(a) Give three similarities and three differences between hire purchase and deferred payment.
(b) Explain four reasons why a trader would prefer the use of cheque to cash for large payments.
Explanation
(a) Differences between hire purchase and deferred payments are:
(i) In hire purchase, the seller retains ownership until the final instalment is made whereas the buyer becomes the owner of the goods as soon as the initial deposit is made.
(ii) Durable goods are sold under hire purchases whereas less durable goods are sold under deferred payment.
(iii) Hire purchase terms to favour the seller whereas deferred payment terms favour the buyers.
(iv) The hire purchase price is higher than the price charged in deferred payment terms.
(v) if the hirer defaults in payment, the seller can repossess the goods, whereas the seller cannot repossess the goods; he may sue the buyer to the court for the balance in deferred payment.
(vi) in hire purchase, the goods are on hire, whereas the goods are sold and to be paid for in future in deferred payment term.
Similarities between hire purchase and deferred payment are:
(i) The same type of goods such as durable capital goods e.g. motorcycles may be obtained on either hire purchase or deferred payment terms.
(ii) The goods pass from the seller to the hirer/buyer. Both take possession of the goods.
(iii) The hirer/buyer may start making use of the goods as soon as he takes possession.
(iv) Full payment of the agreed price is not required immediately, so both accommodate instalment payments and give credit facilities.
(b) A trader would prefer the use of cheque to cash for large payments for the following reasons:
(i) It is more convenient to carry about than carrying cash.
(ii) It is safer to carry a cheque than cash in terms of security.
(iii) It saves time and energy to pay a large sum by cheque. Imagine counting one million Naira in cash to pay a creditor.
(iv) If a cheque is lost, it is easier to trace than when a large amount of cash is lost.
(v) Cheque stubs help the drawer to keep a record of payment. This helps to eliminate arguments that may arise later.
(vi) A Large amount of cash are prone to loss through robberies or carelessness. These risks are eliminated through the use of cheques.
(vii) The trader who draws a cheque can stop payment of the cheque by the bank before it is cashed. This is a safeguard in case of fraud or breach of agreement on which the cheque was issued.