Chapter 27 Business Documents Learning Outcomes Upon completion

Chapter 27

Business Documents

Learning Outcomes Upon completion of this chapter you should be able to: • Explain the importance of record-keeping in business • Identify and complete the documents used by businesses when buying and selling goods • Analyse the information contained within the documents used when buying and selling goods • Define the different terms associated with business documents • Outline the procedures for dealing with incoming and outgoing business documents.

The Importance of Business Documents • Nearly everything that happens in a business relies on some sort of documentation. • When you receive wages, you get a payslip; when all the staff need to know something, they are sent a memo; when a client needs to be contacted, they are sent a letter. • Even if a telephone call is made it can generate a document in the form of a note outlining the conversation. • Sometimes the document is electronic, but it is still considered a document.

Summary of Business Document Sender Receiver Letter of enquiry Buyer Sender Quotation Seller Buyer Order Buyer Seller Delivery docket Seller Buyer Invoice Seller Buyer Statement Seller Buyer Payment Buyer Seller Receipt Seller Buyer

Letter of Enquiry • When a business wants to buy from another business (known as B 2 B), they will often write a letter of enquiry, particularly if they haven’t dealt with the company before. • The buyer might phone or send letters to several different businesses, requesting availability of goods, prices and the terms of sale. • The terms of sale are the conditions attached to a sale, such as who pays for delivery, what discount is available, and when the invoice has to be paid.

Dealing with the Letter of Enquiry Seller (incoming) On receipt of a letter of enquiry: • Check stock and prices • Prepare quotation • File the original for reference. Buyer (outgoing) Before sending a letter of enquiry: • Check name and address of seller • Check quantities quoted • File a copy for reference.

Quotation A quotation is a written document that is sent by a seller to a prospective buyer. It shows the price of the goods and any terms of sale.

Terms of Sale • • • Delivery E&OE Price held Trade discount Cash discount VAT Cash with order (CWO) Cash on delivery (COD) Payment terms

Dealing with the Quotation Buyer (incoming) On receipt of a quotation: • Check against letter of enquiry • Check prices and availability of goods • Compare to other quotations • File the original for reference. Seller (outgoing) Before sending out a quotation: • Check details against letter of enquiry • Check all prices and terms of sale • File a copy for reference.

Order • An order is a written document sent by a buyer to a seller requesting the supply of a quantity of goods listed. • The order might be made by telephone, email, on the business’s special order stationary or by letter.

Dealing with the Order Seller (incoming) On receipt of an order: • Deal with it quickly to avoid losing custom • Check all goods are in stock • Check details of prices and terms against the quotation • File the original for reference. Buyer (outgoing) Before sending an order: • Check quantities and product details • Check quotation to ensure seller has goods in stock • File a copy for reference.

Effective Purchasing • Effective purchasing is about buying the right goods, at the right time, at the right price, in the right quantity and of the right quality. • An efficient business must engage in stock control and will try to ensure the optimum stock level at any given time. • This simply means that they do not have too much or too little stock.

Factors to Consider When Choosing the Correct Level of Stock • Storage: does the business have enough space? • Costs: the greater the amount of stock carried, the higher the insurance costs will be. • Level of Customer Demand: businesses may carry more stock at certain times of the year, e. g. Christmas. • Lead Time: how long does it take for an order to be delivered from the supplier. • Type of Stock: if stock will go off quickly a limited amount should be carried.

Delivery Note • Once the sale has been agreed, the seller will start to complete the order and prepare a delivery note and invoice. • The delivery note is a document sent by the seller to the buyer that lists the items being delivered. • When the goods are delivered to the buyer’s address, the person making the delivery will ask the buyer to sign the delivery note. • This will act as proof, if required, that the goods were delivered.

Dealing with the Delivery Note Buyer (incoming) On receipt of a delivery note: • Compare with order to ensure correct goods delivered • Check quantities actually delivered match the delivery note • Check that goods are in perfect condition • Sign delivery note and return to delivery driver • File the copy for reference. Seller (outgoing) Before sending out a delivery note: • Check the goods being delivered match the order • Check all goods are in perfect condition • Check the delivery address • File the original for reference.

Invoice • An invoice will be sent either with the delivery or by post. • The invoice is a document sent by the seller to the buyer with the goods or shortly after the delivery of them. It gives details of the quantity, price of the goods being sent, terms of sale and details about carriage. • The invoice acts as the final bill for the goods delivered. • It contains the following information: o The name and address of the supplier and the buyer o A unique invoice reference o The date the invoice was created o A complete list of the products or services provided o The net amount owed for the goods (i. e. not including VAT) o The total amount of the invoice o The payment terms of the invoice

Procedures for Dealing with Invoices Buyer (incoming) On receiving the invoice: • Check against the delivery docket • Check that the prices on the invoice are the same as the prices on the quotation. • Check calculations • Enter the details of the invoice in the purchases accounts • File the original for reference. Seller (outgoing) Before sending out an invoice: • Match the goods listed against the order • Check the prices match the quotation • Check the discounts and terms of sale • Check the customer’s name and address • Check calculations • Record details in the sales accounts • File a copy for reference.

Credit Note • A credit note is a document that is sent by the seller to the buyer to decrease the amount owed. • It is issued when goods that have been purchased on credit are returned to the seller and it would not be appropriate to provide a cash refund. • The credit note is sent if any of the following situations arise: o The amount charged was too much o The wrong goods were delivered o The goods were damaged or of poor quality o Some of the goods have to be returned for some reason

Dealing with the Credit Note Buyer (incoming) On receiving a credit note: • Check the details match the returned goods • Check calculations • Record the reduction in amount owed to creditors in the accounts • File the original for reference. Seller (outgoing) Before sending out a credit note: • Check details match the returned goods • Check calculations • Record the reduction in amount owed by debtor in the accounts • File a copy for reference.

Debit Note • A debit note is sent by the seller to the buyer and will increase the amount owed. • It is used when there has been an undercharge on an account. • The debit note is issued if either of the following situations arise: o If the buyer has been undercharged o If the buyer received goods but was not charged for them on the invoice.

Dealing with the Debit Note Buyer (incoming) On receiving a debit note: • Check calculations • Record the increase in the amount owed to creditors in the accounts • File the original for reference. Seller (outgoing) Before sending a debit note: • Check calculations • Record the increase in the amount owed by debtors in the accounts • File a copy for reference.

Statement of Account • A statement of account is sent by the seller to the buyer • It is a summary of all the transactions between the two firms over a particular period of time • It shows the full amount owed and will act as a demand for whatever payment is still owed. • The method used in the statement of account is known as the continuous balancing method.

Interpreting a Statement The statement works on the following rules/assumptions: • The balance shown at the start of the month/period is the amount owed by the buyer to the seller at that date. • Any entry in the debit column will increase the amount owed and is added to the previous balance in order to get the new balance. • Any entry in the credit column will decrease the amount owed and is subtracted from the previous balance in order to get the new balance. • The last balance represents the amount owed as on that date. • The phrase ‘ 4% 14 days’ means that the buyer will get a 4% discount if they pay in full within 14 days of receiving the statement.

Dealing with the Statement Buyer (incoming) On receiving a statement: • Check the opening balance • Check against invoices/credit notes/debit notes received • Check all payments have been recorded • Check calculations (and closing balance) • Pay the amount due by the due date • File the original for reference. Seller (outgoing) Before sending out a statement: • Check the opening balance • Check invoice amounts • Check debit and credit note amounts • Check payments have been recorded • Check calculations and closing balance • File a copy for reference.

Payment • When goods are sold for cash, payment may be made when the order is made (CWO) or when the goods are delivered (COD). • The payment may be made in cash or through other forms of payment such as a cheque or bank credit transfer. • If not paid for when goods are ordered or delivered, payment should be made within the credit terms given, e. g. thirty days.

Receipt • A receipt is a written document stating that the goods have been paid for. • It is signed by the seller and given to the buyer. • Receipts should be filed away safely as they may be required as proof of payment in the future.

Dealing with the Receipt Buyer (incoming) On receiving a receipt: • Check the figure matches the payment • Record the payment in the creditors account • File the original for reference. Seller (outgoing) Before sending out a receipt: • Check the figure matches the payment • Record the payment in the debtors account • File a copy for reference.

Recap and Review Can you do the following? : • Explain the importance of record-keeping in business • Identify and complete the documents used by businesses when buying and selling goods • Analyse the information contained within the documents used when buying and selling goods • Define the different terms associated with business documents • Outline the procedures for dealing with incoming and outgoing business documents.