Commerce | Buying and selling

Welcome to the Heart of Commerce: Buying and Selling!

Hello future Commerce expert!
This chapter, Buying and Selling, is the absolute foundation of everything we study in Commercial Operations. Every shop, factory, and online business in the world exists because of these two core activities.
Don't worry if business terminology sometimes seems complex; we will break down the procedures and documents into simple, easy-to-understand steps. By the end of this, you’ll know exactly how a business acquires its goods and sells them on!

What is Commerce, Really?

Commerce is essentially the exchange of goods and services. This exchange involves two main roles: the Buyer and the Seller.

Did You Know?
Historically, buying and selling started as barter (trading goods for goods). Today, money makes the process much more efficient, but the core idea of exchange remains the same!

Section 1: The Core Exchange – Buyer vs. Seller

In commerce, every transaction requires someone to buy and someone to sell. Often, a single business plays both roles!

1. The Buyer (The Customer or Retailer)

The Buyer is the person or organisation that receives goods or services in exchange for payment.

• The Consumer Buyer: Someone who buys goods for personal use (e.g., you buying a snack).
• The Business Buyer (The Retailer): Someone who buys goods (called Stock or Inventory) to sell them again at a higher price (e.g., a supermarket buying crates of snacks).

2. The Seller (The Supplier or Producer)

The Seller is the person or organisation that provides goods or services in exchange for payment. They are also often called the Supplier.

Think of it this way:
If a computer manufacturer sells a laptop to a retailer, the manufacturer is the Seller/Supplier, and the retailer is the Buyer. When the retailer sells that laptop to you, the retailer becomes the Seller, and you are the Buyer.

Section 2: The Commercial Buying Procedure

When a business (like a shop) needs to restock its shelves, it doesn't just call up a supplier and say "send stuff!" There is a structured, step-by-step process. This process ensures the business gets the right quantity, quality, and price.

Step-by-Step Buying Process (How a Retailer Buys Stock)

This procedure is crucial to understand. Let's look at the steps in order:

1. Need Recognition and Requisition
   

   The business identifies that its stock is running low. A staff member (often the store manager) fills out a Requisition Note asking the purchasing department to buy certain goods.
   Analogy: You checking your fridge and realising you need milk.

2. Inquiry and Request for Quotation
   

   The buyer contacts several potential suppliers to find out their prices and terms. The buyer might ask for a Quotation (a formal document stating the price and conditions for a specific order). They might also look at a supplier’s Catalogue.

3. Comparison and Selection of Supplier
   

   The buyer compares the quotations based on price, quality, delivery speed, and terms of payment (e.g., are discounts offered?). They select the supplier that offers the best overall deal.

4. Placing the Order (Order Form)
   

   The buyer sends the chosen supplier a formal, legally binding document called the Order Form. This clearly lists the quantity, description, and agreed price of the items needed.

5. Delivery and Checking
   

   The supplier sends the goods, often accompanied by a Delivery Note. The buyer must carefully check the goods against the Order Form and the Delivery Note to ensure the correct items were sent and are not damaged.

6. Receiving the Invoice and Payment
   

   The supplier sends the Invoice (the official bill). The buyer checks the Invoice against the Order Form. If everything matches, the buyer arranges payment according to the agreed terms.

Common Mistake to Avoid:
Students often confuse a Requisition Note (internal document asking to buy) with an Order Form (external document telling the supplier what to send). Remember: Requisition is inside the company; Order is outside the company.

Section 3: Essential Commercial Documents

Every step of the buying and selling procedure involves paperwork (or digital documents). These documents are essential for accurate accounting and resolving disputes.

Key Pre-Sale and Ordering Documents

These documents help the buyer decide what to buy:

• Catalogue: A booklet or website listing the supplier's goods, usually with pictures and basic descriptions, but often without exact current prices.
• Quotation: A formal document from the supplier stating the exact price, delivery date, and terms for a specific requested quantity of goods.
• Price List: A formal list of current prices for all items supplied.
• Order Form (or Purchase Order): Sent by the Buyer to the Seller. This is the formal request to supply goods.

Key Delivery and Billing Documents

• Delivery Note:
  Sent by the Seller with the goods. It lists the items delivered. Crucially, it does not show the price. Its purpose is only to prove what was shipped.
• Invoice:
  Sent by the Seller to the Buyer. This is the official bill requesting payment. It shows the description, quantity, price per unit, total amount due, and any discounts given.
• Statement of Account:
  Sent periodically (usually monthly) by the Seller to the Buyer (especially if the buyer uses credit). It summarises all transactions (invoices, payments, and credit notes) over a specific period. It shows the total amount currently owed.

Correction Documents

Sometimes mistakes happen (e.g., overcharging, wrong goods sent). These are fixed using notes:

• Credit Note:
  Sent by the Seller to the Buyer. This document reduces the amount the buyer owes. It is used when goods are returned, or if the buyer was overcharged on the original invoice.
  Memory Aid: If you get a Credit Note, it’s good news! Your account is CREDITED (you owe less money).
• Debit Note:
  Less common. Sent by the Seller to the Buyer to increase the amount owed (e.g., if the buyer was accidentally undercharged).

Section 4: Terms of Sale and Methods of Payment

When a buyer and seller agree on a price, they also agree on the Terms of Sale. These terms dictate how and when payment is expected.

1. Cash vs. Credit Trading

The first major term is the timing of payment:

• Cash Trading: Payment is made immediately upon delivery or purchase. (This can be cash, card payment, or electronic transfer on the spot).
• Credit Trading: The seller allows the buyer a period of time (e.g., 30 days) after delivery to pay the invoice. This is very common between businesses, but it carries a risk of non-payment for the seller.

2. Discounts – Lowering the Price

Discounts are a key strategy used in selling to encourage larger orders or faster payment.

a) Trade Discount

A reduction given off the list price to buyers who are "in the trade" (e.g., a wholesaler selling to a retailer).
The Trade Discount is deducted before the invoice is calculated. It is often given for buying in bulk.
Example: A supplier gives all registered retailers a 20% Trade Discount on shoes.

b) Cash Discount

A reduction given to the buyer for paying the invoice promptly (quickly). This is an incentive for the buyer to pay before the credit period is over.
This is often written on the invoice as "2/10, net 30" (meaning a 2% discount if paid within 10 days; otherwise, the full amount is due in 30 days).

Crucial Distinction:
Trade Discount is for *who* you are (a retailer/bulk buyer).
Cash Discount is for *when* you pay (quickly).

3. Methods of Payment

Once the terms are agreed and the invoice is checked, payment must be made. Common methods in commercial operations include:

• Cash: Physical currency (less common for large business transactions).
• Cheque: A written order telling a bank to pay a specific amount to a named person or business.
• Banker's Draft: Similar to a cheque, but guaranteed by the bank (useful for very large payments).
• Electronic Funds Transfer (EFT): The instant transfer of money between bank accounts (the most popular method today for B2B transactions).