1. Gokhale Education Society’s
S.M.R.K. B.K. A.K Mahila Mahavidyalaya, Nasik-5.
CREDIT LETTERS : THEORY :1
Ms. Geetanjali Gitay
Assistant Professor
Dept. of English
CC English (HL)
S.Y.B.Com. Sem III
Unit 3
2. CREDIT AND BUSINESS
• Credit with reference to business means buying a product or service without
immediate payment. It is a deferred payment.
•In the business world credit plays a very important part.
• The period for varies from some days to some months
• In the business, one has to do credit transactions with people they may not
know.
•Before giving credit to the people whom you do not know, it is very
important make inquiries about them.
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3. 4 ‘C’S OF CREDIT
A businessmen while thinking of transacting business on credit
must apply the following 4 Cs to judge a buyer’s credit standing.
1. Capital
Capital is the cash as well as the stock, the building, machinery and
other infrastructure and property that a buyer owns.
2. Capacity
Capacity talks about a buyers capability to pay the credit in a near
future. Are the market reports about his financial position favourable?
3.Character
Even if the buyer has the capacity to pay, is he honest and trustworthy in
his dealing? Or is he a person who will not pay because he is a fraud or
cheater who will not pay back.
4. Circumstances
Are the circumstances in the market favourable for giving credit. One also
has to consider political condition, government’s policies before
giving credit.
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4. TYPES OF DEBTORS
Irrespective of the resources of the customer or debtor the speed and
promptness with which payment comes will depend on the nature of the
person. There are following types of debtors :
• The Careless Debtor is the one who forgets to pay unless reminded.
• The Reluctant Payer is the one who will not pay unless he or she is forced
to do so. They are always ready with excuses for non-payment.
• An Installment Payer is a debtor who gathers large sums of credit and then
sets about repaying in small installments.
• A Good-Risk Debtor is one who pays his debts even before he is asked to.
• A Poor- Risk Debtor is one who neither has the capacity
or capital to pay. He is constantly overtrading and short
of funds. As far as possible credit should not be given to
such persons. 4
5. TYPES OF CREDIT LETTERS
We can broadly categorise Credit Letters in the
following types.
Asking for Trade References
Status Enquiries
Replies to Status Enquiries
A Favourable Reply To Credit Enquiry
An Unfavourable Reply to Credit Enquiry. 5
6. TRADE REFERENCES
Business cannot be carried out without credit and yet granting credit
involves risk.
A careful businessmen tries to protect himself against losses by asking
the prospective buyer to provide information and references before
granting him a order on credit.
These are called Trade references. They are usually the persons or
businessmen he has previously dealt with or his bank details.
These references can be obtained by sending a printed form.
While asking for a Trade Reference mention the following :
- Thank for placing the order.
- Explain the routine procedure of enquiries to be made, ask for
credit reference and mention time required to complete the procedure.
- Offer to send good on C.O.D. if customer’s requirement is urgent.
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7. EXAMPLE :1
Source : Business Communication, Rai Urmila & Rai S.M., Himalaya Publications, Mumbai
(Fourth Edition).
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8. EXAMPLE :2
Source : Business Communication, Doctor Aspi & Doctor Rhoda, Sheth Publishers, Mumbai
(Fifth Edition).
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9. CONCLUSION
So far we have discussed :
1. Need for Credit in Business
2. 4 C’s of Credit
3. Types of Debtors
4. Types of Credit Letters
5. Asking for Trade Reference and its examples.
In the next part we will discuss :
1. Status Enquiries
2. Replies to Status Enquiries
3. A Favourable Reply to a Credit Enquiry
4. An Unfavourable Reply to a Credit Enquiry
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