(a) List six credit instruments used in business transactions
(b) Mr. Sylva is considering hire purchase as a source of finance for his business operations. State four advantages and three disadvantages of this source of finance.
(a) Credit instruments used in business transactions:
(b) The advantages of hire purchase as a source of finance for Mr. Sylva's business operations are:
i. Promotion of durable goods: It facilitates the promotion of durable goods.
ii. Increase in profit: The profit will increase as a result of the availability of hire purchase.
iii. Increase in turnover: It increases the rate of turnover.
iv. Large-scale production: It leads to large-scale production as a result of an increase in demand.
v. Opportunity to acquire expensive goods: It presents the opportunity to acquire expensive goods which he or she could not have been able to buy by cash
vi. Access to credit: He has access to credit which he could otherwise not have obtained from banks.
The disadvantages of hire purchase as a source of finance for Mr. Sylva's business operations are:
i. Additional costs: It usually brings additional costs as a result of court action for recovery of den
ii. Court action: It can lead to court action.
iii. Paying more than necessary: He will pay more than he Would pay under cash transactions.
iv. Payment of a high interest rate: He will be paying a high rate of interest
v. Inability to negotiate for better deals: He may not be able to negotiate for a better deal
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