged
on the various trading activities.
8. Ensures steady supply of goods and services.
9. Exploitation of local resources as traders create goods and services using locally available
resources.
10. Encourages economic growth and development.
Classification of Trade
Home trade
Also called internal, local or domestic trade.
It refers to the buying and selling of goods and services within the boundaries of a given country.
It is further divided into retail trade and wholesale trade.
International trade (foreign trade)
This is trade that is carried out beyond the boundaries of a country
This is trade carried out between individuals or government of different countries e.g. trade
between a citizen of Kenya and a citizen of Tanzania, or trade between the government of Kenya
and the government of Southern Sudan
International trade carried out between two countries is referred to as bilateral trade and
international trade carried out among many countries (more than two countries) is referred to as
Multilateral trade.
International trade is classified into the following;
Export Trade
Which is the sale of goods and services by a country to another country or individuals in one
country to another country or individuals in one country to individuals in another country.
Import Trade-Which is the buying of goods and services by one country from another country
or by individuals in one country from individuals in another country.
Forms of Home Trade
Retail Trade
Retail trade involves the buying of goods and selling them to the final consumer.
A retailer is the trader who buys goods with a view of selling them to the final consumer.
Classification of Retail Traders
Retailers are classified/categorized according to the amount of capital they need to start and
operate their businesses and their sales volume. Thus retailers can be classified as;
23 Small scale retailers
Large scale retailers
Small-scale Retail businesses/small scale Retailers
These are retailers whose capital requirement is low and their sales volume also low. They form
the majority of retail traders and all found in all parts of the country.
Small scale businesses are easy to start and in most cases they are operated as one-man’s
business.
A small scale trader serves the needs of people in the immediate neighborhood and deal mainly
in fast moving goods such as foodstuffs, detergents, kerosene e.t.c
Categories and Types of small scale
These are two main categories of small-scale traders as shown below;
a) Small scale Traders without shops
-Itinerant Traders (Hawkers and peddlers)
-Roadside sellers
-Open air market Traders -Kiosks
-Mail order stores - Mobile shops

b) Small scale retailers with shops

-Single shops - Tied shops
-Market stalls – Canteens
TYPES OF LARGE SCALE RETAILERS
SUPERMARKETS
A supermarkets is a large-scale self-selection/self-service store that deals mainly with household
goods such as utensils, foodstuffs and clothes. It has the following features;
Features of supermarkets
1. Requires large capital to start
2. They stock a wide variety of goods
3. Offers self service facilities
4. Goods have price tags or bar codes
5. Prices of goods are fixed
6. No credit facilities are offered
7. Sell at comparatively low prices
8. Goods are systematically arranged for easy selection
9. Shoppers are provided with baskets or trolleys for convenience
10. There is minimal interaction between buyer and seller
11. There are employees who pack goods for customers at the pay points.
Advantages of supermarkets
1. Prices may be relatively low because they buy their goods in bulk and are given discounts
2. Saves time as customers are able to get most goods they require under one roof.
3. Self-service saves the customer’s time
4. Few attendants are employed thereby reducing the monthly wage bill
5. Impulse buying leads to more sales, hence high profits
6. Bad debts are avoided because there are no credit sales.
7. The price tags on goods help customers to monitor their spending.
Disadvantages of supermarkets
1. Do not offer credit facilities to customers
2. Do not deliver goods to the customers premises
3. Are found mainly in urban areas.
4. May incur losses due to pilferage of goods
5. Impulse buying may lead the customers to buying goods they may not need.
6. They are expensive to start and operate due to the large amount of capital required.
7. Prices are fixed and bargaining is not accepted, which discourages some customers.
8. Minimal personal interaction limits chances for making more sales.

HYPERMARKETS
A hypermarket is a large shopping complex/center comprising a variety of businesses managed
by different people all housed in one building
Examples; village market, Sarit Centre, Yaya Centre e.t.c
Features/Characteristics of Hypermarkets
1. Are served with good access roads
2. They have ample parking space
3. Many businesses in one building
4. Located in the outskirts of town
5. Offer a variety of goods and services
6. Occupy a large space.
Advantages of Hypermarkets
1. Offer ample and secure parking space to customers.
2. Customers can do all their shopping in one building.
3. They are usually open for long hours.
4. They may provide credit facilities by accepting credit cards.
5. There is less traffic congestion as hypermarkets are located away from urban centers.
6. Provide a wide variety of goods and services to customers under one roof.
7. They have fair prices that are customer friendly.
Disadvantages of Hypermarkets
1. Are only convenient to customers who have cars because they are situated away from city
centers.
2. They serve limited number of people due to their location.
3. They require large amount of capital to establish.
4. They can easily exploit their customers since their prices are not controlled.
5. Require large amount of space which are not available in central business district (CBD).
6. They spend a lot of security to safeguard properties.
Chain stores (Multiple shops)
Are large scale businesses with separate branches which are managed and organized centrally?
The branch managers are accountable to the head office.
Examples; African Retail Traders (ART)
Characteristics/features of chain stores
1. Are managed centrally from a head office
2. Prices are standard for all their products in all their branches
3. All branches deal in the same type of products
4. Sales are decentralized i.e. the various shops situated in different places act as selling points
or branches
5. Purchases of stock are centralized i.e. buy stock in bulk centrally and distributed to the
different branches
6. Goods can be transferred from one shop to another where the need for them is higher
7. The shops operate under one name and are similar in appearance and interior layout
Advantages of chain stores/multiple shops
1. They enjoy large trade discounts since they buy their goods in bulk centrally and is passed to
consumers in form of low prices.
2. Common costs such as those of advertising are shared.
3. Goods that do not have a high demand in one branch can be transferred to another where
their demand is high.
4. They are easily identified by their color and design.
5. They have low operational costs because of the centralized buying, storage, advertising and
accounting.
6. They serve a large number of customers because they are spread in many towns and cities.
7. The similarity of the shops in appearance and services serves as an advertising tool.
8. Risks such as losses are spread among many shops.
9. It is possible to pay for goods in one branch and pick them up in another.
Disadvantages of chain stores/multiple shops
1. Large amount of capital is required to start and maintain the business.
2. They cater mainly for the urban areas as they are situated in those places.
3. Organizational problems may occur due to their large size.
4. No credit facilities are offered except those operating exclusively on hire purchase schemes.
5. Response to market changes is slow due to the slow decision making.
6. Decision making is slow as the head office must be consulted.
7. Lack of personal touch with customers.
8. Absence of personal touch between employer and employee may reduce incentives for hard
work among staff.
9. People tend to shy away from buying similar products such as clothes and this may reduce
sales.
DEPARTMENTAL STORES
This is a group of single shops operating under one roof with a centralized management. Each
shop/department specializes in a particular line of products and is headed by its own department
manager.
Characteristics of departmental stores
1. Each department has its own manager.
2. Each department sells only one line of products.
3. All departmental managers are answerable to a general manger.
4. They offer a wide variety of goods at relatively low prices.
5. They sell goods strictly on cash basis.
6. They are usually in town centers.
7. Goods are not transferable from one department to another as each has its own variety of
goods.
Advantages of departmental stores
1. Customers can buy/access a wide variety of goods at fair prices under one roof.
2. They can afford to hire trained qualified experienced staff who provide quality services.
3. They buy goods in large trade discounts. This enables them to sell at low prices.
4. Each department is able to make independent and quick decisions that affect its operations.
5. The independence of departments ensures that the weakness of one department does not
affect each other.
6. Savings can be made on some activities such as product promotion by centralizing them.
Disadvantages of departmental stores
1. A large amount of capital is required to start and maintain the stores.
2. They require a large number of customers to operate profitably.
3. It is difficult to give personal attention to customers.
4. They cater mainly for the urban communities in which they are located.
5. They strictly sell their goods on cash basis.
6. Operational costs are high due to the wide variety of services offered.
7. Their large size could encourage theft and pilferage of goods.
8. The independence of departments can make central control difficult.
MAIL ORDER STORES
This is a type of retail business where business is carried out through the post office, telephone or
email
-Ordering of the goods is done through the post office telephone or email and delivering of goods
is done by post or courier
-There is no personal contact between the seller and the buyer and buyers get information from
advertisements.
-Goods are dispatched on the basis of cash with order (CWD) or cash on delivery
(COD).
Characteristics/features of Mail order stores
- They sell the goods through the post office
- They operate on cash with order (CWO) or cash on delivery
(COD) terms
- Heavy advertisement are involved
- Customers do not visit the selling premises.
- There is no personal contact between the buyer and the seller
- All transactions are done through the post office
- They deal with goods that are less bulky, have high value, and are durable and not too fragile
- May have large warehouses
Advantages of Mail order stores
1. They reach customers who are far for away from the shopping centers.
2. Do not require the services of sales personnel or shop attendants for skilled labor since
selling is routine.
3. Total control of distribution is possible.
4. Payments is made with order or delivery so there is little chance of bad debts.
5. Eliminates the loss associated with shop space, thus saving on rent.
6. Supply of goods is based on order thus a trader requires little working capital.
7. The method eliminates trips to congested stores and lengthy waits queues.
8. Do not require large storage space for goods.
Advantages of Mail order stores
1. Advertising and postage costs may increases the price of goods
2. There is lack of personal contact between the seller and the buyer
3. There is limited variety of goods on offer
4. Customers do not have the opportunity of inspecting goods before buying.
5. There are no credit facilities
6. The method is only suitable for those who can read and write
7. Should there be a problem with the post office. e.g industrial action like strikes, the business
may be affected.
8. Difficult to operate in places where post office services are poor or unavailable.
9. Chances of being defrauded are high.
FUNCTIONS OF RETAILERS
These can be discussed as services rendered to consumers, wholesalers and producers.
1. Offers credit facilities: Retailers are in close contact with the consumers and some may give
them credit facilities.
2. After-sales services: Retailers who sell technical goods e.g. cars, electronics e.t.c may offer
after sale services to consumers e.g. transport, installation repair e.t.c
3. Provision of variety of goods: Retailers stock a wide variety of goods from different
wholesalers and manufactures enabling the consumers to have a wide choice.
4. Advising consumers: Retailers may offer advice to consumers on choice and use of
products.
5. Availing needed goods: Retailers make goods available to consumers at the right time and
place.
6. Breaking bulk: Retailers sell goods to consumers in convenient quantities.
7. Accumulating bulk.
8. Stabilizing prices: By ensuring that goods are continuously available to consumers.
Advantages of Retailers
1. Retailers store goods and relieve the wholesalers the burden of storing goods and the
storage costs.
2. They relieve the wholesalers the burden of transportation.
3. Retailers advice wholesalers on market trends (on consumers demand) and give valuable
information.
4. They help in distribution of goods to the consumers.
5. They help in breaking bulk on behalf of the wholesaler.
6. They finance wholesalers to continue with their operations through paying for the goods.
7. They relieve the wholesaler of some risks that arise from the storage of goods such as
theft, fire and accidents.
WHOLESALE TRADE
Wholesaling involves selling goods in large quantities to traders for resale. A wholesaler is a
trader who buys goods in bulk from producers/manufactures for resale to retailers at a profit. -
There are wholesalers who carry out retailing but that do not make them retailers.
Classification of wholesalers/Types of wholesalers
Wholesalers may be classified depending on a number of factors. These factors include;
1. According to the range of goods they handle.
2. According to the geographical area in which they operate.
3. According to their method of operation.
i) According to the range of goods they handle
Under this classification, wholesalers may be any of the following;
1. General merchandise wholesalers
2. General line wholesalers
3. Specialized wholesalers
a. General merchandise Wholesalers
- The word merchandise means goods.
-The general merchandise wholesalers stock and sell a wide variety of goods e.g. hardware,
clothes, cosmetics and foodstuffs. The retailers who buy from these wholesalers are thus able to
get a wide variety of goods for resale.
-They are also called general wholesalers or full-line wholesalers
b. General line wholesalers
-These are wholesalers who deal in a wide variety of goods within the same line e.g. textbooks,
duplicating papers and other types of stationary.
c. Specialized wholesalers
-These are wholesalers who deal in a particular good from a given line e.g. in the line of grains,
they may specialize in maize only.
ii) According to the geographical area in which they operate.
Under this category wholesalers may be;
1. Nationwide wholesalers
2. Regional wholesalers.
Nationwide wholesalers
These are wholesalers who supply goods to traders in all parts of the country.
-They establish warehouses or depots in different areas from Kenya
National Trading Corporation (KNTC)
Regional Wholesalers
These are wholesalers who supply goods to certain parts of the country only.
They may cover a county, District, division e.t.c
0 According to their method of operation
Under this classification, wholesalers can be:
1. Cash and carry wholesalers
2. Mobile wholesalers
3. Rack jobbers
Cash and carry wholesalers
These wholesalers sell goods on cash and self-service basis like supermarkets
-They neither offer transport nor credit facilities to their customers.
Mobile wholesalers/Track distributors
These are wholesalers who use vehicles to move from place to place supplying goods to retailers
e.g. soda distributors, bread distributors, beer distributors e.t.c.
Rack jobbers
These wholesalers specialize in selling certain/particular products to other specialized
wholesalers. They buy goods from producers or from other countries for reselling.
E.g. some wholesalers buy horticultural products from producers and sell to other wholesalers in
urban areas
-Rack jobbers usually stock their goods in shelves or racks from which customers select the
goods to buy. Customers may be allowed to pay for the goods after they have sold them.
Drop shippers
These are wholesalers who make orders for goods from manufactures/producers but do not take
them from the producer’s premises. They then look for the buyers for the goods and supply the
goods directly from the producers
Alternate classification of wholesalers
An alternative classification of wholesalers is given below:
 a) Those who buy goods store them in warehouses and sell them to traders without having
added anything to them.
b) Wholesalers who act as wholesalers’ agents or brokers. These are middlemen who are
paid a commission for their work e.g. commission agents
c) Those who after buying the goods and storing them prepare them for sale. They break
bulk, pack, brand, sort, grade and blend the goods
These terms are explained as below:
Breaking bulk-Reducing a commodity into smaller quantities for the convenience of the buyer
e.g. buying sugar from the producer in sacks and selling it in packets.
Packing-Putting goods in packets and boxes ready for sale.
Branding-Giving a product a name by which it will be sold
Sorting-Selecting goods to desire sizes, weight, color and qualities
Grading-Putting goods in groups of similar qualities to make it easier to price them
Blending-It involves mixing different grades of a product to achieve qualities like taste and
color.
Functions of a wholesaler
These can be discussed as services rendered to producers, retailers and to consumers.
Services of wholesalers to the producers
1. They relieve the producers the problem of distribution by buying goods from them and
selling to retailers.
2. They relieve the producers of some risks they would experience e.g. damage, theft, fall in
demand e.t.c
3. Save the producers from the problem of storage by buying goods and keeping in their
warehouses.
4. They prepare goods for sale on behalf of the producers.
5. They get feedback from consumers on behalf of producers.
6. They promote products through advertising, displays, trade fairs and exhibitions.
ASSIGNEMNT
Documents used in Home Trade and International Trade.

Price list
This is a list of items sold by the trader together with their prices. The information contained in a
price list is usually brief and not illustrated and may include;
- Name and address of the seller
- List of the goods and services
- The recommended unit prices of the products
- Any discounts offered
Price list show the prices of the commodities at that time.
Catalogue
A catalogue is a basket which briefly describes the goods a seller stocks. It is normally sent by
the seller to the buyer when the buyer sends a general letter of inquiry. It usually carries
illustrations on the goods stocked, and could be in the form of attractive and colorful pictures
The content of a catalogue includes the following;
 Name and address of the seller
 Details of the products to be sold; inform of pictures and illustrations.
 The prices of the products
 After-sales services offered by the seller
 Packaging and posting expenses to be incurred
 Delivery services to be used
 Terms of sale
Catalogues carry more information than the price list and they are more expensive to print.
Quotation
This is a document sent by a seller to a buyer in response to a specific letter of inquiry. It
specifies the conditions and terms under which the seller is willing to supply the specified goods
and services to the buyer.
The content of a Quotation
a. Name and address of seller
b. Name and address of the buyer
c. Description of goods to be supplied
d. Prices of the commodities
e. Terms of sale i.e. discounts, time of supply, delivery
f. Total of the goods to be supplied
Quotations are normally in form of letters, but many large-scale businesses have pre-printed
quotations forms which they readily send to the potential customers.
Tender
This is a document of offer to sell sent by a seller to a buyer in response to an advertised request
Tenders contain the following;
g. Date when the tender advertisement was made
h. Mode of payment
i. Date of making document -Discounts given
j. Name and address of prospective seller called the tenderer
k. The prices at which the goods can be provided
l. Period of delivery -Mode of delivery
m. Tenders are delivered in sealed envelopes which are opened by the buyer on a
specified date
The winning tender is usually awarded on the of the lowest quoted price although the buyer is
not obliged to accept this especially if quality is likely to be low Tenders are not binding unless
accepted by the buyer.
b) Documents used at the order stage
After receiving replies to inquiry in form of price list, catalogue or Quotation, a prospective
buyer will study the terms and conditions stated in them, and then may decide to buy products or
not.
An Order
If a prospective buyer decides to purchase an item(s), he or she then places an order
An order is a document sent by a potential buyer to a seller requesting to be provided with
specified products under specified terms and conditions
-An order issued for goods is called a local purchase order (LPO)
An order issued for services is called a local service order (LSO)
Ways of making an order
Filling an order form. This is a pre-printed document that is used for making orders.
Writing an order letter
Sending an e-mail, faxing or sending a short text message
Giving a verbal order. Verbal orders have the disadvantage in that they can be misunderstood and
there would be no record of items ordered
-Where written orders are made, the potential buyer keeps a copy of the order for use in verifying
the goods ordered when they are delivered.

A written order may contain the following;

1. Name and address of the buyer
2. Name and address of the seller
3. The number of the order
4. Quantities ordered and total amount to be paid
5. Description of the goods ordered
6. Price per item
7. Special instructions on such matters as packaging and delivery
Acknowledgement note
On receiving the order, the seller sends the buyer an acknowledgement note
An acknowledgement note is a document sent by the seller to the prospective buyer to inform
him/her that the order has been received and it is being acted upon.
After sending the acknowledgement note, the seller has to decide whether to extend credit to the
buyer or not. At this stage, the seller has the following options;
1. If the seller is convinced that the buyer is credit worthy, arrangements are made to deliver the
ordered goods or services to the buyer.
2. If the seller is not sure of credit worthiness of the buyer, a credit status inquiry can be issued
to the buyer’s bankers or to other suppliers who deal with the buyer to ascertain the credit
worthiness.
3. If the buyer is not credit worthy then a polite note or a pro forma invoice can be sent to
him/her
This is a document sent by the seller to the buyer requesting the buyer to make payment for
goods or services before they are delivered. It indicates that the seller is not willing to grant the
buyer credit
Functions of a proforma invoice
1. It is a polite way of asking for payment before the goods are delivered
2. Sent when the seller does not want to give credit
3. Used by importers to get customers clearance before goods are delivered
4. Issued to an agent who sells goods on behalf of the seller
5. Show what the buyer would have to pay if the order is approved
6. Can be used to serve as a quotation.

c) Documents used at the Delivery stage

After the seller has accepted the order sent an acknowledgement note and where necessary the
pro-forma invoice, the seller then prepares the goods for delivery to the buyer. This can be done
in the following ways;
1. The seller can ask the buyer to collect the goods
2. The seller can deliver the goods to the buyer using his/her own means of transport
 3. The goods can be delivered to the buyer through public transport
4. The services(s) can be rendered to the buyer at the sellers or the buyer’s premises or at
any convenient place.
Packing note
Before delivery goods are packed for dispatch. This is a document prepared by the seller
showing the goods contained/packed in every container, box or carton being delivered to the
buyer
A copy of the packing note is packed with the goods to make/help the buyer have a spot check.
The contents of a packing note include;
- Description of goods packed
- Quantities of goods packed
- The means of delivery
NOTE: A packing not does not contain prices of goods. This ensures that those people involved
in checking and transporting goods do not know the value of goods. This is done as a precaution
against theft.
Advice note
This is a document sent by the seller to the buyer to inform the buyer that the ordered goods have
been dispatched. It is usually sent through the fastest means possible.
n. It contains the following;
o. The means of deliver
p. A description of the goods
q. The quantity dispatched -Date
r. Name and address of buyer and seller.
Functions of an advice note
1. Informing the buyer that the goods are on the way so that in case of any delay in delivery, the
buyer can make inquiries
2. Alerting the buyer so that necessary arrangements can be made for payments when the goods
arrive.
3. Can serve as an acknowledgement note, where one is not sent.
Delivery note
This is a document sent by the seller to the buyer to accompany the goods being delivered.
A delivery note is always made in triplicate (3), one copy remains with the seller and two sent to
the buyer.
When the goods reach the buyer, he/she confirms that the goods are the ones ordered for and that
they are in the right condition by comparing the delivery note, the order and the goods. If the
buyer is satisfied with the goods, he/she signs the two copies, retains the original and send the
copy back to the seller. This serves as evidence that the goods have been received in the right
condition and in the right quantities.
Some businesses keep delivery books in which the buyer signs to indicate that goods have been
received in good condition. A delivery book is used by the seller if he/she delivers goods by
himself/herself as an alternative to a delivery note
The content of a delivery note includes the following;
1. Name and address of the seller
2. Name and address of the buyer
3. Date of delivery
4. Delivery note number
5. Description of the goods delivered
6. Quantities of the goods delivered
7. Space for the buyer to sign and comment on the condition of the goods received.
Consignment note
This is a document prepared by a transporter to show that he/she has been hired to deliver
specified goods to a particular buyer. This document is used when goods are delivered to the
buyer by public means of transport e.g. by trains.
The seller is the consignor, the buyer is the consignee and the goods the consignment.
The transporting company prepares the consignment note and gives the seller to complete and
sign. The seller then returns the note to the transporter (carrier) who takes it together with the
goods to the buyer.
On receiving the goods, the buyer signs the consignment note as evidence that the goods were
actually transported.
The content of a consignment note includes the following;
1. Details of the goods to the transported
2. Name address of seller (consignor)
3. Name and address of buyer (consignee)
4. Terms of carriage and conditions of transporting the goods
5. The transportation cost
6. Handling information
7. Destination of goods

Goods Received note

This is a document sent by the buyer to the seller to inform him/her that goods sent have been
received. It usually prepared in duplicate, the original is sent to the seller and the copy retained
by the buyer.
The content of a Goods Received note
1. Date of the document
2. Name and address of the buyer
3. Name and address of the seller
4. Corresponding purchase order
5. Details of goods received
6. Date the goods were received.
Returned goods note/Damaged goods note
If goods are damaged on the way, the buyer may return them to the seller. The buyer may also
return goods for other reasons e.g.
 Wrong type of goods
 Excess goods
 Wrong quality goods
When the goods are returned, the buyer informs the seller of the return by sending a goods
returned note.
A goods returned note is a document sent by a buyer to a seller to inform him/her that certain
goods are being returned to the seller.
Where the goods are returned because of damage, the note may be referred to as the damaged
goods note.
The contents of the goods returned note include;
1. Details of goods that have been returned to the seller
2. Date goods are returned
3. The number of (GRN)
4. Order number
5. Delivery number
6. Name and address of both buyer and seller
When the seller receives the note together with the goods, he issues a credit note
d) Documents used at the invoicing stage
This stage involves the seller requesting or demanding for payment from the buyer for the goods
or services delivered.

Some of the documents used at this stage include:

Invoice
This is a document sent to the buyer by the seller to demand for payment for goods delivered or
services rendered.
There are two types of invoices namely:
1. Cash invoice-This is sent when payment is expected immediately after delivery thus
acting as a cash sale receipt
2. A credit invoice-This is sent when a buyer is allowed to pay at a later date.
Functions of an invoice
1. It shows the details of goods sold i.e. quantity delivered, unit price, total value of the goods
and terms and conditions of sale.
2. It is a request to the buyer to make payment
3. It serves as an evidence that the buyer owes the seller a certain amount of money
4. It is used as a source document in recording the transaction in the book of accounts.
The contents of an invoice include the following:
1. Invoice number
2. Name and address of the seller
3. Name and address of the buyer
4. Date document is prepared
5. Details of goods repaired
6. Unit prices of goods delivered
7. Total value of goods
8. Discounts offered
9. E and O.E printed at the bottom
The letters E and O.E (Errors and Omissions Excepted) means the seller reserves the right to
correct any errors and omissions made in the invoice.
On receiving the invoice, the buyer verifies the contents using the local purchase order and the
delivery note. If the invoice is in order, the buyer makes arrangements to pay the amount stated.
Businesses which offer services issue a document called a bill, which serves the purpose of an
invoice.

DOCUMENTS USED IN HOME TRADE

A business document is a written record which gives evidence to a stage in the transfer of goods
or provision of services from one party or it is written record which gives evidence that trader or
a business transaction has taken place.
A business transaction is a deal between two or more people involving exchange of goods and
services in terms of money.
Business transaction may take place on cash basis; in which case goods are paid for before or on
delivery or a short while after delivery
Business transaction may also take place on credit basis; which means payment is made after a
specified period from the date of delivery of the goods or the provision of the services
There are various business documents that are used in various stages of business transactions as
discussed below;
a) Documents used at the inquiry stage
This is the first stage in transaction. An inquiry is a request by a prospective buyer for
information on available goods and services. It is aimed at establishing the following;
1. Whether the goods or services required are available for sale
2. The quality or nature of the products available
3. The prices at which the goods or services are being sold
4. The terms of sale in respect to payment and delivery of goods or services
Some of the documents used at this stage include;
Letter of inquiry;
This is a letter written by a potential buyer to the seller to find out the goods and services offered
by the seller.
A letter of inquiry can be general or specific. A specific letter of inquiry seeks for information
about a particular product.
Reply to an inquiry
The seller may reply to the letter of inquiry by sending any of the following documents;
- Price list
- A catalogue
- Quotation
- A tender

Price list
This is a list of items sold by the trader together with their prices. The information contained in a
price list is usually brief and not illustrated and may include;
- Name and address of the seller
- List of the goods and services
- The recommended unit prices of the products
 - Any discounts offered
Price list show the prices of the commodities at that time.
Catalogue
A catalogue is a basket which briefly describes the goods a seller stocks. It is normally sent by
the seller to the buyer when the buyer sends a general letter of inquiry. It usually carries
illustrations on the goods stocked, and could be in the form of attractive and colorful pictures
The content of a catalogue includes the following;
 Name and address of the seller
 Details of the products to be sold; inform of pictures and illustrations.
 The prices of the products
 After-sales services offered by the seller
 Packaging and posting expenses to be incurred
 Delivery services to be used
 Terms of sale
Catalogues carry more information than the price list and they are more expensive to print.
Quotation
This is a document sent by a seller to a buyer in response to a specific letter of inquiry. It
specifies the conditions and terms under which the seller is willing to supply the specified goods
and services to the buyer.
The content of a Quotation
s. Name and address of seller
t. Name and address of the buyer
u. Description of goods to be supplied
v. Prices of the commodities
w. Terms of sale i.e. discounts, time of supply, delivery
x. Total of the goods to be supplied
Quotations are normally in form of letters, but many large-scale businesses have pre-printed
quotations forms which they readily send to the potential customers.
Tender
This is a document of offer to sell sent by a seller to a buyer in response to an advertised request
Tenders contain the following;
y. Date when the tender advertisement was made
z. Mode of payment
aa. Date of making document -Discounts given
bb. Name and address of prospective seller called the tenderer
 cc. The prices at which the goods can be provided
dd. Period of delivery -Mode of delivery
ee. Tenders are delivered in sealed envelopes which are opened by the buyer on a
specified date
The winning tender is usually awarded on the of the lowest quoted price although the buyer is
not obliged to accept this especially if quality is likely to be low Tenders are not binding unless
accepted by the buyer.
b) Documents used at the order stage
After receiving replies to inquiry in form of price list, catalogue or Quotation, a prospective
buyer will study the terms and conditions stated in them, and then may decide to buy products or
not.
An Order
If a prospective buyer decides to purchase an item(s), he or she then places an order
An order is a document sent by a potential buyer to a seller requesting to be provided with
specified products under specified terms and conditions
-An order issued for goods is called a local purchase order (LPO)
An order issued for services is called a local service order (LSO)
Ways of making an order
Filling an order form. This is a pre-printed document that is used for making orders.
Writing an order letter
Sending an e-mail, faxing or sending a short text message
Giving a verbal order. Verbal orders have the disadvantage in that they can be misunderstood and
there would be no record of items ordered
-Where written orders are made, the potential buyer keeps a copy of the order for use in verifying
the goods ordered when they are delivered.

A written order may contain the following;

8. Name and address of the buyer
9. Name and address of the seller
10. The number of the order
11. Quantities ordered and total amount to be paid
12. Description of the goods ordered
13. Price per item
14. Special instructions on such matters as packaging and delivery
Acknowledgement note
On receiving the order, the seller sends the buyer an acknowledgement note
An acknowledgement note is a document sent by the seller to the prospective buyer to inform
him/her that the order has been received and it is being acted upon.
After sending the acknowledgement note, the seller has to decide whether to extend credit to the
buyer or not. At this stage, the seller has the following options;
4. If the seller is convinced that the buyer is credit worthy, arrangements are made to deliver the
ordered goods or services to the buyer.
5. If the seller is not sure of credit worthiness of the buyer, a credit status inquiry can be issued
to the buyer’s bankers or to other suppliers who deal with the buyer to ascertain the credit
worthiness.
6. If the buyer is not credit worthy then a polite note or a pro forma invoice can be sent to
him/her
This is a document sent by the seller to the buyer requesting the buyer to make payment for
goods or services before they are delivered. It indicates that the seller is not willing to grant the
buyer credit
Functions of a proforma invoice
7. It is a polite way of asking for payment before the goods are delivered
8. Sent when the seller does not want to give credit
9. Used by importers to get customers clearance before goods are delivered
10. Issued to an agent who sells goods on behalf of the seller
11. Show what the buyer would have to pay if the order is approved
12. Can be used to serve as a quotation.

c) Documents used at the Delivery stage

After the seller has accepted the order sent an acknowledgement note and where necessary the
pro-forma invoice, the seller then prepares the goods for delivery to the buyer. This can be done
in the following ways;
5. The seller can ask the buyer to collect the goods
6. The seller can deliver the goods to the buyer using his/her own means of transport
7. The goods can be delivered to the buyer through public transport
8. The services(s) can be rendered to the buyer at the sellers or the buyer’s premises or at
any convenient place.
Packing note
Before delivery goods are packed for dispatch. This is a document prepared by the seller
showing the goods contained/packed in every container, box or carton being delivered to the
buyer
A copy of the packing note is packed with the goods to make/help the buyer have a spot check.
The contents of a packing note include;
- Description of goods packed
- Quantities of goods packed
- The means of delivery
NOTE: A packing not does not contain prices of goods. This ensures that those people involved
in checking and transporting goods do not know the value of goods. This is done as a precaution
against theft.
Advice note
This is a document sent by the seller to the buyer to inform the buyer that the ordered goods have
been dispatched. It is usually sent through the fastest means possible.
ff. It contains the following;
gg. The means of deliver
hh. A description of the goods
ii. The quantity dispatched -Date
jj. Name and address of buyer and seller.
Functions of an advice note
4. Informing the buyer that the goods are on the way so that in case of any delay in delivery, the
buyer can make inquiries
5. Alerting the buyer so that necessary arrangements can be made for payments when the goods
arrive.
6. Can serve as an acknowledgement note, where one is not sent.
Delivery note
This is a document sent by the seller to the buyer to accompany the goods being delivered.
A delivery note is always made in triplicate (3), one copy remains with the seller and two sent to
the buyer.
When the goods reach the buyer, he/she confirms that the goods are the ones ordered for and that
they are in the right condition by comparing the delivery note, the order and the goods. If the
buyer is satisfied with the goods, he/she signs the two copies, retains the original and send the
copy back to the seller. This serves as evidence that the goods have been received in the right
condition and in the right quantities.
Some businesses keep delivery books in which the buyer signs to indicate that goods have been
received in good condition. A delivery book is used by the seller if he/she delivers goods by
himself/herself as an alternative to a delivery note
The content of a delivery note includes the following;
8. Name and address of the seller
9. Name and address of the buyer
10. Date of delivery
11. Delivery note number
12. Description of the goods delivered
13. Quantities of the goods delivered
14. Space for the buyer to sign and comment on the condition of the goods received.
Consignment note
This is a document prepared by a transporter to show that he/she has been hired to deliver
specified goods to a particular buyer. This document is used when goods are delivered to the
buyer by public means of transport e.g. by trains.
The seller is the consignor, the buyer is the consignee and the goods the consignment.
The transporting company prepares the consignment note and gives the seller to complete and
sign. The seller then returns the note to the transporter (carrier) who takes it together with the
goods to the buyer.
On receiving the goods, the buyer signs the consignment note as evidence that the goods were
actually transported.
The content of a consignment note includes the following;
8. Details of the goods to the transported
9. Name address of seller (consignor)
10. Name and address of buyer (consignee)
11. Terms of carriage and conditions of transporting the goods
12. The transportation cost
13. Handling information
14. Destination of goods

Goods Received note

This is a document sent by the buyer to the seller to inform him/her that goods sent have been
received. It usually prepared in duplicate, the original is sent to the seller and the copy retained
by the buyer.
The content of a Goods Received note
7. Date of the document
8. Name and address of the buyer
9. Name and address of the seller
10. Corresponding purchase order
11. Details of goods received
12. Date the goods were received.
Returned goods note/Damaged goods note
If goods are damaged on the way, the buyer may return them to the seller. The buyer may also
return goods for other reasons e.g.
 Wrong type of goods
 Excess goods
 Wrong quality goods
When the goods are returned, the buyer informs the seller of the return by sending a goods
returned note.
A goods returned note is a document sent by a buyer to a seller to inform him/her that certain
goods are being returned to the seller.
Where the goods are returned because of damage, the note may be referred to as the damaged
goods note.
The contents of the goods returned note include;
7. Details of goods that have been returned to the seller
8. Date goods are returned
9. The number of (GRN)
10. Order number
11. Delivery number
12. Name and address of both buyer and seller
When the seller receives the note together with the goods, he issues a credit note
d) Documents used at the invoicing stage
This stage involves the seller requesting or demanding for payment from the buyer for the goods
or services delivered.

Some of the documents used at this stage include:

Invoice
This is a document sent to the buyer by the seller to demand for payment for goods delivered or
services rendered.
There are two types of invoices namely:
 3. Cash invoice-This is sent when payment is expected immediately after delivery thus
acting as a cash sale receipt
4. A credit invoice-This is sent when a buyer is allowed to pay at a later date.
Functions of an invoice
5. It shows the details of goods sold i.e. quantity delivered, unit price, total value of the goods
and terms and conditions of sale.
6. It is a request to the buyer to make payment
7. It serves as an evidence that the buyer owes the seller a certain amount of money
8. It is used as a source document in recording the transaction in the book of accounts.
The contents of an invoice include the following:
10. Invoice number
11. Name and address of the seller
12. Name and address of the buyer
13. Date document is prepared
14. Details of goods repaired
15. Unit prices of goods delivered
16. Total value of goods
17. Discounts offered
18. E and O.E printed at the bottom
The letters E and O.E (Errors and Omissions Excepted) means the seller reserves the right to
correct any errors and omissions made in the invoice.
On receiving the invoice, the buyer verifies the contents using the local purchase order and the
delivery note. If the invoice is in order, the buyer makes arrangements to pay the amount stated.
Businesses which offer services issue a document called a bill, which serves the purpose of an
invoice.
b) Credit note
This is a document sent by the seller to the buyer (credit buyer) to correct an overcharge. It is
used to inform the buyer that the amount payable by him/her has been reduced An overcharge is
an excess amount charged beyond the right price.
Causes of overcharge may include;
1. Arithmetical errors like wrong addition
2. Price overcharges
3. Inclusion of wrong or unordered items in the invoice
4. Failure to deduct the allowable discounts
5. Return of goods (damaged goods)
6. Failure to note the return by the buyer of packing cases or containers used to deliver goods to
him/her
7. Use of wrong price list.
The purpose of the credit note is to reduce the total invoice amount by the amount of the
overcharge.
A credit note is usually printed in red to distinguish it from other documents.
Contents of a credit note include;
1. Name and address of the seller and the buyer
2. Credit note number
3. Date document is prepared
4. Description and value of goods returned by buyer (in case that was done)
5. Total overcharge
Reasons why a seller would send a credit note to a buyer/circumstances under which a
credit note is sent to a buyer.
1. When there is an overcharge in an invoice
2. When the original invoice had indicated items that were not supplied
3. When the buyer returns empty cases/crates that had been charged in the invoice.
4. When the buyer returns some goods to the seller
5. If the buyer was entitled to a discount which was not given or taken care of in the invoice.
Debit note
This is a document sent by the seller to the buyer to correct an undercharge on the original
invoice. It is used to inform the buyer that the amount payable by him has been increased. -A
debit note acts as an additional invoice.
An undercharge arises when amount charged on products is less than their right price.
Causes of undercharge include:
1. Price undercharges on items
2. Arithmetic errors/mistaken in calculation
3. Omission of items in the invoice
4. Retention of crates and containers that were not involved by the buyer
5. Deductions of more discount than what was give/intended
Circumstances under which a debit note will be sent to the buyer
1 When there is an undercharge in the invoice
2 If the buyer had been given a discount that was not due to him
3 If some items had been omitted in the original invoice
4 If the buyer decides to retain some empty containers or crates.
DOCUMENTS USED AT THE PAYMENT STAGE
This is the final stage of a credit business transaction. It takes place after the invoice has been
received and ascertained to be correct or where necessary, corrections made. The documents used
at the payment stage include;
Receipt
This is a document issued to the buyer by the seller as proof that payment has been made. -
Payment can be done in cash, cheque, and other forms of money or in kind
The receipt also serves as a source document for making entries in books of accounts.
Contents of the receipt include;
1. Date of payment
2. Name of the person making payment
3. Name of person/institution receiving payment
4. Amount paid in words and figures
5. Means of payment
6. Receipt number
7. Signature of person issuing the receipt.
The issuance of a receipt by the seller to the buyer after receiving payment marks the end of the
credit transaction between the seller and the buyer (where payment has been done in full)
A receipt serves the same purpose as the cash sale slip
Statement of Account
This is a document prepared by the seller and sent to the buyer, giving a summary of all the
dealings/transactions between them during a particular period of time, usually a month.
It has the following details;
1. Date when it was prepared
2. Name and address of the seller
3. Name and address of the buyer
4. Account number
5. Date column-where the date of each transaction is recorded
6. Particulars (Details) column-where the explanation of each transaction is shown
7. Money column
Debit column-increases in the amounts payable due to credit sales or under charge correction. -
Credit column-Decrease in the amounts payable due to overcharges corrected or payments
recorded.
Balance column-Amount owing after each transaction (Balance outstanding)
1. Any discounts allowed to the buyer
 2. Date when the buyer is expected to clear the balance
3. Terms of credit e.t.c.
-The statement of account enables the buyer to ascertain the correctness of the transactions which
have taken place with the seller over the stated period.
IOU
An IOU (I owe you) is a document written by the buyer and sent to the seller to acknowledge a
debt.
 It does not specify date when settlement will be made.
 It acts as evidence that a debt exists.

MEANS OF PAYMENTS
These are the methods or ways the buyer may use to settle debts arising from a business
transaction. These are various means of payments that can be used.
These means of payments can be put into the following groups;
1. Cash
2. Means of payment provided by the post office
3. Means of payments provided by the commercial banks
4. Means of payments which arise from private arrangements between sellers and buyers
5. Other means of payment.
CASH
This refers to the use of notes and coins to make payments. Currency notes and coins are issued
by the central Bank of Kenya and are therefore legal tender
-Legal tender means everyone is obliged by law to accept them as a means of payment i.e. no
one can refuse to accept them as they are backed by the law. Notes and coins are available in
different denominations as follows;
Coins; 5cents, 50cents, sh.1, sh.5, sh.10 and sh.40
Notes; sh.10.sh.20, sh.50, sh.100, sh.200, sh.500 and sh.1000.
-Coins are suitable for settling small debts and are acceptable as legal tender up to a certain
maximum e.g. 50cents coins the maximum is sh20 and sh.1 the maximum is ksh.100.
Advantages of cash as a means of payment:
1. It is the only means of payment which is a legal tender
2. Convenient for settlement of small debts
3. Convenient to people with or without bank accounts
4. Cash is readily usable.
Disadvantages of cash as a means of payment
1. Not convenient to carry around
2. Cash can be lost or stolen easily as it is readily usable
3. Payment is difficult to prove unless a receipt is issued
Circumstances under which cash payment is appropriate
1. Where the amounts involved are small
2. Where the payee (receiver) does not accept other means of payment
3. Where cash is the only means available
4. Where the payee requires cash (money) urgently
5. Where there is need to avoid expenses associated with other means of payments.
MEANS OF PAYMENTS PROVIDED BY THE BANKS
Commercial banks are financial institutions that accept deposits to and withdrawals from them.
They also lend money to customers. Examples of commercial banks include: Commercial bank
of Kenya, National bank of
Kenya, Barclays bank, and Co-operative bank e.t.c
-There are various means of payments provided by the commercial banks. They are:
1. Cheques
2. Bank drafts/bankers cheques
3. Credit transfers
 4. Standing orders
5. Travellers cheques
6. Telegraphic transfers
7. Debit cards
8. Electronic fund Transfer (E.F.T)
CHEQUES
This is a written order by an account holder with the bank (drawer) to the bank (drawee) to pay
on demand a specified amount of money to the named person (payee) or the bearer
Parties to a cheque
1. Drawer-This is the person or institution who writes and issues the cheque. He is usually a
current account holder with the bank
2. Payee-The person or institution to be paid
3. Drawee-The bank (where the drawer has an account)
CONTENTS
1. Date when it is issued
2. Name of the drawer
3. The name of the payee, except in bearer cheques
4. The name of the drawee (bank) and branch from where it is issued
5. Amount to be paid in figures and in words
6. The account number of the drawer
7. The signature of the drawer
8. The cheque number and bank code
9. The appropriate revenue stamps
Types of Cheques
1. Open cheques
2. Crossed cheques
3. Bearer cheques
4. Order cheques

Open cheques
This is a cheque that can be presented for payment over the counter. You present it and cash is
paid to you.
Crossed cheques
This is a cheque that bears two parallel lines on the face. This means the cheque cannot be
cashed over the counter. The cheque is deposited in an account (payee’s account)
The payee then withdraws the money from his/her account
A crossed cheque can be opened by the drawer signing twice on its face.
A crossing can be general or special
1. General crossing - general crossings only contains the two parallel lines. This implies that
the cheque will be paid through any bank in which it is deposited.
2. Special crossings - Has other instructions included in the crossing i.e;
 Not negotiable - Means the cheque can be transferred by the payee to a third
party, but he third cannot transfer the cheque (only the original payee can transfer
the cheque)
 Account payee only-Means the cheque should be deposited in the account of the
payee.
 Not transferable-Means there is no negotiation or transfer of the cheque
Bearer cheques - This cheque does not have the name of the payee written on it. The person
presenting it to the bank is the one who is paid.
Order cheques - The cheque bears the name of the payee. The bank pays this particular payee
the amount stated in the cheque after proper identification.
A cheque is dishonored if the bank refuses to pay and returns the cheque to the drawer.
A cheque can be dishonored due to the following reasons:
1. Insufficient funds in the account.
2. If the signature on the cheque differs from the drawers specimen signature in the bank.
3. If the cheque is stale i.e. presented for payment after six months from the date of issue.
4. If the cheque is postdated-meaning the cheque is presented for payment earlier than the
date on the cheque
5. If the amount in figures is different from the amount in words
6. If there are alterations on the cheque which are not countersigned by the drawer
7. If the cheque is torn, dirty or default making it illegible
8. If the account holder (drawer) is dead and the bank is aware of the fact
9. If the drawer instructs the bank not to pay the particular cheque.
Advantages of cheques
1. They are more secure than notes and coins because if they are lost or stolen, they can be
traced to the person who cashed them.
2. They are convenient to carry and can be used to pay large sum of money which would be
otherwise inconvenient to pay using cash
3. They can be transferred to a third party to make payment/cheques are negotiable
4. Payment can be made by cheque without the need to travel to make payment
5. They provide a record of payment because of the counterfeits. The Counterfeits acts as proof
that payment has been made.
6. Under special circumstances, they can be cashed or discounted before maturity.
Disadvantages of Cheques
1. Cheques can be dishonored
2. Requires the payee to go to the bank and in some cases to have an account
3. The drawer pays some charges e.g. charges for the cheque book
4. Can only be issued by an account holder/the drawer must have an account
5. They are not readily acceptable by everybody
6. They do not provide immediate cash.
Circumstances under which a cheque is appropriate as a means of payment
1. Where the amount of money involved is large
2. Where the policy of the business demands so
3. Where a cheque is the only means available
4. Where there is need to avoid other risks associated with other means of payments b) Bank
drafts/Banker’s cheques.
-This is a cheque drawn on a bank i.e. a cheque drawn by one bank to another requesting the
latter bank to pay a named person or institution a specified sum of money and charge it to the
drawing bank.
It can also be drawn by a bank on the request of a customer. The customer fills in an application
form obtained from a bank and hands it over to the bank together with the money she wants to
transfer and a commission for the service.
The bank then prepares the cheque and gives it to the applicant who can then send it to the payee
A bank draft has the drawing bank’s guarantee for payment. It is therefore more readily
acceptable than personal cheques.
It is suitable when urgency is desired in the payment as it is more readily acceptable.
CREDIT TRANSFER
This is a means of payment provided by commercial banks to their current accounts holders who
want to pay many people using one cheque/at the same time
One cheque is drawn and is usually accompanied by a list of the people to be paid, the amount to
be paid to each person and the addresses of the bank branches where the payment is to be made.
-The bank then ensures that a credit transfer is affected to the various bank branches and each
payee is paid
-A credit transfer is usually used by employers to pay salaries to their staff members.
STANDING ORDER
This is an instruction to a bank by an account holder to pay a named person or an organization a
fixed amount of money at regular intervals over a specified period of time or until stopped
-It is a very useful means of payment for business people as it enables them to regularly pay their
recurrent bills e.g. water, insurance, electricity, loan payment, hire purchase payment etc.
TRAVELER’S CHEQUES
This is a cheque drawn by one bank to another requesting the latter to pay a specified sum of
money to a named bearer, who usually would have bought that cheque from issuing bank. The
cheque holder pays the value of the cheque plus the charges for the services to the issuing bank. -
Travellers cheques are usually issued in fixed denominations and are very convenient for travel
purposes, hence their name. They enable a person to travel without having to carry a lot of cash.
The cheques are also readily acceptable as a means of payment.
TELEGRAPHIC TRANSFERS
This is a method /means of transferring money offered by commercial banks to anybody who
wants to send money to another.
The sender is required to fill an application form and provide the following information among
others:
-His/her name -The amount of money to be remitted
-Name of the payee -The bank where the money would be paid
The applicant is charged a commission and telegraph fee. The paying bank sends a telegram to
the payee who has to identify himself/herself before the payment is made.
The method is fast and safe.
DEBIT CARDS
These are plastic cards issued by financial institutions e.g. banks that enables a person to
purchase goods and services from any business that accepts them.
Debit cards are used to make payments from money held in ones accounts and are therefore an
alternative to cash payments. Examples are ATM cards.
ELECTRONIC FUND TRANSFER (E.F.T)
EFT is a method of transferring money from one account to another where computers are used.
The sender is required to fill an electronic fund transfer form provided by the bank which
instructs the bank to transfer money from his/her account to a named account.
Information is then sent to the payee’s bank electronically and the amount in the account is
increased accordingly. The method is very fast.
Means of payments provided by the post office
The post office provides means of payments that can be used to transfer money from one person
to another.
The means of payments provided by the post office to facilitate payments includes,
1. Money orders
 2. Posta pay
3. Postal orders
4. Postage stamps
5. Premium bonds
MONEY ORDERS
A money order facilitates the transfer of money from one person to another through the post
office (and/or bank)
A money order is usually for a specified sum of money usually purchased with cash from the
post office.
A person wishing to send money using this method visits a post office and completes an
application form. Some of the details contained/given in the form include:
1. The amount of money to be remitted
2. Name of the payee
3. The name of the post office where the money order will be cashed
4. Name and address of the sender
5. Whether the money order is to be ordinary or sent by telegraph
6. Whether the sender wishes to be informed if the money has been paid
7. Whether the money is to be paid through a bank account or at the post office counter.
The application form, money to be remitted and commission for the service is handed to the post
office clerk who prepares the money order and gives it to the sender who may post it or send it to
the payee.
-Telegraphic money orders, the post office sends a telegram to the payee informing him/her to go
to the post office and claim the money.
-Before payment is made, the payee must;
Identify himself/herself by producing an ID card
1 Identify the person who sent the money.
-The sender of the money is left with a counterfoil which serves as evidence that money was sent
and it can be used to reclaim the money if it did not reach the payee
-Money order may be open or crossed. A crossed money order bears two parallel lines drawn
diagonally on its face and must be deposited in the bank account of the payee. It cannot be
cashed over the counter at the post office.
-An open money order can be presented for payment at the post office counter.

Circumstances under which money order is appropriate

1. Where it is the only means available
2. Where other means are not acceptable
3. Where there is need to avoid inconveniences or risks associated with other means
POSTA PAY