Documents and terms in home trade: WASSCE Commerce

Every sale between businesses leaves a paper (or digital) trail: an enquiry, a quotation, an order, an invoice, a receipt. These documents prove what was agreed, what was delivered and what was paid. WASSCE Commerce tests them every year, together with the trade terms and discounts printed on them.

Learning objectives

By the end of this lesson you should be able to:

describe the documents used in home trade in the order they are used
explain the purpose of each document
distinguish an invoice from a pro forma invoice, and a debit note from a credit note
explain common trade terms
calculate trade and cash discounts

The order of documents in home trade

The order in which documents pass between buyer and seller: letter of enquiry, quotation or price list, order, advice or delivery note, invoice, debit or credit note, statement of account, payment and receipt

Figure 1. Documents in home trade, from enquiry to receipt. WASSCE Tutor diagram.

Document	Sent by	Purpose
Letter of enquiry	Buyer	Asks about goods, prices, terms of sale and delivery
Quotation	Seller	Replies with prices, terms and delivery dates; may be accompanied by a price list or catalogue
Order	Buyer	A formal request to supply goods on the stated terms; creates a contract when accepted
Acknowledgement	Seller	Confirms the order has been received and accepted
Advice note	Seller	Tells the buyer the goods have been sent and how
Delivery note	Seller	Goes with the goods; the buyer signs to confirm receipt
Invoice	Seller	A bill showing goods supplied, quantities, prices, discounts and the total amount due
Debit note	Seller	Corrects an undercharge on an invoice: the buyer owes more
Credit note	Seller	Reduces the amount owed, for overcharges, returned or damaged goods; usually printed in red
Statement of account	Seller	A summary of all transactions in a period and the balance owed; a reminder to pay
Payment	Buyer	Cheque, bank transfer, mobile money or cash
Receipt	Seller	Proof that payment was received

Pro forma invoice

A pro forma invoice is sent before goods are supplied, either to show what the invoice will look like, to ask for payment in advance, or to support an application for an import licence or foreign exchange. An ordinary invoice is sent after (or with) the goods and demands payment.

Common mistake

A credit note reduces what the buyer owes; a debit note increases it. Both are sent by the seller. Remember: the credit note "credits" (helps) the buyer.

Trade terms

Term	Meaning
Trade discount	A reduction off the list price given to traders who buy for resale (often a percentage)
Cash discount	A reduction for paying promptly, within a stated period (for example "5% for payment within 14 days")
Quantity discount	A reduction for buying large quantities
CWO (cash with order)	Payment must accompany the order
COD (cash on delivery)	Payment is made when the goods are delivered
E&OE (errors and omissions excepted)	The seller may correct mistakes in the invoice later
Carriage paid	The seller pays the cost of transport
Carriage forward	The buyer pays the cost of transport
Ex-works (ex-factory, loco)	The price covers goods at the seller's premises; the buyer collects and pays transport
Franco (free delivered)	The price includes all costs to the buyer's premises
Net / Prompt	No discount; payment due immediately or within a short time
Month's credit	Payment is due within one month of the invoice

Calculating discounts

Trade discount is deducted first, from the list (catalogue) price. Cash discount is then deducted from the amount after trade discount, if the buyer pays within the stated period.

Worked example

An invoice. A retailer in Bo orders 40 cartons of soap at a list price of NLe 250 each. The wholesaler gives a 20% trade discount and a 5% cash discount for payment within 14 days.

Gross value $= 40 \times 250 =$ NLe 10,000
Trade discount $= 20\% \times 10000 =$ NLe 2,000
Net invoice value $= 10000 - 2000 =$ NLe 8,000 (the amount on the invoice)
Cash discount (if paid within 14 days) $= 5\% \times 8000 =$ NLe 400
Amount paid if paid promptly $= 8000 - 400 =$ NLe 7,600

Worked example

A credit note. Two of the 40 cartons arrive damaged and are returned. The credit note is for $2 \times 250 = 500$ less 20% trade discount $= 500 - 100 =$ NLe 400. The retailer now owes $8000 - 400 =$ NLe 7,600 (before any cash discount).

	Trade discount	Cash discount
Given for	Buying for resale (being a trader), or buying in bulk	Paying promptly
Shown on	The invoice	The invoice terms; taken when paying
Purpose	Lets the retailer resell at the list price and make a profit	Encourages quick payment and improves the seller's cash flow

In Sierra Leone

Freetown wholesalers often quote retailers "net cash" for small orders, but give trade discounts and short credit to regular retailers who buy many cartons each week. Payments increasingly arrive by mobile money, and the wholesaler sends a receipt by SMS or WhatsApp.

Key points

Order of documents: enquiry → quotation → order → advice/delivery note → invoice → debit/credit note → statement → payment → receipt.
A pro forma invoice comes before supply; an invoice demands payment.
Debit note increases, credit note decreases, the amount owed.
Trade discount comes first (off list price); cash discount is for prompt payment.

WASSCE examination focus

WAEC tests this

WASSCE asks you to explain the purpose of named documents, to arrange them in order, to distinguish pairs (invoice and pro forma invoice; debit and credit note; trade and cash discount), to explain trade terms (CWO, COD, E&OE, carriage paid) and to calculate discounts on an invoice. Always take trade discount before cash discount.

Quick check

What is the purpose of a statement of account?
When is a credit note sent?
Goods listed at NLe 6,000 carry a 15% trade discount. What is the invoice value?
What does COD mean?

Answers: 1. To summarise the transactions of a period and show the balance the buyer owes, reminding them to pay. 2. When the buyer has been overcharged or has returned damaged or unwanted goods. 3. $6000 - 15\% \times 6000 = 6000 - 900 =$ NLe 5,100. 4. Cash on delivery: payment is made when the goods are delivered.

Documents and terms in home trade