MetroOffice sells furniture to business customers. Customer Order value Requested payment method Payment timing New local firm $1,200 Debit card At order Es...
Question 1 Report
MetroOffice sells furniture to business customers.
| Customer | Order value | Requested payment method | Payment timing |
|---|---|---|---|
| New local firm | $1,200 | Debit card | At order |
| Established retailer | $18,000 | Bank transfer | 30 days after invoice |
| Overseas buyer | $40,000 | Letter of credit | On shipment |
(a) Which customer is requesting payment on credit? [2]
(b) Which payment method gives the strongest bank-backed protection for the overseas sale? [2]
(c) Which method transfers money directly between bank accounts? [2]
(d) Which payment method is most likely to give immediate authorisation for the local order? [2]
(e) Which two benefits could MetroOffice gain from accepting debit cards? [3]
(f) Which three checks should MetroOffice make before giving the retailer 30 days' credit? [3]
(g) Which reasons could make a letter of credit suitable for the overseas buyer? [3]
(h) Which risks could result from accepting payment by cheque? [3]
Answer Details
(a) The established retailer is requesting credit because it will pay 30 days after the invoice. [2]
(b) A letter of credit gives the strongest bank-backed protection for the overseas sale. [2]
(c) A bank transfer moves money directly between bank accounts. [2]
(d) A debit-card payment is most likely to give immediate authorisation for the local order. [2]
(e) Debit cards can provide immediate or rapid payment and reduce bad-debt risk. They are convenient for customers, avoid cash handling, and create a transaction record. Any two developed benefits. [3]
(f) Before allowing 30 days' credit, MetroOffice should check credit references, trading history or bank references; compare the \($18\,000\) order with the credit limit and current debt; check payment records; and consider cash-flow impact. Any three. [3]
(g) A letter of credit is suitable because a bank promises payment when conditions are met, reducing non-payment risk with an unfamiliar overseas buyer. Shipping documents confirm dispatch and support international trade. Any three. [3]
(h) A cheque may bounce, payment is delayed while it clears, it may be forged or stopped, and funds are not guaranteed. It also creates administration costs. Any three. [3]
Download The App On Google Playstore
Everything you need to excel in your exams
