HIRE PURCHASE :- A system where the buyer agrees to pay for the commodity in installment. The buyer obtains the possession of the article on the down payment (deposit) but the title of ownership remains with the seller until the last installment is made .
CREDIT SALES/DEFFERED PAYMENT- Under this system the article becomes the property of the buyer with the payment of the first installment. The buyer is supposed to pay the remaining amount in installments.
Advantages
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 installment is paid .
The buyer.
- He takes possession of goods immediately after down payment
- Installments to be made are predetermined enabling him to plan and budget for payment of the amounts
- He is able to acquire goods he would not have afforded on cash terms.
- The buyer can possess more goods including expensive items.
Advantages of credit sale to:
The manufacturer:
- He is able to increase his volume of sales
- Profits realised 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 expensive goods on credit
- Ownership of the article passes to the buyer after the first installment .
- He is able to plan on acquisition of certain goods ( 1 x 6 = 6 marks)
Differences
Hire purchase Credit sale
– Goods can be repossessed if the – Goods cant but the buyer can be sued for
buyer breaches the contract. damages
– Ownership remains with the seller – Ownership passes to the buyer installment is
when the first till the last installment is effected.
Is made
