Methods of buying goods in instalment.
– Hire purchase – A system where the buyer agrees to pay for the commodity in instalments. The buyer obtains the possession of the article on the down payment (deposit) but the title of ownership remains wit the seller until the last instalment is made.
- Credit sales / Deferred payment – under this system the article becomes the property of the buyer with the payment of the first instalment. The buyer is supposed to pay
the remaining amount in instalments.
Advantages of Hire Purchase to:
The manufacturer.
- He is able to increase his volume of sales.
- Profit earned on hire purchase is higher than profit earned on cash basis.
- Goods belong to the seller until the last instalment is paid.
The buyer.
- He takes possession of goods and their use immediately after down payment.
- Instalments to be made are predetermined enabling him to plan and budget for payment of the amounts.
- He is able to acquire goods he could not have afforded on cash terms
- The buyer can possess more goods including expensive items. 1 x 6
Advantages of credit sale to:
The manufacturer
- He is able to increase his volume of sales
- Profits realized are higher since customers must pay higher prices
- He can reclaim the amount due from the buyer under a court order.
The buyer
- He is able to buy expensive goods on credit
- Ownership of the article posses to the buyer after the first instalment
- He is able to plan on acquisition of certain goods.
Differences:
Hire purchase– Goods can be repossessed if the buyer breeches the contract – Ownership remains with the seller till the last instalment is made |
Credit sale – Goods cant be repossessed but the buyer can be sued for damages – Ownership posses to the buyer when the first instalment is affected. |
