Lee owns a medium-sized speciality store in a large town, selling electrical supplies. He is considering accepting credit and debit cards as methods of payment from both individual and trade customers. He offers hire purchase for larger items, such as cookers.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2017). The mark or mark type is shown in brackets.

1. [1] Only sells one/particular line of products
2. [2] Credit card does not require a current account (1), whereas debit card requires a current account (1) Credit card allows you to pay later/a form of credit (1), whereas debit card is instant payment (1) Credit cards have interest charges if amount due is not paid off (1) debit cards do not have charges (1) A credit card sends a monthly statement (1) and debit card is itemised on bank statement (1) Credit cards issued by credit card company (1) and debit cards issued by bank (1) You do not need money in your account to use credit card (1) but money is needed to use debit card (1)
3. [4] The buyer may be tempted to purchase/impulse buy (1) more that they can afford (1) The goods are not owned (1) until final payment (1) There will be problems making the payments (1) if the buyer becomes ill/unemployed (1) You have to pay a higher price (1) due to interest payments (1) The goods may be re-possessed (1) if payments are not made (1) Goods cannot be sold to a third party (1) until all monies owed are paid (1) The process is lengthy (1) with much documentation (1)
4. [4] trade credit is buying/selling goods or services (1) and expecting to pay/payment for them after an agreed period of time/later (1), e.g. 30 days (1) trade discount is the reduction in the price of a product (1), e.g. 20% (1) deducted from the invoice (1) listed in the trade catalogue (1) when it is sold to someone in the trade (1), and may be given by the manufacturer to the wholesaler/or by the wholesaler to the retailer (1)
5. [3] Letter/email (1): acts as proof/record/evidence (1); can be referred to in (1) formal request for payment of the amount owed (1); seen as an important step in legal proceedings (1); information cannot be distorted (1); avoids any misunderstandings (1); cheap/fast (1); can include attachments (1). Telephone (1): allows for one-to-one communication (1); questions can be asked about why the payment has not been made (1); cheap/fast (1); letter can be ignored (1) Face-to-face (1): by visiting the customer (1); message received directly (1); matter can be resolved at that moment (1).
6. [6] Level 2 (4-6 marks) Has discussed whether or not Lee should continue to allow trade credit and given reasoning Level 1 (1-3 marks) Has commented on the statement If a candidate has presented a one-sided argument, award 4 marks max. Discussion: There will be no risk of bad debts to Lee when customers pay by cash or debit or credit card. As long as he follows the correct procedures there should be no chance of fraud to Lee. Lee's cash flow will be better if trade credit is not given since he will not have to wait for the customer to pay him. There will also be less administration, which reduces costs. Allowing trade credit will help to tie a customer to Lee, but not allowing it will free up the customer to trade with Lee's competitors. When customers pay by debit card, Lee will receive the payment into his bank account almost immediately. There may be a slight delay when the customer pays by credit card, but in both instances Lee will receive the money quicker than allowing trade credit. Decision: With the problems Lee has had with bad debts there are advantages to switching all trade customers to credit or debit cards. He will not want to lose long-established customers, so may want to continue offering trade credit to those customers who always pay on time. He should not open any new trade credit accounts.