BUSTAZ LSK - COMMERCE A SUPPLEMENTARY STUDY TEXT Madam
BUSTAZ LSK - COMMERCE A SUPPLEMENTARY STUDY TEXT Madam
BUSTAZ LSK - COMMERCE A SUPPLEMENTARY STUDY TEXT Madam
MINISTRY OF EDUCATION
LUSAKA PROVINCE
COMMERCE 7100
COMMERCE7100
SUPPLEMENTARY STUDY TEXT FOR GCE/ ‘O’ LEVEL
SECOND EDITION
Authors
Richard Fisonga, MBA Fin., ZiCATech, BBA Ed., Dip. Ed.
Head of Business Studies Department – Highland Secondary School,
Winner of the 2018 Outstanding Educator Initiative National Award in Financial Literacy,
Past Chairperson of the Business Studies Teachers Association of Zambia, Lusaka Province
The right of Richard Fisonga, James Gwenani, Edgar Shiluwe and John Kaputula as authors
of this work under the umbrella of the Business Studies Teachers Association of Zambia has
been asserted by them. This supplementary book is not for sale, however express permission
for free distribution and education purposes has been granted.
Disclaimer
Although the authors have made every reasonable effort to ensure that the information in this
book was correct at press time, they make no express or implied representation, with regard
to the accuracy of the content herein and hereby disclaim any legal responsibility or liability to
any party caused by errors or omissions. Note that some pictures of products and services
that are referred to may be either trademarks and/or registered trademarks of their respective
owners. The authors make no claim to these trademarks.
The Ministry of Education envisions to achieve access to high quality education across the
nation and Lusaka province is no exception. One of the main indicators of quality education is
Examination results to which the availability of quality books is irrefutably one of the main
contributing factors. There is therefore a need at all times to have material written with the
teacher and learner in mind and which adheres to the official syllabus and the associated
learner outcomes.
The production of this supplementary book by the BUSTAZ is one of the provincial initiatives
to improve teacher and learner performance in class assessments and National
Examinations. The book has been written in such a way as to meet these needs and ensure
that teachers and learners have access to up to date subject content. The association and
authors deserve commendation for the job well done.
This initiative started in 2018 when the first edition of this book was produced. The province
would therefore like to express sincere thanks to the then, Provincial Education Officer, Mr.
Paul Ngoma, the Principal Education Standards Officer Mrs. Grace Sinkolongo and the Senior
Education Standards Officer – Business Studies, Dr. John S. Chola, for the administrative
support given to the association.
I sincerely believe that this supplementary material will go a long way in achieving the goals of
the Ministry of Education and improve learner performance in Lusaka Province and beyond.
School administrators are therefore encouraged to distribute the material to teachers and
learners in hard and soft copy at no cost to the recipients.
FOREWORD
The compilation of this supplementary book was necessitated by the need to provide
comprehensive material in the subject area to cover all aspects of the syllabus in order to
improve examination results. The authors ensured that the contents of the book conformed
to the requirements of the official Curriculum Development Centre (CDC) Syllabus as well as
the Examination Syllabus for the Examinations Council of Zambia.
The information contained in this supplementary book is professionally written by qualified and
experienced teachers of the subject. Teachers and learners are therefore assured that the
information is well researched and relevant to the current curriculum and lesson outcomes as
contained in the syllabus.
The book has been developed with the teacher and learner in mind. The teacher will be
equipped with a well summarised all-in-one resource that will enhance their preparedness for
effective delivery of lessons in class, thus improving teacher performance. The learner, on the
other hand will find this book easy to use with its well summarised notes and easy to
understand illustrations which will aid their understanding of concepts. This will equip them
with knowledge, values and skills necessary for the business environment and in turn help to
improve learner performance in the final examinations.
This book will prove to be a helpful resource for both teachers and learners in their quest to
achieve the intended syllabus outcomes and improve results in Commerce.
ACKNOWLEDGEMENTS
The authors would like to acknowledge the help and support received from the Provincial
Education Officer, Dr. Allan Linganbe for the encouragement to have this material edited and
the permission to have it distributed in soft copy to teachers and learners. We also
acknolwedge the professional help and advise received from the Senior Education Standards
officer, Mrs. Lenny Longwe in the preparation of the Second edition of this book.
We appreciate the efforts of many teachers who provided reviews and advice on a number of
topics, chief among them, Mrs. Joyce Kalala Mulimbika of Highland Secondary School.
Special thanks to key stakeholders in Business and Financial Education such as the
Curriculum Development Centre (CDC), Examinations Council of Zambia (ECZ), Securities
and Exchange Commission (SEC), Pensions and Insurance Authority (PIA), Competition and
Consumer Protection Commission (CCPC), the Zambia Institute of Chartered Accountants
(ZICA) and the Bankers Association of Zambia (BAZ). These organisations availed valuable
information through seminars, workshops and electronic means without which some topics in
this book could not have been updated.
This book is a result of many years of the authors’ practical teaching experiences in the
classroom. The bigger part of the book is a compilation of the authors’ self-generated notes.
Other resources used are here acknowledged which have been used particularly for
education purposes as provided for under Fair Use. They include:
Abbott K. et al, (2007), Business Law, South Western Cengage learning EMEA
Hamakoko R., (2015), Senior Secondary Commerce, Grade 10, MK Publishers, Zambia
Matindike G., (2000), Focus on Commerce, College Press Publishers (Pvt) Ltd, Zimbabwe
Whitehead G. (1969), Commerce Made Simple, W.h Allen & Co.ltd, UK.
CONTENTS
INTRODUCTION TO COMMERCE
What is Commerce?
Commerce is concerned with the distribution and actual exchange of goods and services and
also the commercial services that play a role in the distribution of goods and services to
satisfy consumers’ needs and wants. Commerce involves Trade and Aids to trade. It is
concerned with the distribution of goods and services to satisfy human needs and wants.
Trade is the buying and selling of goods and services with a view of making profit. Aids to
trade (commercial activities/services) are activities that help trade to take place such as;
Warehousing, Advertising, Banking, Transport, Insurance and communication.
Importance of Commerce
To an individual
Commerce helps individuals to access goods and services which they use in satisfying
their needs and wants.
Commerce is a source of employment to those employed in various commercial activities.
Commerce is a source of income to people that engage in businesses (commercial
activities).
Commerce improves peoples’ standards of living by enabling them to acquire improved
goods, tools, machinery and technology.
To a nation
Commerce helps nations to grow their economics, it is a source of income and foreign
exchange.
Commerce promotes industrial development.
It helps a nation to develop good relations with other countries.
It enables nations to obtain advanced technologies from other countries.
Commerce helps nations to specialize and sell surplus goods to other countries profitably.
Commerce enables countries to overcome shortages of seasonal goods during the off-
season time as they are able to buy these from other countries.
To the world
Commerce promotes interconnections among nations through transport, communications
and other commercial services.
Commerce encourages international trade.
Commerce promotes globalization and international relations.
Commerce
Trade
Trade is the buying and selling of goods and services with the intention of making profit. There
are two types of trade namely; home and foreign trade. Home trade – Also known as
Domestic Trade is the buying and selling of goods and services within a country. It consists
of Wholesalers and Retailers. Wholesalers buy goods in bulk from manufacturers and sell
them to retailers or directly to consumers. Retailers in turn sell the goods in small quantities
to consumers. Foreign trade – Also Known as International Trade is the buying and selling
of goods and services across the geographical boundaries of a country. It is divided into
import trade and export trade. Import trade is the buying of goods and services from other
countries while export trade is the selling of goods and services to other countries.
Aids to Trade or Commercial Services
Aids to trade are the activities/services that help to make trade possible. Without them, the
work of manufacturers would be futile as it would be almost impossible to distribute goods and
services to the consumers. Aids to trade include: Warehousing, Banking, Advertising,
Insurance, Communication, and Transport. These services are also known as Commercial
Services. The following are the ways in which the Aids to Trade help trade to take place:
Advertising - involves the use of the art of persuasion to educate and inform the public on
goods and services available. It also persuades customers to buy goods and services through
various techniques. Advertising helps:
to obtain information on sources of goods and services.
to persuade potential customers to buy goods and services available on the market
to increase sales
to announce job vacancies
to give information to customers on the various goods in stock, price and location.
Advertising is done through different media such as: Radio, Television, Newspaper,
Magazines, Business Journals, Billboards, internet, exhibitions and trade fairs, cinema etc.
Banking – is an Aid to trade that helps to safeguard funds through various accounts offered
and the provision of finance. Banking is an important aid to trade because:
It is essential for depositing income from sales for safekeeping.
It aids in receiving and making payments through credit transfer, standing orders, bills of
exchange, cheques and direct debit.
It provides finance for the traders through loans and overdrafts
It provides advice to traders on business investment
Banking services are offered by financial institutions such as Commercial banks, Micro-
finances, Bureau de changes, Building Societies etc.
Communication – is a service which enables individuals and organisations to contact each
other and exchange information. Communication is important because:
It helps in contacting suppliers of raw materials and customers
It helps in settling queries
It allows customers to place orders
It helps in making arrangements for the transportation of goods
it helps in organising and carrying out surveys such as market research
It helps in making contracts and other sale agreements
Communication is carried out through telephone, Electronic-mail, telex, fax, internet, letter,
data post, cellular phone.
Insurance – is an aid to trade which provides cover to individuals, businesses and their
property against risks like fire, accidents, theft etc. Insurance is important because:
It provides cover and compensation against activities that may cause financial loss.
It helps in spreading risks among the many insured persons.
It provides cover for claims from third parties such as employers’ liability and public liability
It provides compensation for loss of business activity and profits as a result of calamities
such as fire.
Insurance services are offered by Insurance companies through insurance policies such
as: Fire insurance, Motor Insurance, Marine Insurance and Life assurance.
Transport - Transport is an aid to trade concerned with the moving of goods and people
from one place to another. Transport is important because:
It helps in the delivery of raw materials and equipment to the industry.
Facilitates the movement of employees to and from work
Helps in carrying finished products to the market
It helps in the movement of traders, company executives, and agents to home and
overseas markets to meet their customers.
It can be by road, rail, sea or air.
Warehousing - This is an aid to trade concerned with storage of goods from the time they
are produced to the time they are consumed or used. Warehousing is important because:
It is essential for the storage of raw materials awaiting to be processed.
It helps in the storage of finished goods awaiting orders from the customers.
It helps in the storage of seasonal goods such as: Jerseys, raincoats and umbrellas.
It protects goods from adverse weather conditions, theft and damage.
It allows production to take place in anticipation of demand
It helps in keeping prices of goods stable and prevent shortages
It helps in keeping imported goods before payment of customs duties.
The different types of warehouses include: Manufacturers warehouse, Public warehouse,
Bonded warehouse, Wholesalers warehouse etc.
A career is a job or occupation that one does to earn a living. A career is usually as a result of
training. After studying Commerce, one is able to fit into a number of career prospects or
occupations. Below are a number of career prospects for Commerce learners:
Marketer/Sales Person – Marketing jobs involve finding customers and encouraging them
to buy goods in order to satisfy their needs.
Advertising/ Promotions Officer- This involves working for media houses offering
advertising space or as a Freelancer involved in creating adverts or as an advertising
officer making decisions what adverts to run and which medium to use on behalf of the
business.
Banker – This involves work in a commercial bank, at the central bank or with Micro
finance houses.
Customs Officer- This involves working as a Customs Officer for the Revenue Authority
for in the collection of duty and clearing imported and exported goods.
Entrepreneur – This involves setting up a business and running it. You can run your own
business as a Retailer, a Wholesaler, a Producer or even as a Service provider.
Warehouse/Stores Officer- This deals with receiving, storage, issuing and keeping track
of goods for sale, Stationery, Machinery spare parts, tools, raw materials etc.
Insurance Staff/ Insurance Broker- This involves helping various businesses and
individuals to obtain insurance cover either as an insurance company employee or an
independent insurance agent known as a Broker.
Transport officer- This involves working as a logistics and transport officer facilitating the
movement of goods and people from place to place using various types of transport such
as road, rail, air, sea and other forms of transport.
PRODUCTION
Branches of Production
Production is divided into three branches namely Industry, Commerce and Direct services
PRODUCTION
Trade
Aids to
Trade
Primary Seconda
Medication
ry
Education
Legal aid
Advertising Security
Banking Hair
Home Foreign dressing
Comm.
Insurance Recreation
Transport
Warehousi
Exhau Non- Manuf Const ng
stive Exhau acturi ructio
stive ng n
Ret. Wh. Exp Imp
.
Industry
This is a branch of production concerned with the actual making of goods by extracting raw
materials from nature (primary industries) and then processing them into finished goods
(secondary industries) which people are able to use in satisfying their needs and wants.
Primary and Secondary stages of Production make up the industry branch of production. The
Primary industry is also sub divided into: Exhaustive (Non -Renewable) and Non-Exhaustive
(Renewable) Extractive Primary Industries. Exhaustive Extractive Primary industries are those
engaged in non-renewable resources e.g. Mining and Quarries while Non-Exhaustive
Extractive industries are involved in the extraction of renewable resources e.g. Farming and
Fishing.
Commerce
Commerce is a branch of production involving the distribution and actual exchange of goods
and services and also the commercial services that play a role in the distribution of goods and
services to the consumers through retailers, wholesalers, exporters and importers. Commerce
therefore, makes the second branch of production. Commerce completes the process of
production by delivering goods to the consumers at the right time, right place, in right
conditions and at the right price.
Direct Services
These are personal and public services provided for the direct benefit of individual citizens.
Examples include: Education, health care, legal advice, entertainment, security services etc.
These contribute to the satisfaction of human needs and wants by providing a variety of public
and personal services, increasing the efficiency of productivity of workers engaged in industry
and commerce, e.g. sick workers get medication and get back to work.
Methods of Production
There are two methods of production namely, direct production and indirect production.
Direct Production
This is the production of goods for one’s own use. For example, a farmer who grows only
enough crops or keeps enough livestock for his family’s need is involved in direct production.
If people were to produce all that they needed by themselves, there would be little or no need
for trade. Direct production also entails that each person has to be a master or jack of all
trades i.e. build own house, tame a flock of goats, hunt, fish, farm, make clay pots, etc. to
meet one’s daily needs. Because of these features, direct production is a primitive and
inefficient method of production.
Indirect production
Indirect production is the production of goods for sale. It is the most common type of
production in modern society, where few people satisfy their needs directly. Instead people
co-operate with others to indirectly produce to satisfy the needs or wants of everyone.
Indirect production depends on trade. People usually engage in only one or two particular
occupation/s, which they are best at and sell their products to earn money. With this money
they can then buy the other goods/services they want but which they do not produce. For
example, a farmer who specialises in food production needs to sell some of his food to get
money to buy clothes, salt, sugar, tools etc., while a manufacturer of clothes needs to sell his
clothes to get money to buy food, machinery, etc.
Factors of Production
Factors of production are things needed for production to take place. They include land,
labour, capital and enterprise.
Land
The term land refers to all resources provided by nature.
It includes land for farming and building, mines, oceans, rivers, lakes, etc.
A person who provides land is referred to as a landlord.
The benefit or reward to land is Rent or Rates.
Labour
This is the human effort that is applied in production.
It may be Manual (unskilled) or professional (Skilled).
The providers of labour are labourers or workers.
The benefit or reward of labour is salary or wage.
Capital
This includes money and assets used in the production of goods and services.
Capital is provided by capitalists or investors.
The reward for providing capital is interest or dividends.
Enterprise
This is the skill to organise, direct and control other factors of production in order to
produce goods and services.
The person who takes the effort and initiative to organise the other factors of production is
known as an entrepreneur.
The reward for providing enterprise is profit if the enterprise is successful, or a loss if not
successful.
Types of Goods
A good is a physical object which can be purchased and consumed or used to satisfy human
needs or be used to produce other goods.
Classification of goods
Original goods- these are goods manufactured by the brand owner or the business that is
legally the owner of the brand name or the business that has the right to produce goods under
a specific brand name.
Counterfeit goods – these are goods illegally produced using an existing brand name as
though they have been produced by the brand owner. Counterfeit goods are imitations of the
original goods by illegal manufacturers who want to take advantage of popular brand names
and sell to unsuspecting customers.
Substandard Goods - these are goods that fail to perform to the expected standard.
Substandard goods may easily break down or simply fail to meet the customer’s needs. E.g. a
pair of shoes that get tone within one month of wearing.
Quality Goods – quality goods are goods that meet the customer’s needs or expectations.
Such goods give the customer the desired value for their money. They are usually produced
under stringent quality control by reputable manufacturers and seldom disappoint customers.
Such goods may be durable, stronger, high performing etc.
The Chain of distribution refers to the various routes that goods may take to reach the final
consumer once they have been produced. Below is a diagram on the different routes available
for the producers of goods and services.
Chains of Distribution
MARKETING
BOARDS/MIDDLEME
WHOLESALE N
R
WHOLESALE
WHOLESALE
R
R
RETAILER
RETAILE
R
RETAILER
Government policy – e.g. policies guiding the location of industries and what can and
cannot be produced.
Civic education- Through community sensitizations such as the formation of CCPC and
Environmental Protection Clubs in Schools.
Provision of public utilities- Government may take a leading role in the provision of
essential services through parastatals or Public Corporations to ensure both the protection of
people and the environment.
Provision of dust bins- Putting bins along streets, markets, shopping malls etc. to reduce
littering.
Provision of posters in the industrial area- To warn or caution members of the general
public e.g. posters warning people not to get near to a factory producing toxic chemicals.
Introduction of Prohibitive Taxes -Using taxes to discourage production or consumption
of certain goods that are harmful to health, e.g. high taxes on tobacco products and Carbon
Emission tax on cars.
Legal redress – people can take court actions against industries and organisations whose
operations create an environmental hazard.
Using regulatory bodies - Use of regulatory bodies such as ZEMA (Zambia Environment
Management Agency) and ERB (Energy Regulations Board) and other statutory bodies that
can help monitor the practices of industries and businesses in general.
Mass movements and demonstrations – people can peacefully demonstrate against
industries whose operations has a negative effect on the environment. This can lead to
concern businesses taking corrective measures or attract government intervention.
CONTRACTS
A contract is a legal agreement that creates an obligation binding upon the parties to the
agreement. It is an agreement between two or more parties that is intended to be legally
binding.
Importance of Contracts
Contracts are very important for businesses because:
They act as a reminder to parties on what is expected of them to do as stipulated in the
contract.
Contracts act as evidence in courts of law in case of breaches and legal litigation
They help is specifying the terms and specific actions to be performed by the parties
Contracts reduce the risk of non-compliance as parties would of aware of the
consequences of non-performance.
Contracts give title of ownership to parties e.g. contract of sale.
Contracts act as a permanent of record of transaction or agreed terms.
Contracts may be used in accessing funds or borrowing e.g. a title deed.
Legality – the contract must be lawful. A contract is void if it is based on an illegal purpose
or contrary to public policy. E.g. a contract to kill someone.
Possibility of performance – the terms of the contract should be practicable or attainable
and realistic. E.g. a contract to bring back to life someone who died many years ago is
unrealistic, unattainable with no possibility of performance.
It is common to confuse an offer with an invitation to treat. The two items are distinguished
as follows:
An invitation to treat is merely a supply of information to influence or persuade people to
make offers. An offer on the other hand is made when the one making it is willing to enter into
a legally binding contract when accepted.
An invitation to treat is a request or a call for offers. E.g. An invitation for tenders, general
advertisements, Auction, display of goods on a Shop Window (without price tags), Auctioneer
request for bids, a company prospectus etc.
An invitation to treat does not solicit for acceptance but for people to make offers while an
offer solicits for acceptance.
Price tags on goods in a Supermarket are an offer to members of the general public unless
there is a provision for price negotiations. Price tags on goods with room for negotiation would
amount to an invitation to treat.
HOME TRADE
Home Trade, also known as Domestic Trade is the buying and selling of goods and services
within a country. It consists of Wholesale trade and Retail trade. It involves Wholesale trade
and Retail trade.
Retail Trade
Retail Trade involves the buying of goods in large quantities and selling them in small
quantities to the final users or consumers. Traders involved in retail trade are known as
Retailers.
Functions of a Retailer
Breaking the bulk- retailers buy in large quantities but resell in smaller or affordable
quantities to consumers.
A retailer provides a variety of goods to his or her customers to meet their various needs.
Provides goods to customers at convenient times.
Acts as a link or middlemen between the consumer and the manufacturer.
They help in advertising goods through their attractive displays or merchandising skills.
Provides transport or delivery services to customers who buy bulky and expensive goods.
Locates the retail shop near the customers so as to satisfy their local needs.
May offer personal attention (advice) to customers on the goods they intend to buy.
They assemble some goods which they buy as components but sell them as a unit e.g.
Bicycles, display units, Fancy beds etc.
The retailer may offer goods on credit to trusted customers.
Provides pre-sales and after-sales services to customers.
Retailers such as supermarkets and Hypermarkets offer self-service where customers are
allowed to walk around the shop and free to select the goods that they want.
Level and type of competition- one needs to do an assessment of the level and nature of
competition that the retail shop is going to face as this has a direct effect on the shop’s
survival.
Legal requirements- one needs to ensure that the retail shop complies with all legal
requirements. This include laws regarding acquisition of trading certificates, clearance from
the council and obtaining of a Tax clearance certificate and TPIN from the Zambia Revenue
Authority (ZRA).
Security – the rate of crime in the area preferred is an important factor to consider before
opening the shop. Locating a shop in a High crime area would mean spending on additional
security installations.
Types of customers - one needs to consider or analyse the needs and buying patterns of
potential customers, including their economic status.
Location or site –one needs to consider the location of the shop in relation to expected
profits or turnover.
Profitability – One has to estimate the profits that the business is likely to make over a
given period of time. This is necessary in ascertaining the viability of the business.
Types of Retailers
There are basically two types of retailers classified on the basis of size. These are; Small-
Scale Retailers and Large-Scale Retailers.
Small scale retailers can be divided into two groups namely, small retailers without
shops and small retailers with fixed shops.
Hawkers
Hawkers are small scale traders who sell goods by moving from one place to another carrying
their merchandise in boxes and baskets. Hawkers obtain their licences from local authorities
i.e. local councils.
Itinerant traders
Itinerant traders are small scale traders that carry a handful of merchandise in their hands and
move from place to place to sell. Some maybe agents of large organisations. They usually
have no trading licenses and may use large boards on which they stick their merchandise
Roadside Traders
Roadside traders are small scale retailers who usually sit under trees along the main roads
selling their merchandise. They operate without licences from local authorities.
Tied Shops
These are shops that sell products made by only one manufacturer. Filling stations are a
typical example of tied shops Caltex, B.P. They may provide fast foods or mini marts for the
convenience of motorists.
Discount Shops
These are retail outlets which work on the principle of low mark up, but large turnover. They
specialise in durable items that are branded such as furniture and electrical appliances. They
are located in the outskirts where overheads are low
Franchising
This is an arrangement that allows a retailer to trade in another company’s name They
sometimes look like multiple stores with interior and exterior decorations being the same. The
retailer who operates a retail shop in another company’s name is called a franchisee. The
mother company allowing its name to be used is called the franchiser. The amount paid for
using another company’s name is called royalty
include: Carrier bags, delivery services, guarantees, free repair services, free installation
service etc.
Central location- most large-scale retail shops (except a few) are located in the central
business town areas for easy access by customers.
Limited liability – most large-scale retailers are registered as companies which gives them
separate legal existence and limited liability.
Bulk buying- most large-scale retailers buy in large quantities straight from the
manufacturers.
Supermarket
Supermarkets are large scale retail outlets with large sales space located in town centres and
mostly operate on self-service. They practice loss leaders pricing where selected goods are
sold at a very cheap price to attract customers. They mainly deal in fast moving consumer
goods.
Hypermarkets
These are very large retail outlets located in the outskirts of towns with large selling space and
operate on self-service. They deal in a wide range of goods and provide additional amenities
such as: restaurants, swimming pools, Carparks, entertainment etc.
Departmental Stores
These are retail outlets with many shops (departments) under one roof and are located in
town centres or busy shopping areas. Each store specializes in one type or line of goods e.g.
clothing, hardware, furniture, auto spares, cosmetics, butchery etc. Each department is
headed by a departmental manager who reports to the general manager.
Wholesale Trade
Wholesale trade is the buying of goods in large quantities from producers and selling them in
relatively smaller quantities to retailers. A person engaged in wholesale trade is known as a
wholesaler. A wholesaler is a connecting link between the manufacturer and the retailer.
Functions of a Wholesaler
Warehousing – The wholesaler stores goods and keeps them safe until the retailer
requires them. This role relieves the manufacturer of the cost of storage and enables them to
specialise only on production. At the same time, retailers are provided with a ready supply of
goods whenever they want it.
Risk bearing – By storing goods in large quantities, the wholesalers take a lot of risks.
Sometimes the goods kept in the warehouse may not be wanted by customers, or they may
become obsolete or out of fashion
Keeping prices stable – Wholesalers keep prices steady by holding goods in store in
order to prevent either shortage or excess developing in the market. They always keep
enough supplies on hand to be able to meet any rising demand for goods and avoid prices
rising. A rise in price is usually caused by shortage and having surplus causes fall in price.
Breaking the bulk – Wholesalers buy goods from the producers in large quantities and sell
them to retailer’s in relatively smaller quantities.
Providing a variety – Wholesalers provide the retailers with a wide variety of goods from
which to choose. They usually order goods from various producers from all over the world and
stock them under one roof. The retailer therefore finds almost all they need in one store.
Information – In the chain of distribution, the wholesaler is located in between the
producer and the retailers, a position that enables them to provide the vital bridge linking the
producers to the retailers. Information flows up and down the chain through the wholesaler.
Financier – Wholesalers usually pay cash for the goods they buy from the manufacturer
instead of asking for credit. This keeps the manufacturer sup0plied with sufficient working
capital. At the same time, they give credit to retailers thereby increasing their working capital.
Transport – Most wholesalers operate their own fleet of trucks; they send their truck to
collect the goods from the factories. At times they also deliver the goods to the retailers’
premises, in their own trucks.
Preparing goods for sale – Wholesalers prepare goods for sale by branding, packaging,
labelling or bottling them. The manufacturers normally sell goods such as wines and tea in
large bulk without packaging. It is the wholesaler who bottle the wines and packaging the tea
in tea bags.
Marketing – Wholesalers buy goods from manufacturers as soon as they are produced.
They then advertise and market them on behalf of the manufacturer. As a result, the
manufacturers would only need to worry about production.
Types of Wholesalers
General Wholesaler
These are wholesalers who sell a wide range of goods and are usually very large with
branches in many regions. Their main features are as follows
They are run by large companies who have huge capital
They are usually very large and may operate on a regional or national basis
They often send their salesmen around to obtain orders from retailers
They normally offer regular customers short term credit facilities
Specialist Wholesalers
These are wholesalers who specialise on a limited range of goods
but who provide a wide variety of goods within that range.
For example, Hardware shops that sell only Building related materials. However, they
provide many different variety of building materials and equipment. Wholesaler fruit and
vegetable stores and Book Sellers like Book World and others are examples of specialist
wholesalers.
Business transactions between buyers and sellers are normally required in written form to
allow both sellers and buyers to have records not only for the sake of evidence but also to
enable them keep track of their transactions. Before a transaction is completed, a number of
documents may be exchanged between the Seller and the Buyer. Below is a sequence of how
these documents may be exchanged. For each, the party that prepares the document is
stated.
(1) Letter (2) (3) Purchase (4) Advice
of Inquiry Quotation Order Note
(Buyer) (Seller) (Buyer) (Seller)
(5) Delivery
(10) Statement Note /
of Account Consignment
(Seller) Note
(Seller)
(6) Goods
(9) Receipt (8) Debit Note/ (7) Invoice Received Note
(Seller) Credit Note (GRN)
(Seller) (Buyer)
(Seller)
Dear Sir/Madam
Yours faithfully,
Edshils
E. SHILUWE
PROCUREMENT OFFICER
Quotation
This is a seller’s reply to the letter of inquiry. It contains the necessary details and description
of the goods asked for in the letter of inquiry. To enable the Purchasing Officer make a good
choice, a minimum of three suppliers would be asked to provide quotations.
QUOTATION
NO. 112
Zam Paper Limited
P.O. Box 50075
LUSAKA.
ORDER
Roma Girls Secondary School
P.O. Box 30437
LUSAKA
NO. 303
27th January 2017
Zam Paper Limited
P.O. Box 50075
LUSAKA
Please supply the following items
Quantity Description REF Unit Price Total
20 reams Plain Papers R002 37.00 740.00
40 A4 Hard cover books (192 pages) B005 17.00 680.00
10 Board Rubbers D001 15.00 150.00
30 boxes White Chalk C003 18.00 540.00
100 Manila MP01 4.00 400.00
10 boxes Staples ST05 15.00 150.00
TOTAL 2 660.00
Edshils
E. SHILUWE
PROCUREMENT OFFICER
Advice Note
The Advice Note is sent by the seller to the buyer to inform the buyer that the goods will be
dispatched or have been dispatched. It also states the mode of transport to be used and when
to expect the goods. The document alerts the buyer in advance of the goods so that he/she
can prepare his/her warehouse to receive them.
The Invoice
An invoice is a bill for the goods that were ordered and delivered sent by the seller to the
buyer. An invoice contains information such as: description of the goods, quantity supplied,
unit and total prices, terms of sale, discounts offered and terms of payment. It is a request for
payment. The buyer may check the invoice information against the Purchase Order, the
Delivery Note and the GRN to ensure that they pay for what they ordered and received.
INVOICE
Zam Paper Limited
P.O. Box 50075
LUSAKA
NO. 105
30th January 2017
Roma Girls Secondary School
P.O. Box 30437
LUSAKA
For Order no.303 of 27th January 2017
Quantity Description REF Unit Price Total
20 reams Plain Papers R002 37.00 740.00
40 A4 Hard cover books (192 pages) B005 17.00 680.00
10 Board Rubbers D001 15.00 150.00
30 boxes White Chalk C003 18.00 540.00
100 Manila MP01 4.00 400.00
10 boxes Staples ST05 15.00 150.00
GROSS INVOICE PRICE 2 660.00
Less Trade Discount 5% 133.00
NET INVOICE PRICE 2 527.00
Cash Discount: 10% 1 Wk, 5% 2Wks, 2% 3 Wks and Net after 3 Wks
JKalala
J. KALALA E&OE
ACCOUNTS DEPARTMENT
The Invoice also has the abbreviations E&OE which stands for: Errors and Omissions
Excepted. This entails that the seller is willing to correct any errors that may appear.
The Credit Note on the other hand is prepared by the seller and sent to the buyer when the
buyer has returned of the goods, has been overcharged. It is usually printed in red to
distinguish it the invoice. The main purpose of using the credit note is to reduce the amount
indicated on the invoice when the buyer is overcharged and also to recognize the return of
some of the goods by the buyer.
Receipt
This is issued by the seller to the buyer as an acknowledgement for the payment made by the
buyer. To the buyer, the receipt acts as proof of payment made to the seller.
Statement of Account
The statement of account is a summary of all the transactions between the buyer and the
seller during a period of time e.g. one month. It is important because it shows the series of
transactions i.e. purchases, returns, payments and the balance remaining at the end of the
month. It shows the amount owing at the beginning and end of a given period. It is also used
as a reminder or request for payment by the seller to the buyer.
STATEMENT OF ACCOUNT
Zam Paper Limited
P.O. Box 50075
LUSAKA
NO. 014
31st January 2017
Roma Girls Secondary School
P.O. Box 30437
LUSAKA
For the month of February 2017
Date Details Debit (K) Credit (K) Balance (K)
01.02.17 Balance b/f 20 000.00
05.02.17 Cheque no. 000252 10 000.00 10 000.00
13.02.17 Invoice no. 349 15 000.00 25 000.00
20.0217 Credit Note no. 111 3 000.00 22 000.00
22.02.17 Cheque no. 000262 17 000.00 5 000.00
25.02.17 Invoice no. 372 18 500.00 23 500.00
27.02.17 Debit Note no. 0022 300.00 23 800.00
28.02.17 Cheque no. 000273 20 000.00 3 800.00
JKalala
J. KALALA
ACCOUNTS DEPARTMENT
The last amount in the balance column is the amount outstanding or owing. The buyer can
use the statement to verify all transactions notify the seller if there are any anomalies.
Trade discount encourages repeat purchases while cash discounts reduces bad debts and
improves cash flow.
(a) Trade discount and how much he would pay if he was not given any cash discount.
i) Trade discount = 10/100 X 10 000.00 = K1 000.00
ii) Net invoice amount = Gross invoice amount less Trade Discount.
= K10 000.00 - K1 000.00 = K9 000.00
(b) Cash discount and how much he would pay if he paid within 1 week
ii) Amount paid within 1 Week= Net Invoice amount less Cash discount.
= K9 000.00 – 900.00 = K8 100.00
(c) Cash discount and how much he would pay if he paid in 2 week’s time.
i) CD Within 2 weeks= 5/100 X K9 000.00= K450.00
ii) Amount paid within 2 weeks= Net Invoice amount less Cash discount.
= K9 000.00 - K450.00= K8 550.00
(d) Cash discount and how much he would pay if he paid in 3 week’s time.
i) CD Within 3 weeks = 2/100X K9 000.00 = K180.00
ii) Amount paid within 3 weeks= Net invoice amount less cash discount.
= K9 000.00 – K180.00 = K8 820.00
Credit buying refers to a transaction where the payment for the goods or services is
postponed or not made immediately. The transaction is based on trust between the seller and
buyer and represents the transfer of purchasing power from the seller to his/her customer
against a legally binding understanding to pay to the seller over a stated period of time. The
document used in credit trading is the invoice.
Hire Purchase
This is the buying of durable goods by initially paying a deposit followed by equal monthly
instalments over a given period of time
some goods may pay for themselves such as tractors /vehicles, stereos, machinery,
cookers and refrigerators
the buyer may obtain the goods on current price to beat inflation
by spreading payments over a period of time, he can save money for other needs
it may improve the standard of living of the buyer
it is an indirect way of saving though not in form of cash but property
The differences between Hire Purchase and Deferred Payment under Credit Sales
In Hire Purchase, the buyer becomes the legal owner of the item after paying the last
instalment while in deferred the buyer becomes the legal owner of the item immediately
the deposit is paid
Hire purchase deals with durable goods while credit sales deals with non-durable
Under Hire Purchase, the goods may be repossessed in case the buyer defaults in
payment while in deferred payment the goods may not be repossessed but the buyer will
only sue for the remaining balance
Hire Purchase may be financed by the finance company while credit sales may not be
financed by the finance company
Under Hire Purchase, the buyer cannot sell the goods until all the payments are completed
but under deferred payment the buyer can sell the good any time as she becomes the
legal owner of the goods as soon as the deposit is paid.
Consumer Protection
The Consumer being the last person in the chain of distribution is affected by the conduct of
producers, wholesalers and retailers. The consumer is an important player in the economic
system, the consumer provides the producer with the impetus to produce more. The
consumer happens to be the key target of all the other economic players. Therefore, the
consumer is very vulnerable and needs protection.
Consumers Rights
The following are some of the rights of consumers:
To get right quantity and quality against the price paid.
Not to be charged extra amounts.
Should be given goods in proper measurement.
There should be no adulteration of goods.
Should not get expired items.
Should not get unhygienic items.
Should not be treated rudely.
Should not get items with haram ingredients.
Seller should not make misleading statements during time of selling.
Should be given due after sale services
The Government
The government can serve the interest of consumers by making policies that protect the
consumers from unfair trading practices, unfair prices, unhealthy foods etc.
The Legislature
The legislature promotes the interest of consumers by enacting laws that are aimed at
protecting consumers such as the Weights and Measurements Act, the Public Health Act, the
Trade Description Act and the Drug and Food Act.
markets in Zambia and the conditions of competition in those markets as well as to be the
main tool in the protection of consumers against violations of their rights.
FOREIGN TRADE
International trade consists of Import trade and Export trade. Import trade is the buying of
goods from someone outside the country. Goods entering the country from another country or
customs area are called imports. Export trade is the selling of goods to someone outside the
country. Goods sold outside the country are called exports.
Bill of Lading
This is a document prepared by the shipmaster when goods are entrusted to him by the
exporter for transportation by sea.
Charter Party
A Charter Party is a document of contract made between a ship owner and the hirer
(charterer) for the use of a ship for transportation of cargo.
A Charter Party includes the following details:
Names of parties involved (i.e. the ship owner and the charterer).
Type of charter
Freight charges
There are two ways of preparing a charter party and these are:
Voyage Charter: This refers to the hiring of a ship for a particular voyage or a trip. e.g.
from Durban to Sydney.
Time Charter: This is the hire of a ship for a definite or specific period of time. During the
period of hire e.g. one month, the hirer is free to take the ship anywhere and make as many
trips as he/she wishes.
Airway Bill
The Airway bill is a document used when goods are sent by air.
This is prepared by the captain of the airline when goods are transported by air.
It is prepared in three copies: One to the consignor; one to the consignee and one to the
airline.
Unlike the bill of lading, the airway bill is neither a document of title nor quasi-negotiable.
Certificate of Origin
This is a document used in foreign trade which shows the origin or country where the
goods were made.
It is prepared by the exporter and signed by the consul of the importing country.
It helps to prevent the importation of goods not allowed from countries with a trade
embargo or sanctions.
Certificate of Insurance
This is a document issued by an insurance company to the exporter to show that the goods
being exported have insurance cover.
A copy of the actual policy can serve in place of a certificate.
It is always enclosed with the goods in transit.
A certificate of insurance may be for a specific journey, i.e. voyage policy;
or for a period of time i.e. time policy.
Indent
An indent is an instruction sent to an agent by the importer to order goods from abroad.
It is not an order for goods but a letter asking the agent to order goods.
It contains details such as; description of goods; prices and quality of goods ordered;
shipping instructions; date and address of delivery.
An indent may be a Closed Indent or Open Indent.
o Open indent: This is one where the importer gives specific details of the goods to be
ordered but does not specify the supplier. It is therefore, up to the agent to find a suitable
supplier with whom to place the order.
o Closed indent: This is one in which the importer specifies the goods to be ordered as well
as the supplier from whom the agent should order the goods.
Letter of Hypothecation
This is a letter written by the exporter authorizing the bank to sell the goods and send the
income to exporter less expenses if the importer fails to pay or accept the bill of exchange.
It enables the importer’s bank to sell the goods in case of non-acceptance or non-payment
of the associated bill of exchange by the buyer. This therefore, enables the bank to sell the
goods in order to recover its money or to pay the exporter.
Enforcement of Quotas
A quota is a restriction on the number of a particular type of goods that must be imported
into a country.
The customs authorities are required to enforce quotas for the following reasons:
To prevent dumping of cheap and possibly poor quality goods into the country.
To protect home industries against unfair, competitions from foreign good.
To help correct unfavourable balance of trade position.
Quotas can be enforced as a retaliatory action against another country.
Bonded Warehouse
A bonded warehouse is a warehouses used for the storage of dutiable goods on which duty
has not yet been paid. They are under control of the customs and excise authorities.
They may be owned by the government or by private owners who have given their bond or
agreement not to release goods without customs duties being paid on them.
The importance of a bonded warehouse includes:
Bonded warehouses can be used to hold goods awaiting re-export which allows the re-
exporter not to pay customs duty on them.
Bonded warehouses can be used by traders who do not have sufficient working capital to
sell their goods while still in bond and use some of the money to pay the import duties or
customs duties.
Bonded warehouses can be used for the preparation of goods for sale by labelling,
blending or bottling.
Bonded warehouse can be used to store imported goods which are not required
immediately without paying customs duty until they are removed.
Bankers Draft
A banker’s draft is a cheque drawn on a bank instead of on the person’s own account.
It is the equivalent of a bank’s own cheque.
A bank customer who wishes to pay for goods or services by a banker’s draft first pays
his/her bank the local currency equivalent to the amount for goods or services.
The bank then draws out a cheque from its account (the amount withdrawn by cheque
being the same which the importer paid into the bank’s account).
The importer is then given the banker’s draft which he/she sends to the exporter as
payment.
The exporter has more confidence in receiving payment by banker’s draft because it is
guaranteed by the bank.
Cable Transfers
This involves the transfer of funds electronically between banks.
The importer pays the money in her/his local bank and then instructs the bank to transfer
the money directly into the bank account of the exporter.
In cable transfer no money is physically transferred but only book transfers take place.
Settlements between the banks take place later when a number of such payments are “set
off” (i.e. cancel each other) where these payments occur in both directions.
Cable transfer is especially useful where urgent payments need to be made because it is
very fast.
Letter of Credit
A letter of Credit is a document written by the importer’s bank, upon a deposit of money, to the
exporter’s bank to authorize the exporter’s bank to allow the exporter to obtain money against
the value of the transaction.
Bill of Exchange
The Bill of Exchange is “an unconditional order in writing, issued and signed by the
exporter to the importer, requiring the importer to either pay on demand or accept to pay
on demand a specified sum of money at a fixed date.
When a bill of exchange is used the seller of goods (exporter) writes and signs a bill of
exchange and then sends it to the buyer (importer) for either acceptance or payment.
If only acceptance is required on the bill of exchange, the buyer would write the word
accepted on the face of the bill and then signs it, thus agreeing to pay for goods a certain
sum of money immediately or at an agreed future date.
The buyer returns the accepted bill of exchange to the seller.
Options available to the exporter when a bill of exchange has been accepted.
o He/she can hold on to the bill of exchange until maturity date when the buyer pays
cash, or
o He/she can pass it on to someone else in settlement of debts by endorsing it or
o He/she can discount the bill of exchange at an amount slightly less than its face value.
o The bank will then send them to the importer’s bank with the relevant instructions that the
importer’s bank should not release the documents until the importer has either accepted
the bill or paid the money.
o The bill is referred to as document against payment. Where the exporter ensures that
payment is demanded before goods are made available to the importer.
o The bill is referred to as document against acceptance (D/A) where the exporter makes
sure that the importer accepts the bill before the he takes possession of the goods.
o When the exporter has drawn up a bill, the bank is responsible for seeing that acceptance
or payment is made before documents are released.
o To prevent delays and storage expenses of goods if the importer fails to accept or pay the
bill the exporter attaches a letter of hypothecation to the rest of the documents. This is a
letter written by the exporter authorizing the bank to sell goods and remit the proceeds
less expenses if the importer fails to pay or accept the bill.
Balance Of Trade
Balance of Trade is the difference between the value of goods exported out of the county and
the value of goods imported into the country. In other words, it is basically the difference
between visible exports and visible imports.
Visible exports are physical goods that a country sells to other countries such as cotton,
cobalt, sugar, copper, etc.
Visible imports are physical goods that a country buys from other countries such as
computers, machinery, vehicles etc.
Balance of trade can either be favourable or unfavourable
Balance of Payment
Balance of payment is a record of a country’s financial and economic transactions with the
rest of the world over a period.
Balance of payment comprise two sections: the current account and the capital account.
The Current Account section of the balance of payment is made up of the following items:
o Visible export
o Visible import
o Invisible export
o Invisible import
The capital account section of the balance of payment is made up of the following:
o capital inflows and
o capital outflows.
Visible exports are physical goods that a country sells to other countries such as cotton,
cobalt, sugar, copper, etc.
Visible imports are physical goods that a country buys from other countries such as
computers, machinery, vehicles etc.
Invisible exports are services sold to other countries such as tourism, electricity,
manpower, transport, insurance, consultancy, banking, loans, etc.
Invisible imports are services bought from other countries such as consultancy, banking,
insurance, loans, expatriate manpower, tourism, electricity, etc.
Capital inflows are investments brought into Zambia by foreign residents and companies.
Capital outflows are investments taken to other countries by Zambian residents and
companies
Balance of payment = (Visible exports + Invisible exports + Capital inflows) – (Visible imports
+ Invisible imports + Capital outflows)
BUSINESS UNITS
The term business refers to any legal activity carried out with the view of making profit.
Business can be carried out in any one or more of the following activities:
Manufacturing or producing something for sale. Examples of this include trade Kings
limited, Lafarge Cement PLC, Zambia Breweries PLC, Bata Shoe company etc.
Buying and selling something for a profit. Examples of this include Shoprite checkers,
pep stores, game store and other retail and wholesale firms.
Providing services. This includes accounting and Audit firms, Banks, Insurance
companies, customs clearing and Forwarding agencies etc.
Businesses owned and controlled by the government on behalf of its citizens are called
Public corporations or Parastatals. Parastatals are in the Public Sector. Parastatals in
Zambia include Zambia Electricity Supply Corporation (ZESCO), Zambia State Insurance
Corporation (ZSIC).
Businesses privately owned by individuals or a group of individuals form the Private Sector.
These tend to do their businesses in the most profitable areas of the economy as their main
aim is to make a profit for themselves. Such businesses operate as sole traders, Partnerships,
Private Limited Companies, Public Limited Companies or even as Co-operative Societies.
The taking over of privately owned businesses and converting them into public corporations is
called nationalisation.
The transfer of business ownership from Public (government) hands to individuals (Private)
hands is called Privatisation.
TYPES OF
BUSINESS
UNITS
Sole Proprietor
Sole proprietorship is a business owned by one person who raises all the capital needed to
set it up and enjoys the profits alone.
Partnership
Partnership is defined as ‘the relation, which exists between persons carrying on a business in
common, with a view to profit.’
Membership
The maximum number of members in a partnership is limited to twenty in the case of a non-
banking business and ten for a banking business. Partnership firms of Solicitors, Accountants,
Stock Exchange members and other professions like Patent Agents, Actuaries, Chartered
Engineers, Surveyors, etc., are excepted from the above maximum limit subject to certain
restrictions.
Kinds of Partnerships
According to the nature and duration, partnerships can be classified as follows:
General Partnerships – These are partnerships in which all the partners are with unlimited
liability.
Limited Partnerships – Partnerships having at least one partner with limited liability, is
called a Limited Partnership. Partners with limited liability are known as ‘Limited Partners’, and
partners who are not limited partners are known as ‘General Partners’. Limited Partners are
not allowed to take an active part in the management of the partnership business, and as
such cannot act as agents of the firm.
Types of Partners
Partners can be classified into different groups on the basis of their position, interest taken by
them, their rights, duties and liabilities.
Active Partners, Working Partners or Managing Partners: - Partners, who take an
active part in the day-to-day working and management of the firm, are called Active Partners
or Working Partners or Managing Partners. All partners, including those who are not active in
the management of the firm, are bound by the actions of the Active Partners in the ordinary
course of the business.
Dormant or Sleeping Partners: - are partners who may not be take an active role in the
conduct of the partnership business but contribute to the capital and get a share in the profits.
Nominal Partner: - are partners who neither contribute to the Capital or receive any share
in the profit, but simply allow their names to be used as partners in the firm.
Advantages of Partnership
A partnership is easy to set up since it does not involve long and time consuming
procedures.
more capital can be raised as more people are involved in the business.
Division of labour is possible as there are many people.
Expenses and management of the business is shared.
The individuality of each partner is not totally lost as many of the personal advantages of
the sole trader are maintained by the partners.
There is greater continuity in a partnership than is the case with sole proprietorship.
Decision-making is consultative. As a result, the quality of decisions tends to be better than
that of a sole trader.
A partnership is not required to publish its accounts annually so there is secrecy in the
business
Disadvantages of Partnership
Decisions may be delayed by disagreements among partners.
Partners have unlimited liability and are therefore personally liable for the debts of the
business.
Lack of capital may limit expansion.
If one partner leaves or dies a new partnership agreement is required.
The firm’s ability to raise more capital is restricted because membership in a partnership is
limited to twenty (except for professional partnerships)
One partner’s decision can be binding on the other partners even if it’s a wrong decision.
Both the sole trader and the partnership have no assured continuity of existence.
Both the sole trader and partnership business are controlled directly by the owners.
In both the sole trader and the partnership, the business affairs are kept private. Financial
accounts are not made known to members of the public.
Companies
Kinds of Companies
On the basis of formation and constitution, Joint Stock Companies are classified into the
following groups:
Statutory Companies: Companies formed by Special Act of the legislature other than the
Companies Act, are called Statutory Companies. Public utility companies such as Zambia
Railways, Zambia Electricity Corporation etc., are some of the statutory companies that can
be cited in Zambia.
Holding Company: This is a company that has expanded its operations to include the
management of small companies that might be associated to it in its delivery of service or
production. Normally such companies would hold 51% or more shares in another company,
usually this is to safeguard its interest on the market so as to be of an added advantage as
compared to their competitors.
Subsidiary Company: This is a small company whose major shares are held by another
bigger company already referred to as Holding Company.
Multinational Companies: A Multinational company or corporation is an enterprise that
has subsidiaries or branches in more than one country. It is usually a public limited company.
Unlimited Companies: There is provision for companies to be registered with the liability
of the members unlimited. In an Unlimited Company; the liability of the members is unlimited
just like partnership or one-man business. This is a disadvantage and this may be the reason
that such companies are not popular.
Private and Public Companies: A registered company can either be Public or Private. A
Public Company is a limited company with a Share Capital, which has a Memorandum Stating
that it is a Public Company and which has been registered as such. A Private Company is a
company, which is not a Public Company.
NB: For the purpose of limitations of the syllabus, only the following will be explained
in detail:
Private Limited companies
Public Limited companies
Statutory Companies (Public corporations)
There is continuity of company existence even after the death of important shareholders.
A private limited company has separate legal existence from the shareholders who formed
it.
A private limited company has more capital because of more shareholders and has more
borrowing capacity.
Contracts made on behalf of the business are enter into in the names of the company.
Financial accounts are not advertised to the public, and therefore, a private limited
company has privacy of financial accounts.
A Public Company is a limited company with a Share Capital, which has a Memorandum
stating that it is a Public Company and which has been registered as such.
It can afford to employ specialists in such fields as marketing, accounting, and personnel
which mean it is more efficient.
In Zambia depending on the type of company one wants to form two documents may be
required to be presented to the Registrar of Companies: the memorandum of Association and
the Articles of Association. However, in the case of a Public Limited Company the documents
required will then be three. The third one being an advertisement for the sale of shares called
a Prospectus.
Memorandum of Association
This document lays down and defines the powers and limitations of the company. Its main
purpose is to govern the relationship of the company to the outside world.
Articles of Association
This document lays down the rules and regulations for the internal affairs of the company. It
states clearly how the company is going to be run and managed.
With this recognition of the company as a separate legal body, the incorporated company may
do what any ordinary person can do in its own name such as:
Can sue or be sued in courts of law
Enter into contracts with people and organizations.
Own property.
Employ people.
Buy and sell goods and services.
Note that:
A private limited company can start business activities upon receipt of a certificate of
incorporation.
A public limited company cannot start business until it has raised the required capital by sale
of shares to members of the public. Sale of shares is done by first issuing a prospectus.
Prospectus
This is an invitation to the members of the public for the purchase of shares on offer in the
company. It is issued by promoters of a company and must be registered with the Registrar of
companies before placing it in newspapers, magazines etc. or before sending it directly to
potential shareholders.
Board of Directors
A limited company is controlled and governed by a board of directors which is elected by
the shareholders during the annual general meetings.
The members of the board vary from two in a private limited company to at least six in a
public limited company.
The board draws up the policy of the company.
It is headed by the chairperson.
The powers and limitations of the board are stated in the articles of association of the
company.
The board members may or may not be shareholders in the company.
The day to day running of the business is in the hands of the Managing Director or general
manager, whose main role is to implement the policies of the company. He/she can be an
employee (general manager) or a director, in which case he/she would have the title of
managing director.
Public Corporations
A public corporation is a business organization that is organized and controlled by either the
central or local government for conducting business for the benefit of the whole population.
They are too expensive to run and overstretch the taxpayers’ money as tax payers are
made to pay for losses made in public corporations.
Their performance may adversely be affected by Political interference.
The “I do not care “attitude of workers contribute to inefficiency and poor performance of
public corporations.
Public corporations are expensive to run.
Workers usually have no self- interest to perform duties efficiently. This results in poor
quality products being offered to the public.
The Stock exchange is a highly organized market for capital or long-term finance. Like any
other market where buyers and sellers meet to exchange (trade) goods and services, the
Stock Exchange brings together directly (open floor trading system) or indirectly (online
trading system) the Sellers and Buyers of capital or long-term finance (securities). The Stock
Exchange is therefore a market for the purchase and sale of second hand quoted securities
(Quoted Securities are those, which may be sold on the Stock Exchange and includes equity
securities and debt securities). The most popular of these stock exchanges in the world
include: The New York Stock Exchange, the London Stock Exchange, the Tokyo Stock
Exchange etc. In Zambia, our Stock Exchange is known as the Lusaka Stock Exchange
(LuSE).
Compensation – The stock exchange provides compensation for members of the public
defrauded by dealers on the stock exchange.
Ensures that companies wishing to have their shares traded on the stock exchange meet
the rigorous rues and listing requirements of the stock exchange before their shares could be
quoted.
When shares that have been bought through a primary market trading are offered for sale or
purchase at the stock exchange, this is referred to as secondary market trading.
Members of the public do not deal directly with the Securities Exchange but through
licensed brokers.
SECURITIES
Equity Securities
Classes of Shares
According to the rights attached to each, shares may be classified into preference shares,
ordinary shares and founder shares.
Preference Shares
Preference Shares are that type of shares, which are entitled to some priority over the other
classes of shares in the company in that they receive dividends before the ordinary shares.
This may be a right to preference in payment of dividends when dividends are declared at a
pre-determined fixed rate, or it may be a preference in repayment of capital when the
company is wound up.
Ordinary Shares
These are shares, which have no preferential right. The Ordinary shareholder will get a
dividend only if there is any balance of profit left after paying dividends to all the Preference
Shares. Ordinary Shares are also called Equity Shares
Debt Securities
These are loans or a form of borrowed capital obtained through the stock exchange by
private sector organizations or the government.
Debt securities therefore take the form of Corporate Bonds (debentures) and Government
bonds.
Debt Securities make up the loan capital of a company.
Debentures
A debenture is a document creating or acknowledging a debt due from a company.
Kinds of Debentures
Debentures may be classified in two ways: according to the security pledged against them
and; according to redemption:
According to the security pledged against them, they may be naked or mortgaged
debentures:
Redeemable Debentures
These are debentures whose amount, whether secured or unsecured, can be redeemed
(bought back or repaid) by the company after the expiry of a fixed period. They are issued for
a fixed period of time.
Bonds
Bonds on the stock exchange may be divided into two types; Corporate bonds and
Government Bonds.
The capital of a company may be made up of share capital and loan capital.
Authorised Capital
The Lusaka Securities Exchange (LuSE) like any other stock exchange is a market place
which deals with Primary Issuance (first issue) and Secondary trading of Securities. It was
established in 1993 under a preparatory funding from the UNDP and IFC/World Bank as a
capital market development project. LuSE started its formal operations on 21st February 1994.
The main driver to its formation was to privatise public corporations and to enable the private
sector access to finance.
Stock broker
Is a regulated professional who buys and sells shares and other securities on behalf of
investors who are not allowed to do business on the stock exchange.
They act on behalf of the investors and must follow their investor’s instructions.
They offer advice to their principals on various investment options to take.
Due to their important role played at the exchange brokers assume the role of Investment
Consultants.
They may also buy and sell shares on their own account.
Examples of stock brokers on the Lusaka Securities Exchange are: Pangaea/Renaissance,
Intermarket Securities and Stockbrokers Zambia.
When a broker acts as a dealer at the stock exchange, he performs the following
duties:
He buys and sells shares for himself as a principal with a view to make profit.
He deals with stockbrokers and not with members of the public.
He may specialize in certain types of securities (shares). For example, he may specialize
in mining shares only or in oil shares.
He is a market maker who quotes prices of certain stocks and shares on the stock
exchange.
He prepares documentation, for example he prepares a contract not when a deal to buy or
sell shares is concluded.
He advises clients on market conditions etc.
Dealers
A dealer is an investor who buys stocks only to resell them at a profit very quickly.
Dealers do not deal with the general public but operate on their own behalf, aiming to make
a profit called the jobber’s turn by buying shares at a low price and selling at a high price.
Jobbers are similar to wholesalers in that they hold various quantities of shares that they
are willing to sell to brokers in large or small amounts.
They normally specialise in a fairly narrow range of securities and of course they develop a
detailed knowledge of them.
Listed Companies
Listed companies are companies whose shares are registered with the stock exchange
Commission for public trading on the Lusaka Securities Exchange.
o They are companies that have:
o Met the LUSE listing requirements.
o Their listings approved by the LUSE listing committee and the full LUSE Board.
o Paid the listing fee in accordance with the market value of their issued capital.
Private investors
Private investors are individuals who have cash, which they can save or invest by buying
shares of selected companies traded on the stock exchange.
Institutional investors
These are companies and institutions that invest money in company shares. Examples of
institutional investors include insurance companies, pension funds, building societies etc.
Underwriters
Underwriters are investors who agree to buy a certain number of shares that are being issued
on the stock exchange usually by a new company if the public does not buy them.
Underwriting ensures that a certain number of shares will definitely be sold so that there will
be sufficient funds to start the business width.
The Government
The government sells stocks or bonds on the stock exchange to raise loan capital for building
schools, hospitals, bridges, buying military equipment etc.
Foreign investors
Foreign investors can invest in growth sectors of tourism, agriculture, mining, banking and
many more and enjoy high returns.
Merchant Banks
These play an important role in public issue process of shares. They act as a bankers
facilitating fund transfers among share buyers and sellers. They also at times act as brokers
on behalf of their clients.
Control the compensation fund meant to compensate persons who suffer losses due to
default by the dealer or investment advisors.
Authorize all collective investment schemes.
License any securities market.
BANKING
What is Banking?
Banking is an Aid to trade that helps to safeguard funds through various accounts offered and
provides finance.
What is a Bank?
A bank is a financial institution which collects surplus funds from the general public,
safeguards them, lends out at an interest some of the funds not required immediately by true
owners.
Financial Institutions- All financial institutions are categorized under either Banking
Institutions or Non-Banking institutions.
Providing Standing order or banker’s order services for making and receiving payments.
Providing Credit transfer (bank Giro credit system) services for making and receiving
payments.
Providing Direct debiting services for making and receiving payments.
Providing Night safe facilities for depositing money after bank working hours.
Providing Automated teller machine facilities for cash withdrawals, cash deposits as well as
for making payments and receiving bank statements.
Providing Point of sales services that enable account holders to pay for goods and services
using their debit and credit cards.
Providing Credit cards to qualifying customers that enable them to buy goods beyond the
money they have in their bank accounts.
Providing Mobile banking services to enable bank customers to transact using mobile
phones.
Providing Internet banking services to enable bank customers to buy, sell and transfer
funds online.
To provide personal and business finance through Overdrafts, loans, mortgages etc.
To provide international traders with travelers cheques to enable them to transact while
abroad.
Direct Debiting
Direct debiting is used for making payments that vary in amounts from time to time.
The current account holder authorises his bank to pay as soon as the creditor asks for
payment. He then informs his creditor to submit a copy of the bills to his banker for
payment. Upon receipt of the bill, the bank would immediately effect the payment.
Amounts paid to the creditor may vary and payable on varying dates fixed by the creditor.
After everything has been done the money is then electronically transferred from the
customer’s account to the trader’s account. This service is also known as Electronic Fund
Transfer at the Point of Sale (EFTPOS)
Features of POS
The card is used to pay for goods and services at POS terminals
The trader swipes the ATM card on the POS terminal in order to obtain permission to debit
the customer’s account. This swipe automatically dials at the computer centre of the bank
i.e. a message is sent to the computer centre by the small machine at the POS terminal
Such authorisation would be forthcoming as long as there is money in his/her account the
permission would not be granted if there were insufficient money.
Money is transferred electronically from the cardholder’s account to the merchant’s
account.
Some of the benefits of using this service are:
It is safe and simple to operate by merchants
It involves less handling of cash and therefore is less risky
No returned cheque problem. When customers pay by cheque there are always cases of
dishonoured cheques.
There is no limit on the number of transactions or amount you can spend per day. The
holder is only limited by available funds in his/her account
It reduces the need to carry cash or chequebook. You just carry the ATM card
Automatic authorisation of transaction makes it fast and convenient
The account is automatically updated once a transaction has been authorised.
Credit Cards
A credit card is a card that enables the holder to buy goods and services on credit from
certain businesses (which could be shops, hotels/restaurants, garages or petrol stations).
Credit card companies such as Access, Barclay card, Premium card and VISA issue them.
The credit card companies enrol businesses that are prepared to accept its cards in payment
for goods and services and also enrol people who want to use their credit cards. The credit
card holder pays an annual fee for their cards and has a credit limit, which is the maximum
they can have outstanding on their account.
Internet Banking
It is a term used for performing transactions, payments etc. over the Internet through a
bank.
Customer has to open the bank’s website to access this service.
PIN code is used for authentication.
Facilities are same as Telebanking.
Overdraft
An overdraft is an arrangement where a bank customer is allowed to withdraw more money
than his or her balance in the current account up to an agreed limit.
It is a short term finance obtained to meet short term financial needs such as paying for
insurance premiums wages, water, electricity and telephone bills as well as buying stock.
When an overdraft is granted and the bank account is overdrawn, the account is debited
with the sum of an overdraft and the figure overdrawn may be printed in red.
Deposits made in the current account reduce and even cancels out overdrafts balances.
Interest on overdrafts is calculated on amounts actually overdrawn and is charged on daily
outstanding balance.
The rate of interest on an overdraft is not fixed.
Bank Loans
A bank loan is a fixed sum of money borrowed by a customer for a specific purpose,
usually for the purchase of a capital item.
A business may for example, apply for a loan to purchase a building, equipment and
machinery’ used in operation or to buy trucks used for delivering goods to customers and
collecting raw materials from suppliers
The amount of the loan is credited to customer’s current account as if the customer is
depositing his or her own money.
As the loan is being credited to customer’s account, a loan account is also opened to which
the amount of the loan and interest to be charged is debited.
A loan is repaid in fixed instalments.
A fixed rate of interest is paid on full amount of the loan. Interest on a loan is paid whether
the borrower uses the loan or not.
Before a loan is granted, the bank may require some kind of security in form of life
assurance policy, shares in a company, a farm or any valuable asset, which can be
surrendered to the bank so that in case of default by the borrower, the bank can sell it to
recover the amount of the loan.
Factors the bank manager would consider before granting a loan include:
The purpose for which the loan is required, a quotation may be required if it is for the
purchase of properties.
The amount of the loan i.e. how much money the customer needs;
The security against which the loan would be given, preferably an immovable asset either a
house or land.
Banks may also accept a written letter of guarantee from a recognised guarantor or
employer. Assets such as shares, life assurance policies and even money kept in a fixed
deposit account are accepted as security.
In addition, the bank manager might also want to ascertain the credit worthiness of the
customer, for example, the manager would make inquiries to establish whether the
customer has other loans with other institutions that he/she has failed to pay.
Four key facts the customer should consider before borrowing money:
The rate of interest i.e. how much the bank charges for lending the money
The instalment amount or how much the customer would pay every month
The repayable period i.e. for how many months or years is the loan given; and finally
The total amount of money to be repaid after the calculation of interest and other charges.
Mortgages
A mortgage is a loan given to a customer of a bank or building society in form of expensive
property such as a house.
A person buying property by means of a mortgage becomes the owner of the property
immediately the mortgage is granted, but he/she cannot sell the property until the entire
loan has been paid back.
Mortgage lending is long term finance. Loans are usually repaid over a period of 20 to 25
years.
Travellers’ Cheque
This is the most suitable way of carrying money when going out of the country. The traveller’s
cheques are bought by or issued to the traveller in local or foreign currency. The traveller
signs it in the presence of the issuing bank official. Traveller’s cheques can be exchanged for
cash when they are signed again in the presence of another bank official in the foreign
country. They are safer to carry than cash, as they are valueless until countersigned by the
person to whom they were issued. Traveller’s cheques can be used to buy goods and
services. While he is away a traveller can approach any shop or his hotel, sign them a second
time and receive value or cash for them. The shopkeeper or other persons whose
goods/services have been bought with traveller’s cheques will simply deposit them into their
own bank account, just like any other cheque.
Current Account
A current account is used by individuals and organizations that wish to safe keep money
but would also like to withdraw some of the money at any time.
It uses cheques for withdrawing cash from the account and also for making payments. For
this reason, a current account is referred to as a cheque account.
There is no minimum balance required to maintain the current account.
It is the only bank account that can be overdrawn or allows overdrafts.
There is no interest paid on deposits.
The customer pays ledger fees since he or she is allowed to deposit and withdraw at any
time.
Cheque books are issued to current account holders.
Bank statements are periodically issued to customers, which provide them with a record of
deposits, withdraws and current bank balance for the month.
The bank might be interested in knowing whether the prospective customer is honest or
not, and therefore, would ask the applicant for referees.
The bank would also ask the prospective customer to sign a specimen signature card. This
helps the bank to recognize signatures of its customers and thus avoid forgery on
cheques.
Once the bank is satisfied with the details given by the applicant, it would allow for a
current account to be opened. A cheque book would be issued to the new customer.
Savings Account
A savings account is used by people who wish to save fairly small amounts of money.
A minimum balance is required to maintain the account.
Interest is paid on savings account.
Cheque - A cheque or check is a document that orders a bank to pay a specific amount of
money from a person's account to the person in whose name the cheque has been issued.
Cheque book - A cheque book is a book of cheques which the bank gives to account
holders (especially Current Account holders) so that you can pay for things by cheque.
Deposit Slip- A deposit slip is a small written form that is sometimes used to deposit funds
into a bank account. A deposit slip indicates the date, the name of the depositor, the
depositor's account number and the amounts of checks, cash and coin being deposited.
Withdrawal Slip -a small paper form which has to be filled in before making
a withdrawal of money from a bank, building society, etc. The teller checks the signature on
the withdrawal slip and the details on the withdrawer’s identity card (National Registration
Card or Passport or Driver’s licence).
ATM Slip - This is a print out from the Automated Teller Machine after one makes a
transaction. In case of cash withdrawal, when you get less or no cash at all, the ATM
slip becomes handy for dispute resolution telling the exact date/time of transaction and
reference number etc.
Means of Payment
The means of payment through banks include the following:
The Cheque
Standing Order
Direct debit
Bankers Draft
EFTPOS
Online Payment service
The Cheque
A written order by a current account holder to a bank to pay a specified amount of money to
the bearer or person named on the cheque.
A written order by the drawer to the drawee to pay a specified amount of money to the payee.
Cheque number
Cheque book number
Amount in figures
Amount in words
Branch code
Parties to a Cheque
The Drawee
The bank upon which the cheque is drawn or the bank where the account is held is known as
the drawee. Normally the cheques will bear the name, branch and any other details relating to
the address of the bank.
The Payee
This is the person to whom moneys are to be paid upon the presentation of the cheque at the
bank.
The Drawer
This is the person who issues out the cheque. Often the drawer name or signature is printed
beneath the box in which the figures are written. This is the name or signature of the account
holder. Whatever the case the position of the name or signature does not matter, what
matters is the fact that the drawer’s name or signature should be on the cheque.
Types of Cheques
Open cheque is cheque which is cashable over the counter of the particular bank on which
it is drawn.
Bearer cheque: A cheque which is payable to the holder.
Order cheque: A cheque which is payable to specific person. If the first payee wants to
give the cheque to another person, he must endorse the cheque to him with his sign.
Crossed cheque is a cheque which cannot be cashed over a counter but must be paid into
an account.
Credit Transfer
Suitable for making payments to a number of payees at the same time. Used to pay salaries,
rents, hire purchases instalments. Payer gives information of payees in written to the bank.
Payer writes a cheque in the favour of the bank of the whole amount to be paid.
NB: Details under notes for services offered by banking institutions
Bank Draft
Issued by the bank in favour of seller on the advice of the buyer. The buyer approaches the
bank with the request and payment in cash or through cross cheques in favour of the bank.
The buyer has to pay bank charges in addition to the amount of payment. It is a secured
means of payment. Usually suitable when buyer and seller are not known to each other, and
seller wants secure means of payment (of course bank is more reputable than a person).
NB: Details of the notes under services offered by banking institutions.
EFTPOS
Electronic Fund Transfer at the Point of Sale is a means of payment provided by some banks
for their customers to pay for goods and services using ATM cards (debt cards), in shops
where POS terminals are installed.
NB: Detailed notes under services offered by banking institutions
Bills of Exchange
A bill of exchange is an unconditional order in writing addressed by one person to another,
signed by the person giving it, requiring the person to whom it is addressed to pay on demand
or at a fixed or determinable future time a certain sum in money to or to the order of a
specified person.
A bill of exchange is a method of payment in overseas trade whereby the seller of goods
writes a document and the buyer signs that document agreeing to pay for goods supplied to
him or her on demand or at some future date.
After the buyer has signed the bill, the document is returned to the seller.
Where the buyer needs the cash urgently, he will discount the bill of exchange at a bank.
Where the seller needs the cash urgently, he will discount the bill of exchange at a bank.
Discounting a bill of exchange means cashing the bill at a bank in the same way a cheque
is cashed, but a bill of exchange is cashed at a less value. The bank pays less money
because it has to wait for money from the buyer. Thus the cash given to the seller is indeed
some form of a loan or an advance.
Documentary Credits
A documentary credit is a method of payment in overseas trade whereby the importer
requests his or her bank to arrange for a credit to be opened for the exporter at a bank in the
exporter’s country.
The exporter receives payment for goods immediately he presents the documents that
prove dispatch of goods to the importer such as bill of lading, insurance certificates etc. at a
bank where the credit has been opened.
There are different kinds of documentary credits. The best of all, however, is confirmed
irrevocable documentary credit.
The Central bank is a country’s bank that controls the financial activities in a country. The
Bank of Zambia is Zambia’s central bank. It is run by the governor and a board of directors.
The governor is appointed by the republican president. The main clients include the
government and commercial banks.
o This occurs when the payee and the drawer have bank account with the same bank but
different branches. E.g. if the payee banks with ZANACO Manda Hill, while the drawer banks
with Cairo Rd. Business Centre.
o The cheque in this case is transferred to the bank’s clearing department at the
headquarters and dealt with from there.
o It does not have to be sent to the clearinghouse since no other banks are involved.
Town Clearing
o This occurs when two or more (different) banks are involved but all of them are in the same
town or city.
o The cheques still pass through the clearing house, but is specially cleared on the same day
rather than taking many days.
General Clearing
o This clearing takes place when two or more banks are involved and they are not in the
same town.
o To explain this let’s take an example of a girl Lwisa Kabende at Highland Secondary
School who has an account with Barclays Bank, Mutaba Branch. She pays her school fees by
a cheque originated from her bank, Barclays Bank.
Step 1
o The bursar Mr. Chikoye takes Lwisa’s cheque together with other cheques that might have
been paid by other students on that date.
o He deposits them in the School Account at Indo – Zambia Bank Cairo branch.
Step 2
o Indo – Zambia Bank Cairo branch collects all the cheques which come in that day,
including Lwisa’s cheque.
o The cheques are sent to Indo – Zambia Bank headquarters.
Step 3
o The cheques at Indo – Zambia Bank headquarters are sorted in trays according to the
banks that originated them.
o Lwisa’s cheque goes into the Barclays’ tray.
o The value of the cheques in each tray are totalled
Step 4
o All the trays of cheques for the various banks are taken to the Clearinghouse (BOZ)
o All other banks also bring with them cheques in trays, with value of cheques in each tray
totalled.
o From there each bank receives back the trays of cheques, which have been drawn on it.
Cheques are exchanged between banks. What this means is that Indo – Zambia Bank will
hand over the tray of cheques that originated from Barclays Bank to Barclays Bank. The value
of each tray would be noted.
o Any net indebtedness would be settled by the Central bank moving the difference from one
bank’s account to another.
o This is possible because all commercial banks maintain their accounts with the Central
Bank as a rule, (BOZ).
Step 5
o Lwisa’s cheque is now in the clearing department of her own bank, Barclays.
o Barclays Bank will next send Lwisa’s cheque to her own branch, Mutaba.
Step 6
o When the cheque arrives back at its branch, a teller checks Lwisa’s signature, the date of
payment and the amount of money in word and that in figures and if all are correct and there
is enough balance in the account, then Lwisa’s account is reduced (debited) by the amount of
the cheque.
o The cheque has at long last been cleared. Indo – Zambia Bank Cairo branch will now be
added (credited) with the value of Lwisa’s cheque for schools fees.
NB With the advancement of technology this long process of clearing cheques manually is no
longer in use. All Banks have agreed to introduce an electronic cheque clearing system. This
means a computerised system of clearing cheques is in use. Hence, the establishment of the
Electronic clearinghouse which is an independent institution, though under the supervision of
the Central Bank.
INSURANCE
Insurance is an aid to trade that provides cover to businesses against financial losses caused
by risks such as fire, theft, floods, accidents etc.
Examples of insurance service providers in Zambia include: Zambia State Insurance
Corporation (ZSIC), Madison Insurance, Goldman Insurance, Professional Insurance,
Guardian Insurance, etc.
Pooling of Risks
Insurance functions on the concept of pooling of risks or sharing risks. Because “a loss
lighteth rather easily upon many than heavily upon a few”.
Pooling of risks means people or businesses faced with a risk pay a small amount of
annual or monthly payment to the insurance company in return for insurance cover.
The annual or monthly payments made in return for insurance cover are called premiums.
In this way a common fund (collection of premium, pool) is created at the insurance
company.
From this pool the insured who suffer financial losses are compensated thus, the pooling of
risks enables the fortunate to help the unfortunate.
The pool of funds contributed is used in the following ways:
o As compensation money to those who suffer losses.
o For administrative expenses of the insurance company such as salaries, rents,
equipment, tax, stationery, transport etc.
o Pay profits (dividends) to shareholders of the insurance company.
o Surplus funds are invested in property, businesses and some lent out to businesses
and the Government.
Importance/Purpose/Functions of Insurance
To an individual
Life assurance provides a savings plan and also benefits the dependants of the assured
through e.g. endowment policies, whole life policies and investment policies.
Insurance helps individuals to overcome misfortunes like the theft or damage of property by
fire, floods or accidents.
Insurance reduces the suffering and loss of earnings caused by disablement due to
accidents through compensation from companies with public, employer and third party fire
and theft insurance policies held by businesses.
Insurance provides safety and security against the loss on a particular event. In case of life
insurance payment is made when death occurs or the term of insurance is expired. The
loss to the family at a premature death and payment in old age are adequately provided by
insurance. In other words, security against premature death and old age sufferings are
provided by life insurance. Similarly, the property of insured is secured against loss on a
fire in fire insurance. In other insurance, too, this security is provided against the loss at
fire, against the loss at damage, destruction or disappearance of property, goods, furniture
and machines, etc.
Insurance affords peace of mind since much of the uncertainty that centres about the wish
for security and its attainment may be eliminated.
Insurance protects mortgaged property. At the death of the owner of the mortgaged
property, the property is taken over by the lender of money and the family will be deprived
of the uses of the property. On the other hand, if the property was insured, the insurance
company will provide adequate amount to the dependents at the early death of the
property-owner to pay off the unpaid loans. Similarly, the mortgagee gets adequate
amount at the destruction of the property.
Life insurance provides profitable investment. Individuals unwilling or unable to handle their
own funds are able to find an outlet for their investment in life assurance policies.
Endowment policies, multipurpose policies and deferred annuities which are a better form
of investment.
To a business
Insurance enables the business to arrange for compensation or indemnification in case of a
loss resulting from the occurrence of a risk.
Insurance provides businessmen and women with the confidence to continue trading and
to enter into large scale business investments that they might have avoided for fear of
incurring great financial losses.
Some businesses, especially those involved in foreign trade would need relevant insurance
documents to obtain payment through documentary credits.
Insurance helps businesses to settle claims against them from third parties through
employer liability insurance, third part fire and theft motor insurance and public liability
insurance.
Insurance provides companies with the opportunity to pool up risks and for a fairly low
monthly or annual premium, reduce the risk of financial loss.
To a nation
Insurance is an invisible export that brings income to the country and helps to improve the
country’s balance of payment position.
Insurance companies work as institutional investors. They lend money to businesses such
as banks, joint stock companies and in this way they make an important contribution to the
economic life of the country.
Insurance helps the country’s economy to grow by giving confidence to businessmen and
women to enter into large scale business investments thus providing the much needed
goods and services and employment to the many citizens in the nation.
Insurance creates jobs in nearly every area of the country. It also allows companies to
continue producing cars, jewellery and other items that would represent substantial
financial losses if they were damaged or stolen. This allows people who work for these
companies to continue earning income.
the items in order to claim compensation and thus make profit out of the loss. It therefore
prevents insurance from becoming a gambling contract
For example, if Mrs. Makasa owns a house, he is entitled to insure it because he stands to
lose financially (i.e. he will lose the money that he spent on building or buying the house) if
it is destroyed by floods or fire. Mr. Chikoye cannot insure Mr. Makasa’s house because
he has no insurable interest in the house. He would not lose anything if the house is
destroyed. Mr. Chikoye might also be tempted to destroy the house so as to claim
compensation and make profit out of Mr. Makasa’s loss.
Contribution
Contribution applies where one insures an item with more than one insurance company. If
the item is destroyed by the risk insured against, the insurance companies concerned would
contribute proportionately toward the amount of compensation required without allowing the
insured person to make profit out of the loss.
Subrogation
Subrogation states that once the insured is compensated in full for the loss, the residue or
remains of the damaged item becomes the property of the insurance company. (to
subrogate means to take over the right to the remaining or salvage value of the property).
The insured must not be allowed to make profit out of the loss by receiving compensation
money and keeping the wreck or recovered item. It prevents the insured being indemnified
from two sources in respect of the same loss.
Suppose Josphat Phiri has damaged Morris Bwembya’s s motor car negligently. If he pays
Morris Bwembya’s loss in full, Morris Bwembya cannot collect the same from the
insurance company. On the other hand, if Morris Bwembya applied to his insurance
company for indemnity under his policy, he will not be permitted to collect the damages
from Josphat Phiri. In the latter case the insurance company will be entitled to collect that
amount
This principle is found very useful when the loss occurred due to series of events. It means
that in deciding whether the loss has arisen through any of the risks insured against, the
proximate or the nearest cause should be considered.
No compensation is payable if the loss is caused by a risk not insured against.
For example, if a farmer insures his store house against fire and not burglary, and the store
house is destroyed during a burglary, the farmer has no cause to claim for the loss suffered.
This is because the risk that was insured against was not the immediate cause of the loss.
Life Assurance
Assurance refers to cover given to events that are certain to occur e.g. death. For such
events, life assurance provides a means of saving funds. The principle of indemnity does not
apply to life assurance. This is because when a person dies he/she cannot be restored back
to life.
Types of life assurance policies
Whole life policy
This is a policy under which a person assures his/her life for a certain sum of money which will
be paid to his/her dependants only when he/she dies. The person decides the amount of
money he/she wants to assure his life for and the insurance company calculates the amount
for premium to be paid monthly. To fix the premium the insurance company will consider the
person’s age, occupation, health record, lifestyle as well as the duration and amount of cover
required. The assured continues to pay the premiums for his/her entire working life until
he/she retires or dies. The assured person however does not receive compensation money;
the money is given to his/her beneficiaries who may be his/her children when he/she dies.
Annuity assurance
This policy provides a Series of regular payments paid to the assured until he/she passes
away. A person may arrange for such payment to begin at his/her retirement time. It is a
suitable policy for self-employed people who have no pension plan.
Endowment policy.
This is a policy which covers a person for only a fixed period of time, e.g. 15 years. The
person decides how much he/she wants to assure for and the insurance company calculates
the amount for premium to be paid monthly. The compensation money is paid either at
maturity date or at death of the assured person whichever comes first. Since the assured
person is able to obtain compensation money if he/she lives up to maturity date of the policy,
endowment policy saves two useful purposes: providing a means of saving money where the
assured survives up to maturity date and; providing assurance where the assured person dies
before maturity.
Endowment policy can be with profits or without profits.
Endowment policy with profit: this is a policy which pays the sum insured plus a profit or
bonus. The bonus comes from the profits realized form investments made by the insurance
company from the insurance pool.
Endowment policy without profits: This endowment policy provides the assured with a
lump sum upon expiry of the cover without any profits or bonus.
Fire Insurance
Loss of net profit due to interruption of business as a result of fire or any other insured peril
Standing charges which continue to be payable during the period of interruption
Increase in cost of working as a result of work to reduce the consequential loss
Wages for employees
Auditors’ fees
The policy is issued specifying the probable maximum period of the interruption of
business, which is known as indemnity period.
Lightening or special perils such as aircraft, malicious damage, and impact on building,
thunderbolt and explosions are also usually covered under fire policy. It may still be extended
to damage by natural events, such as storms, floods and earthquakes and non political riots
and strikes. Usually damages caused by water used to put off fire on a neighbouring property
are also covered by fire insurance. For example, if fire breaks up on the second floor of
Findeco House, in the process of trying to put off the fire properties of those in the first floor
are damaged by the water, they would be compensated.
Motor Insurance
Motor vehicle insurance
It is compulsory by law for motor vehicle owners to insure against loss or damage to third
parties.
The main policies existing under motor vehicle insurance are:
Accident Insurance
This covers such risks as accidental damage to property, burglary and personal accident.
Personal Accident
This insurance covers the insured against partial or total disability arising from accidental
causes. A professional sports star may take out an accident insurance, which covers him/her
in case he/she gets injured and cannot work either permanently or for a period of time. In such
a case the insurance company may compensate for the loss of income. In the event of the risk
occurring, the person would be paid a compensation for the loss of income due to disability.
o There are other policies which fall under accident insurance but may be treated as a
separate form of insurance \known as Property insurance. This includes household insurance,
which is itself divided into two types.
Content Insurance
o This covers the entire moveable items in your house e.g. furniture, carpets, sports
equipment, television and video equipment, jewellery etc. So long as they are in the house or
being used by you away from home, if something wrong happens to them you would be
compensated. It covers losses resulting from theft, fire, flooding, lightening, accidental
damage and the like. In case of theft or fire, the insurance company would pay a monetary
compensation equal to the value of the goods at the time they were stolen or burnt. This is
because most contents insurance takes into consideration wear and tear. For example, if your
five-year-old stereo was stolen, you would be paid enough money to buy another five-year-old
(second hand) stereo of similar model, but not a brand new replacement of the item insured.
The only problem is that the premium is much higher.
Building Insurance
This insurance covers you against any risk occurring to your house, for example fire,
explosion, damage by vehicle or aircraft, flood, lightening and subsidence. It may as well
cover claims for personal accidents and liability.
Liability Insurance
Employer’s liability insurance (workmen compensation)
This policy covers the business against claims arising from the death or injury of an employee
while on duty. This insurance is necessary because some occupations are very dangerous
and may cause injury or illness to employees. The law requires all businesses to have
employer liability insurance.
Fidelity bond/guarantee
This class of insurance provides compensation to employers for money or goods stolen by
employees. The benefits of the fidelity guarantee policy are paid to the employer when the
employee is convicted in court of law of having stolen goods or cash.
Credit insurance
Businesses selling goods on credit run the risk of having some of its customers failing to pay
their debts. Credit insurance provides compensation to traders for loss resulting from bad
debts i.e. loss of money due to non-payment by credit customers.
Theft insurance
This class of insurance provides compensation to insured persons whose goods are stolen
from homes or businesses or in transit.
Marine Insurance
Marine insurance covers losses or damage to property and life caused by sea risks. The
main types include:
Cargo insurance
This police cover the goods which are being carried by the ship for loss or damage at sea.
The insurance may be arranged to cover the cargo on a single consignment i.e. particular trip
or voyage e.g. from New York to Durban; or it may be open for several consignments known
as floating policy.
Hull insurance
This insurance policy covers damage caused to the body of the ship, its machinery and
fixtures, and also against damage to other ships. Sea risks that may cause loss or damage to
the ship or goods include storm, collision with other ship, fire, sinking of a ship, piracy, bad
storage in the ship, theft, bad packing, seizure by enemy etc. The owner of the ship takes
Hull insurance either for a particular journey known as Voyage policy or for a period of time
known as Time policy e.g. one year, two years and so on.
Freight insurance
This policy covers the transport cost charged by the shipping company for carrying the goods.
At certain times, freight (transporting charge) is not paid in advance until the goods reach their
final destination. Freight insurance, therefore covers ship owners against the possibility of not
being paid freight or hire money by clients who do not pay transport charges in advance.
Time Policy - Time policy is a marine insurance policy taken for a particular period of time to
cover goods going by sea transport to cover the hired ship, for example, for a period of six
months.
Mixed policy - Mixed policy covers both the voyage and time policy.
Floating policy - A floating policy requires that a sum of money agreed upon between the
person seeking insurance cover and the insured is deposited with the underwriter so that each
time a ship makes a journey; the premium is deducted from the amount deposited with the
underwriters. Floating policies are appropriate where regular shipments of goods are made.
They save time and troubles of taking out separate policies for each trip made.
Aviation Insurance
This class of insurance provides compensation to insured persons who suffer deaths or
injuries caused by air accidents.
Insurance Brokers
Brokers are independent professional people who sell insurance on behalf of the insurance
companies.
The work of insurance brokers includes:
Giving information to their clients on kinds of insurance policies offered by different
insurance companies.
Advising clients on the best possible policy for them.
Securing the best possible premiums for their clients by first comparing premiums offered
by different insurance companies.
Collecting premiums from their clients on behalf of insurance companies.
Undertaking paperwork relating to taking out insurance on behalf of their clients.
dealing with claims on behalf of their clients who suffer losses.
Why is it advisable to arrange insurance cover through a broker rather than directly
with an insurance company?
A broker would obtain a wider choice of insurance companies, and see different kinds of
insurance cover.
A broker may save time for the person seeking insurance cover.
It may be cheaper to get insurance cover through a broker.
The person seeking insurance may get better overall service.
COMMUNICATION
Communication is an aid to trade that facilitates the process of transmitting information from
one person or firm to another. This can be done in written, oral, visual or physical form.
Many organisations provide the means by which other organisations can make contact. In
Zambia, the Zambia Telecommunication Corporation and the Zambia Postal Services are
examples of such firms. In addition, there are privately owned companies like Airtel, MTN,
Vodafone, DHL, Post.NET etc. that provide postal and telecommunication services.
Postal Services
These are services provided by the post office for posting and delivering of letters, parcel.
They include the following:
Airmail
This is the type of mail that is conveyed by air from the office of origin to the office of
destination. Postage rate is a little higher than for those conveyed by rail or car and it is
charged by weight.
Surface Mail
This class of mail is conveyed over the surface by rail, road, and boats in some areas.
Postage rate is lower than that of airmail and it is determined by weight. It can be use by
businessmen to send less urgent messages. The main disadvantage is that it is very slow.
Registered Mail
This service is used for sending valuable items such as cash by post. They are recorded at
the time of posting and, the sender is given a certificate of posting or receipt as proof of
posting. Mail items in this category are handled in a hand-to-hand delivery; right form the
sender straight to the addressee. The receiver must provide proof of identification and sign a
post office slip when receiving the mail as proof of delivery. The main advantage is that
registered mail is very safe. If a registered mail is lost, the post office will normally pay
compensation up to certain amount, proportionate to the value of the package and the
registration fee paid on posting.
Cash-On-Delivery
This service enables a trader to send parcels to customers by post and ask the post office to
collect the payment when delivering the item. The money is then remitted to the trader by the
post office, less a small charge. It is widely used by mail order firms. This service provides a
safe guard to both sellers and buyers. sellers do not have money tied up in bad debts and do
not have to keep sending reminders to debtors, while customers do not have to send off
money in advance, perhaps to obscure companies that may take months to deliver the goods.
Data Post
Data Post provides a speedy and reliable service for sending business documents and goods.
It is particularly useful for exchange of computer materials such as tapes, diskettes etc. This
facility provides door-to-door overnight service for delivering packages or parcels by road so
that they can reach their destination by next morning. Packages display the data post sign
and are given special security treatment. It enables packets to be collected and returned at
times prearranged with the post office.
Poste Restante
This service enables letters or parcels to be addressed to a post office for it to be collected in
person. The parcel or letter must be marked “poste restante” meaning “to be collected in
person” and addressed with the name of the person to whom they are sent and the address
of the main post office in the town. The person wishing to receive this service applies in
person at the Post Office® branch where they would like to receive mail from. The person then
tells your friends, family and business contacts their Post Office address as below. All mail
sent to the Poste restante address should include a return address on the back of the
envelope.
Your name
POST RESTANTE
Post Office name
Full address of the Post Office
Postcode of the Post Office
Country (if applicable)
The addressee then calls at the post office to collect the mail across the counter. This service
is particularly useful to sales people who continually travel from one town to another. This
service is operated both locally and internally.
Recorded Delivery
This facility provides a proof of both posting and delivery of letters. Letters sent by recorded
delivery are not posted in the posting boxes but delivered to the counter where they are
recorded and a receipt given to the sender as a proof of delivery. The receiver signs a form to
say that the letter or parcel has been received. If lost or damaged a small compensation is
paid by the post office. It is mostly used by traders who want to ensure that their debtors
receive their bills and by legal practitioners sending important legal documents by post.
Freepost
Freepost is a postal service whereby a person sends mail without affixing a postage stamp,
and the recipient pays the postage when collecting the mail. This service allows potential
customers to write to a business, in reply to its adverts, without paying postage. It is similar to
the business reply service except that no special envelope or postcards are used. Instead the
trader includes the word “FREEPOST” in his address. The trader then pays postage on all
the replies received, plus a small charge. typical uses of freepost include where a business
sends bulk mail to potential customers, the bulk mail including envelopes or postcards that
potential customers can return to the business by freepost. In another typical use, magazines
include subscription cards that potential subscribers can return by freepost. Because no
stamp is needed, many people are encouraged to reply. Usually the trader obtains a licence
or approval from the post office prior to using this facility.
Private bags
Private bags are used for posting and receiving letters. Being lockable, the bags offer security
and can easily be handled. When letters are received by the post office, they are locked in the
mail bag. The letters cannot be removed until the owner collects the bag and opens it at his or
her own place. Therefore, private bags provide more security to the letters than post office
boxes.
Franking machine
Franking machines print postal impressions on envelopes. The postal impressions show the
amount of postage, place and date of posting. Franking machines are used by organisations
that send many letters at once. They save time in affixing postage stamps on each letter.
A franking machine can be bought or hired form a company that sales or manufactures
franking machines. However, before the franking machine can be used, a licence to use it
must be obtained from the post office. The post office sets meters for the franking machines.
The hirer of the franking machine pays the post office according to the units of postage value
used.
Telecommunication Services
Telecommunication authorities provide several means by which people or organisations can
instantly communicate with each other at a distance.
The Telephone
Telephone provides people engaged in commerce with speedy means of contacting with other
business people over any distance either within the country or abroad.
Advantages/Importance of a telephone
o It enables business people to immediately contact and speak to a customer, supplier or
another business over a transaction.
o It is helpful in clearing queries between suppliers and their clients.
o It helps business people to get the immediate reply when they want it.
Voice Mail
Voice mail is a telephone-activated and voice-prompted system that allows you to leave and
receive messages, respond to messages and forward messages to another person’s mailbox. It
allows people to communicate at their convenience. It has the following benefits:
Local call
A local call is a telephone call to another telephone number within the same area or within the
same telephone exchange.
Trunk calls
A trunk call is a telephone call from one telephone exchange to another distant exchange.
Telex
The telex or Teleprinters is a combination of a telephone and a typewriter. Subscribers to this
service have a teleprinter installed in their offices and are given a number in the same way as
telephone users. To send a message, the sender dials the receiver’s number, and types out
the message, manually on the teleprinter. The message is automatically printed at the
recipient’s office, even if there is no one to receive it. Thus a message can be sent during the
night and await the arrival of the recipient at the office the next morning. It also provides a
written record; hence, it is good for messages requiring written confirmation. The cost of
sending a message on a telex machine depends on the length of the message, the time taken
to send it as well as the distance of the receiver from the sender.
Telemessages
These have replaced telegrams as a means of communication quickly with people within the
country without a telephone or telex. The message that you wish to send is dictated over the
telephone to the operator. The message is then transmitted by telex to the office nearest to
the addressee and it is guaranteed that it will be delivered with the first class post the
following morning. This is not as efficient as the former telegram service, which normally
provided same day delivery.
Fax (Facsimile)
This service enables a business to send exact copies of a document to distant places using
telephone lines. The fax machine is plugged into the telephone network and therefore it uses
and the bills are added to the user’s telephone bills. It is used for sending urgent documents
as quickly as a telephone call. The message is sent by first dialling the fax number of the
receiver. Once an initial contact is made, the document is put on the fax machine for
transmission. As the copy comes out of the sending fax machine, the exact copy of the same
document is being obtained at the receiving fax machine. Thus documents can be received
24hours a day even when it is after working hours for as long as the machine is left on. It can
transmit documents whether printed, typed, hand-written or drawn plans.
Confravision or Videoconferencing
This allows people situated at different distant locations to hold face to face discussion, but
without the inconvenience of everyone travelling to the same meeting place. It provides
studios which link up by sound and vision, so that discussions can take place as if all those
attending were present in the same room. Its greatest advantage is that it eliminates the need
for time-consuming and expensive travel. In addition, it eliminates the trouble of arranging
overnight accommodation and having to face the dangers, delays and inconveniences of long
distance travel.
Radio Paging
This service allows a user to send a telephone number or message to another user. It
provides a beeper, which warns people of the message, either, that they are required, for
example, to return to their point of operation or to their phone. Some systems are so
advanced that they provide a visual display on the pager, of up to 70 characters, called
message masters. It is commonly used in shops, factories, offices and hospitals.
International Telegram
This facility allows printed messages to be sent or received from other countries. The
message is given to the telecommunication authorities by either telephone or telex for delivery
to the addressee. A message can be sent to an individual or to multiple addressees and it
arrives in a distinctive envelope. Its biggest disadvantage is that it is very expensive, as a
result, it is appropriate to only use it for sending short messages.
Internet
The Internet is an arrangement of connected computers, which lets the computer users all
over the globe exchange data. It is essentially one network, which is the sum of thousands of
individual private and public networks interconnected by satellite and fibre optic cable
systems. The principal components of the Internet are the World Wide Web (WWW) and e-
mail. With the passage of time, the Internet has become the most effective business tool in
the contemporary world. It can be described as a global meeting place where people from
every corner of the world can come simultaneously.
o Global Audience
Content published on the Internet is immediately available to a global audience of users. This
makes the World Wide Web a very cost-effective medium to publish information.
o Operates 24 hours, 7 days a week
Businesses do not need to wait until resources are available to conduct business. From a
consumer's perspective as well as a provider's business can be done at any time. The fact
that the Internet is operational at all times makes it the most efficient business machine to
date.
o Relatively Inexpensive
It is relatively inexpensive to publish information on the Internet. Various organizations and
individuals can now distribute information to millions of users at very low costs.
o Product Advertising
Businesses can use the World Wide Web to advertise various products. Before purchasing a
product, customers will be able to look up various product specification sheets and find out
additional information. Businesses can use the multimedia capabilities of the World Wide Web
to make available not only various product specification sheets but also audio files, images,
and even video clips of products in action.
o Distribute Product Catalogues
Businesses can use the internet to distribute product catalogues. In the old days, putting
together a product catalogue used to be very costly in terms of time and money needed to
publish and distribute it. The World Wide Web changes all this by allowing content developers
to put together a sales catalogue and make it available to millions of users immediately.
o Online Surveys
Internet can be used to conduct online surveys on the World Wide Web at very low costs as
compared to traditional methods. For example, in order to fill out various needs of customers
or what they would like to see in a future product, it's often necessary to compile a list
of addresses and mail a questionnaire to many customers. Results of such a survey can be
automatically updated to a database. This database can then be used to keep a pulse on
various opinions and needs of customers.
o Announcements
With the World Wide Web, businesses can distribute various announcements to millions of
users in a timely manner. Because there is virtually no time lag from the time it takes to
publish information to making the information available to users, the Web is an ideal medium
to publicize announcements.
o Provide Technical Support
Business organisations can use their Web site to provide technical support to customers.
Because Web pages can be updated immediately with new information, various technical
support literature can be immediately modified in light of new findings and developments.
o Obtain Customer Feedback
The interactive nature of the World Wide Web is ideal for obtaining customer feedback.
Businesses can easily set up a CGI script to obtain customer feedback about a product or
service. Because customer feedback submitted by customers can be read immediately, it's
possible to respond to various customer concerns in a timely manner, increasing customer
satisfaction and quality of customer service.
o Immediate Distribution of Information
When information is added to a Web site, it's immediately available for browsing by millions of
Internet users. The World Wide Web is an ideal medium of information distribution because it
takes away the time lag associated with publishing content and actually making it available to
users.
o Easy Integration with Internal Information Systems
Internet information systems deployed on the Internet can be easily integrated with internal
information systems managed with office productivity applications such as Microsoft Office.
TRANSPORT
Transport is an aid to trade concerned with the movement of goods and people from one
location to another. Modes of transport include air, land, water and pipeline.
Transport plays an important part in the production and marketing of goods because without it
raw materials would not reach the producer and finished goods would not be distributed to the
customers.
It therefore brings producers, retailers and consumers into contact with each other.
Nature of goods: Some goods require special facilities e.g. oil which requires tankers,
pipes; meat and fish which requires refrigerated containers, coal, furniture, sand and bricks
which require suitable facilities as well.
Size and weight of the goods
Safety: The chances of theft or damages of goods on transit are greater in some method of
transport than others. A good transport system should not expose goods to theft, breakage
etc.
Access to the Terminal: The type of transport chosen should have easy access to loading
and off-loading points. This would reduce extra-transportation costs, theft, and breakage of
goods.
The reputation of the carrier: The carrier should have a reputation of reliability
The value of goods: this is because some goods cannot bear the costs of some
transport systems because of their low value. For example, coal and sand cannot be
transported by air because their value is low in comparison to their value.
Methods of Transport
The main forms of transport include sea, road, rail, air and pipeline.
Road Transport
Road transport is by far the most important form of inland transport. It is the most ideal for the
day-to-day running of a business. In recent years, there has been a drastic increase in the use
of road transport.
No return loads: Return loads are not essential to keep costs competitive, but this may not
be easy to get as there is no guarantee that a lorry hired to ferry goods say, from Lusaka to
Kabwe, will carry something on its return to Lusaka.
It has Restrictions in driving hours, size and tonnage of trucks as well as speed.
It has Vehicle maintenance costs: the direct vehicle operating costs are high compared
with the load carried; this is brought about by costs such as drivers’ wages, motor vehicle
licensing, insurance, fuel, depreciation etc.
High road maintenance costs: Roads are very expensive to maintain and vehicles may
not last if they are not properly maintained.
Rail Transport
Rail transport remains one of the most important forms of inland transport especially in
transporting bulk cargo such as copper ore, cobalt, coal, iron, steel, petroleum, etc. In the
recent past, certain developments have seen transport losing its position as leader of land
transport in Zambia.
Rail transport cannot deliver door-to-door. It is tied to the railway line and only serves
towns and places along the railway line.
It is not suitable for emergencies, which requires urgent delivery of goods.
Rail transport has heavy capital costs. It is expensive to construct and maintain a good
rail line.
Goods are not closely supervised by the driver and this result in several cases of theft.
Sea Transport
Road and rail transport carry the bulk of inland consignment, but most of our international
trade relies on sea transport. Though an increasing amount is being carried by air, it is an
undeniable fact that sea transport has formed the backbone of long distance trade between
countries for centuries now.
Seaport Authorities
Seaport authorities are responsible for providing port facilities to enable ships to dock, load,
unload, fuel and get other provisions efficiently. These facilities affect the cost of sea
transport.
Provision of office buildings for shipping companies, banks, restaurants and any other
organisation using the port.
Provision of Ship repair yards e.g. dry dock facilities for routine maintenance and repairs to
be effectively carried out on ships
Provision of Sheltered docking and deep-water access. Port authorities ensure that coastal
waters are deep enough for big ships to land. This is done by carrying out regular dredging
Provision of Specialised facilities for handling certain cargo such as timber, loose grains,
coal, oil are usually provided.
Provision of efficient customs offices to facilitate the forwarding and clearing of goods by
shippers.
Provision of infrastructure that can handle matters relating to emigration, immigration,
sanitation, police and security in order to avoid delays and hold-ups to ships.
Air Transport
The world has seen a steady increase in the in air freight over the years, and this is likely to
continue for several reasons.
Advantages of air transport
Air transport is very fast thus, goods are delivered with good speed.
insurance charges and packaging costs are usually lower since the goods are in
transit for a shorter period,
Goods can move quickly from one place to another by a combination of routes on a
single ticket. This saves time, money and energy.
Both sea and land can be crossed in one journey without the need to transfer people or
cargo from one mode to another. This saves a lot of time and money.
Special containers can be used to speed up cargo loading and unloading at airports,
since huge cranes handle them mechanically.
Disadvantages of air transport.
It involves very high capital and running costs such as electronic equipment, aviation
fuel, insurance, crew and the maintenance of air craft.
It is not suitable for carrying heavy (and bulky) goods like cement, coal, iron ore and
timber because of weight restrictions
It has very high service charges.
The carrying capacity of aircraft is limited in terms of weight, volume and size.
It can be easily halted or disrupted by strong winds, heavy rains, volcanic ash, mist or
fog as it is very sensitive to bad weather
It is not suitable for short distance journeys.
It relies on other forms of transport. This is because most airports are out of town and
one has to get to and from the airport by road.
Good road and rail accessibility to and from the airport enough to accommodate the
volume of traffic that passes through the airport.
Provision of office buildings for airlines, banks, restaurants, information desks, lounges,
clearing and forwarding agencies and any other organisation using the airport.
Provision of infrastructure that can handle matters relating to emigration, immigration,
sanitation, police and security in order to avoid delays and hold-ups to aeroplanes.
Pipelines
Pipelines are used for transporting water, gas, and oil without using vehicles. It is attractive
and safe although it is costly to install and only transports a limited range of goods. Pipelines
have always played a very important role in the petroleum industry in Zambia. The Tanzania,
Zambia (Tazama) pipeline has always been used to transport crude oil from Dar-le- salaam to
Ndola.
Advantages of pipelines
They reduce risk of pollution when transporting.
They increase the safety in the transportation of inflammables such as gas and oil.
They are a cheap method of transporting as compared to other forms of transport.
Disadvantages
There is high risk of spreading of diseases, e.g. where water is contaminated from the
source or three leakages.
It requires a constant close check to avoid contamination by foreign substances.
Disasters may result where for example; where an oil pipeline leaks into a water source, a
farm or a fishing place.
Consignment Note
This is a document used when the seller has used hired transport to deliver goods to the
buyer.
The document is made out in triplicate (three copies) which when signed by the buyer, one
copy goes to the transporter, another to the seller and the last one remains with the buyer.
The document is sent together with the goods and the consignee (buyer) signs it to confirm
receipt of the goods upon their arrival. The carrier (transporter) will then use the signed copies
of the consignment note to claim payments for freight (transport costs) from the hirer (seller).
The document is both a request and an instruction to the transporter to accept and deliver
specified goods to the buyer.
Each of the three parties: seller, transporter and buyer sign the document and each
remains with a copy.
Ticket
A ticket is a document that the transporter gives to passengers upon payment for the
transport charges.
It acts as proof that a particular perform aboard a bus, train, aircraft, ship etc has paid the
transport charges. Without a ticket which is a proof of payment, one may not be allowed to
board on the transport vessel.
Details on the ticket include: the name of the transporter, the name of the passenger, the
destination of the passenger, departure date and time, amount paid, the seat number and
other details that may be deemed important by the transporter.
WAREHOUSING
Warehousing is the name given to the protection given to goods from the time they are
produced until when the customers buy them. It also involves the storage of raw materials,
components, spare parts and machinery as well.
Types of Warehouses
Manufacturer’s Warehouses
These are warehouses owned by manufacturers. They are used for the storage of raw
materials, finished goods, machinery, tools etc.
Wholesaler’s Warehouses
These are warehouses owned by wholesalers. They are used for keeping goods bought from
manufacturers but which are awaiting sale to retailers.
Retailer’s Warehouses
These are warehouses owned by large retailers where goods awaiting sale are stored.
Examples of retailers, warehouses include those owned by game stores, Furn city etc.
Bonded Warehouses
These are warehouses for storage of dutiable goods on which customs duty has not yet
been paid.
These are mostly found in boarders, ports, airports and at railway stations.
They are under the strict control of customs and excise authority.
They may be owned by the private individuals, companies or government.
The owner enters into a bond (agreement) with the government that goods are not going to
be released until duty has been paid on them.
ADVERTISING
Advertising is an aid to trade concerned with the spreading of information or awareness about
a product, service, or an organisation. It is a means of presenting the most persuasive
possible selling messages to the right people for the product or service through the
advertising media.
Features of Advertising
Advertising modes are the means/platforms through which advertising is carried out or done.
There various mode of advertising one can use to advertise or sell their goods or services.
Television
Advantages
It gives lasting impression because of the combination of colour, sound and action.
It gives a wide coverage.
The advert can be shown at the right time for the right audience.
It gives display and demonstration of products by means of sound and vision.
It provides repeated advertisements.
Disadvantages
It is very expensive.
It is not well received by viewers as some consider it an interruption to interesting
programmes.
It is only limited to people who have television sets.
Television adverts may be short lived and hence may not create a lasting impression.
Some adverts may not be taken seriously by some people who think of them as
entertainments.
Repetition may be irritating to the viewers who may be forced to Zap or Zip (Zapping –
using remote control to remove sound or change channels while Zipping is where viewers
of recorded programmes use the fast forward button to skip commercials)
Radio
Advantages
It gives a wide coverage
It is cheaper than television advertising.
It can be directed to a specific audience by using special time or language.
It gives lasting impression through catchy tune or jingle.
Repeated advertisements can be done on radio.
Radio does not require sole attention i.e. people can do other things at the same time e.g.
driving while listening to the radio.
Radio is listening is usually habitual as it is a form of companionship.
Disadvantages
Consumers do not physically see the goods being advertised.
Some radio stations have limited coverage. e.g. community radio stations
Radio adverts tend to be short and this reduces its effectiveness unless it is broadcast
repeatedly.
Newspapers
This is part of the print media, e.g. The Mast, Times of Zambia, Daily mail, Daily nation etc.
Advantages
They give a wide national coverage since newspapers are read by all classes of people.
It is flexible as the advertiser can decide the size and duration of the advertisement in the
paper.
Newspaper advertisements can be as large as the advertiser wants it to be.
Exposure to the advertisement is not limited as readers can go back to the message again
and again if so desired.
Space for newspapers can easily be booked.
The use of daily newspapers for advertising ensures an immediate coverage of the
intended audience e.g. congratulatory messages, funeral messages etc.
Newspapers are relatively cheap, thus, more people can afford them.
Disadvantages
Newspapers have a short shelf life as newspapers are usually read once and then
discarded.
Poor quality of print may reduce the effectiveness of adverts.
Illiterate people are not able to access the information in newspapers.
Posters
Advantages
These are cheap to produce
They may be made in various sizes and placed in various locations e.g. along high ways,
on walls etc. to attract the target audience.
They do not need much attention once they are strategically placed.
They are long lasting.
They can be used to advertise items within a particular area e.g. advertising discounts
being offered in a particular shop.
Geographically selective- they can be placed in places patronized by the target audience.
Disadvantages
They do not give a wide coverage especially when stuck in only one area.
They may be destroyed due to bad weather such as rains; they may be torn down and
often defaced.
They may not be acceptable to local authorities as they make the locality look untidy.
They have high production costs.
Leaf Lets/handbills/Flyers
Advantages
Coupons may be offered through leaflets.
Leaflets are cheaper than either television or magazines.
Disadvantages
Leaflets may involve high distribution costs for a limited audience.
They may not reach their intended audience.
They may be discarded or destroyed immediately.
Magazines
Advantages
They offer targeted advertising where certain adverts can be targeted at a Particular
audience for example, a men’s magazine may advertise men’s shoes trousers etc.
Many readers other than the buyer of the magazine (secondary readership) have access to
adverts in magazines. This is as a result of their long life
Magazines have a long term impact as magazines can be kept and referred to later.
The use of colourful illustrations can create aspiration.
Special coupon offers can be made through magazines.
Disadvantages
Some magazines may have limited readership as they appeal only to certain classes of
people, e.g. some women may not want to read men’s magazines, some farmers may not
want to read accountant journal, etc.
Magazines’ advertising is very expensive.
Magazines may be expensive as a result they may reach fewer people.
Advantages
It helps to raise the company profile
It helps to start building relationships with customers since you meet them face to face.
Disadvantages
It is expensive as it includes costs such as stand space, stand design and build, travel and
accommodation for staff etc.
Results are not guaranteed despite the investment in the exhibition.
Unexpected number of participants in the exhibitions.
Bill Boards
These are normally placed in strategic places which are frequented by people. They may be
along the high ways, railway stations, cross roads or at bus ranks. They are a very effective
tool in advertising especially if they are properly designed.
Advantages
You are guaranteed that people will see your adverts since it is place along highways and
busy streets.
You can customise your advertisement by placing it wherever you feel it has the most
impact.
Disadvantages
There is a limitation as to the amount of information that can be communicated because an
average person may only see the advertisement for about 3 to 5 seconds.
It is expensive. This is because businesses usually have to enter into long term
commitments with billboard companies as it takes a lot of time, energy and money to
constantly changes billboard advertisements.
Advantages
Social media sites are great for building customer relationship and offers an incredible
reach and opportunity to connect with customers.
Offers a wide reach with its potential for viral marketing.
Social media tools are relatively inexpensive.
Disadvantages
Targeting is so low because of the diversity and breadth of audiences.
Visitors mainly go to social media sites to socialise and are mostly not interested in
advertising.
Social media can be a hard branding tool for small businesses and it is not easy to build
awareness, create appeal and generate traffic.
Methods of Appeal
These are persuasive tactics used in enticing people to buy a particular product or service.
These tactics are used because the impact of the message depends not only on what is said
but also how it is said.
Personality symbol: This creates a character that represents a product. Famous people
are shown using the product to give it an acceptable image.
Romance: The advertisements suggest that the user of the product will be more attractive
to the opposite sex, e.g. advert on fair and lovely cream.
The slice of life: The advertisements show one or more people using a product in a
normal life setting.
Ambition: The advertisement suggests that success comes by using a particular product,
e.g. NIDO kinds go further.
Musical: This shows one or more people or even cartoons singing about the effectiveness
of the product i.e. using Jingles.
Work simplification: The advertisement suggests that the product simplifies work
performance. This persuades many people to buy a product with a view of simplifying their
work e.g. a detergent paste may be shown to be very powerful as to simply washing.
Scientific evidence: This presents a survey or scientific experiment about the product to
prove its effectiveness.
Dramatic: This may be used so that if the advert is fun or amusing, then the product can
be remembered and bought.
Social acceptability: A product is claimed to make the user more acceptable to other
people.
Emotional appeal: This is designed to appeal to our pride or hidden fears, for example “if
he doesn’t ask you for a next date, then the reason would be your breath” in tooth paste
adverts.
Excellence: This method suggests that the service offered is of high quality. This is seen
in most advertisements for banking, transport, hotels, education, health etc. which places
emphasis on excellence.
Other methods of appeal include loss leaders, health, display of goods, etc.
Types of Advertising
Informative Advertising
This is a type of advertising that is designed to inform people in a clear and straight forward
manner. Most of the advertising done during the launch of a new product is informative also
known as Educative advertising. It is aimed at announcing the new product and providing
detailed information on how it is made, what it is used for, where it can be found, how it can
be stored etc.
Persuasive Advertising
This is a type of advertising which is aimed at influencing or enticing customers in favour of
purchasing a particular product. Most of the advertising which surrounds us daily urging us to
buy different kinds of products and services is persuasive advertising.
This type of advertising employs very powerful techniques aimed at leading the target
audience through a process of AIDA (Attention, Interest, Desire and Action) or AIDCA
(Attention, Interest, Desire, Conviction and Action).
Persuasive advertising keeps the wheels of industries running by creating demand for goods
produced. It is mainly aimed at consumers and is the kind which tries to persuade them to buy
the advertisers’ products rather than his competitor’s by assuring potential customers that it is
better.
It may be misleading to consumers who might end up buying poor quality products.
Most of the competitive adverts do not provide consumers with sufficient information about
products.
Some customers are persuaded to buy goods they cannot afford which may be beyond
their means of life on credit.
It encourages impulse buying
It may promote dangerous and harmful products.
Generic/Collective Advertising
Generic Advertising - is a kind of advertising where the advertiser does not promote a
specific brand but just uses generic terms. E.g. we have in stock cooking oil, tooth paste,
detergents, bathing soap etc. Large retail outlets that stock lots of goods from various
suppliers use generic advertising instead of brand advertising. It is equally utilized where it is
not so important for customers to choose a particular manufacturer’s brands because the
commodities are not so different from manufacturer to manufacturer e.g. oranges, tomatoes,
eggs etc.
Advantages
It is cheaper since it is not aimed at promoting a specific brand
It is very ideal for products where customers are not interest in specific brands e.g.
tomatoes.
Generic advertising can be used when launching new products so that the firm is not
affected in an event that the new product fails as no specific brand name would have been
used.
It increases the demand for a product.
It is cheaper since the cost of advertising is spread among several producers.
It allows competitors to group together for their mutual support.
Disadvantages
Brand loyalty cannot be attained as adverts do not emphasize on specific brand names but
generic names.
Generic advertising may not be as effective as brand advertising where customers are
particular with brand names.
It does not emphasize a particular producer’s product.
It is not effective in defeating competitors, obtaining greater market share and in earning
greater profits since it is neutral.
It does not target different markets.
Competitive Advertising
This a type of advertising where firm tries to out-do other firms dealing in the same type of
products by directly or indirectly comparing their brands against those of competitors. The
messages under competitive advertising are usually confrontational or aimed at bringing down
the competitors’ brands while claiming superiority. Common themes and slogans used in
competitive advertising include: ‘we are the best in town’, ‘we are the number one producer of
quality cement’ ‘we are second to none’ ‘no one beats our quality’, ‘use our brand, don’t settle
for less’ etc.
Advantages
Increased competitive advertising may lead to provision of quality services and products.
The claims made by various firms are helpful in the consumer purchase decision making.
Competitive advertising helps in product differentiation and market positioning.
Disadvantages
Where it becomes a practice for all firms to make superiority claims, the messages become
ineffective and irrelevant to the consumer’s decision making.
Intense competitive advertising may lead to increased expenditure on advertising as firms
try to offset competitor messages, this may lead to increased prices of goods are the cost
of advertising is passed on to the consumer.
Advantages of Advertising
To the consumer:
It creates greater competition among producers leading to better quality goods. This
provides consumers with better quality goods.
Consumers are informed of goods and services which they might otherwise not have been
aware of.
The consumers’ standards of living are improved through improved products
Advertising provides wide variety/choice selection.
It reminds customers of old and existing goods.
It helps to educate consumers on how to use certain products.
Consumers are informed of product modification, changes in location of shops, offices etc.
Advertising allows for mass production of goods because of large sales the results from
successive advertising thereby leading to lower prices of goods for the benefits of
consumers
It gives indirect benefits such as keeping down the cost of a newspaper.
It gives information to consumers on matters of public interest e.g. health matters, birth
notices, death notices etc.
It provides finance for commercial television and radio, which in turn provide entertaining
programmes to consumers.
It can help the producer to obtain information regarding services of raw materials,
machinery, spares and other inputs.
Advertising allows for events such as sports activities, political meetings etc. to be
advertised.
Advertising creates employment.
Disadvantages of Advertising
To producer/trader
It can be a great expense to the business especially if it does not result in increased sales
and greater profits.
Competitive advertising especially for similar products like washing detergents may be a
waste of resources.
To the consumer
It adds to the cost of a product making it more expensive for the consumer.
Advertising may attempt to mislead or deceive customers.
Advertising may make some people to live beyond their means by forcing them to buy
more goods on credit than they can afford.
Advertising may promote dangerous and harmful products.
Advertising encourages impulse buying.
Advertising Agencies
These are organizations that specialize in creating and promoting advertisements on behalf
of other businesses.
They are remunerated by commission from their clients. Most manufacturers do not
possess the particular skills that are needed to devise, make and place such
advertisements.
The advertiser normally consults advertising agents and selects one of them to run the
campaign for them.
Since the advertising agent handles campaign for many advertisers, they can afford to
employ specialists in many fields, a luxury which individual manufactures could not afford
for themselves.
Control of Advertising
The main aim of most persuasive advertisements is to entice consumers to buy certain
products. Advertising companies can go therefore, to any lengths to achieve this objective.
This may neglect the welfare of the consumer’s hence the need for strict controls on
advertising.
The reasons for controlling advertising include:
Some advertisers may attempt to mislead or deceive consumers in an effort to increase
sales.
Untrue statements about a product may be made in an effort to persuade consumers to
buy a product.
Some advertisements may undermine social standards and may lower moral standards
especially those aimed at young people.
It may promote dangerous and harmful products.
Some advertisements can be intrusive.
Some advertisements may be illegal.
It may make some people to live beyond their means by forcing them to buy more goods
on credit than they can afford.
Some advertisements emphasize only the good points of a product.
Ways of Controlling Advertising
Control of Advertising by Self-Regulation (Code of Advertising Practice)
This is done by advertisers themselves coming up with a document containing a set of
standards to be followed by all the members, i.e. self-regulation. The document contains
ethics to protect consumers from misleading, dishonest and untruthful advertisements. These
ethics require that all advertisements are:
Legal: Must not contain anything which is against the law of the country
Honest: Must not deceive consumers.
Decent: Must abide by the moral code of conduct and society norms
Truthful: Must not mislead consumers by false statements, omission of vital information
or by exaggeration.
Control of Advertising by Legislation
The government controls advertising by passing laws to protect consumers from dishonest,
misleading and untruthful advertisings, and also from those that promote indecency,
dangerous and harmful products
Control of Advertising by the Media
The media may also help by refusing unsuitable advertisements in the media. This makes the
‘messengers’ i.e. the advertising agencies to exercise and show a sense of ethics and
responsibility whenever they plan and produce adverts.
Control of Advertising by Voluntary Associations
Consumers can protect themselves by forming Consumer Protection Associations. These are
non-profit organizations which are formed and financed by consumers. Through these
associations, consumers can pass complaints against certain products and may influence
decency, honesty and truthfulness on the manufacturing and advertising industry.