SIMPLE RATIOS

Ways to improve gross margin:

1. Profitability ratios: They tell/show how profitable the business  Looking for cheaper suppliers
has been during the current year compared with previous year /  Increase selling prices
similar business  Increase advertising and sales promotions
 Changing the proportions of different types of goods sold
1. Gross profit as a percentage of sale/ Gross profit margin: it
indicates how profitable sales were. 2. Net Profit as a Percentage of Sales/ Net Profit margin (Mark –
up): It indicates how well a business is able to control its operating
Formula: Gross Profit X 100 expenses.
Net Sales (turnover) 1
Formula: Net Profit X 100
The answer is expressed in percentage Net Sales (turnover) 1
2019 2020
The answer is expressed in percentage
Gross Profit X 100 Gross Profit X 100
2019 2020
Net Sales(turnover) 1 Net Sales(turnover) 1
Net Profit X 100 Net Profit X 100
20 000 X 100 25 000 X 100 Net Sales(turnover) 1 Net Sales(turnover) 1
80 000 1 120 000 1
25 500 X 100 25 500 X 100
= 25% = 20% 100 000 1 120 000 1

= 25.5% = 21.3%
The higher the rate, the more profitable the business is, and the drop
shows that there is a problem possibly with management in certain
areas. The higher the rate, the more profitable the business is, especially if
the turnover was low. But if the rate of the margin is low, yet the
Reasons for a decrease in margin: turnover was high, it’s a sign that there is a problem.
- Poor recording of sales
Ways to improve gross margin:
- Goods not properly priced
 Reducing reduce bad debts/Controlling expenses /Credit
- Theft of cash or inventory control policy
- Selling goods at discounts due to damages or being out of  Increasing other income
fashion
- Buying from expensive suppliers
- Lack of advertising and sales promotions

1
 - Reducing owner’s drawings
2. Liquidity ratios: They measure the ease and speed with which - Selling surplus non-current assets
assets can be turned into cash/ ability to meet current debts of a - Increase in the proportion of cash sales
business 2. Quick / Acid-Test Ratio – it compares assets which are in money
form/which converts into money quickly, with the liabilities due for
1. Current/ working Capital Ratios: it measures the ability of a payment in the near future
business to meet its liabilities when they fall due.
Formula;
Formula: Current Assets Current Assets – Inventory
Current Liabilities Current Liabilities
The answer is expressed as a ratio
2019 2020 Answer is expressed in Ratio
Current Assets Current Assets 2019 2020
Current Liabilities Current Liabilities Current Assets - Inventory Current Assets - Inventory
Current Liabilities Current Liabilities
48 000 34 000
12 000 15 000 48 000 - 24 000 34 000 – 16 000
12 000 15 000
=4 = 2. 27
1 1 =2 = 1. 2
= 4:1 = 2. 27 : 1 1 1
= 2:1 = 1. 2: 1
The Working Capital of a business must be adequate to finance the
day-to-day trading activities. N.B The acceptable acid test ratio in the competitive market is 1:1
A business which lacks working capital may encounter the
following problems; 3. Efficiency Ratios: They measure how effectively the business is
Inability to meet liabilities when they fall due using the available resources
- Inability to take advantage of cash discounts
- Difficulties in obtaining further supplies on credit 1. Rate of Inventory Turn / Stock Turn – it measures the number
- Cannot take advantage of business opportunities when they of times a business sells and replaces its inventory in a given period
arise of time.
Formula;
Ways of Improving Working Capital Position Cost of sales (C.O.G.S)
- Introduction of further/additional capital Average inventory
- Obtaining long-terms loans

2
 Average inventory = Opening Inventory + Closing Inventory
2

Answer is expressed in times

2019 2020
Cost of sales (C.O.G.S) Cost of sales (C.O.G.S)
Average inventory Average inventory

Average inventory =
Opening inven + Closing inve Average inventory =
2 Opening inven + Closing inve
2
80 000
(100 000 + 20 000) 100 000
2 (40 000 + 20 000)
= 2:67 times 2
= 1. 52 times
The quicker the inventory is sold indicates less funds are tied up in
inventory hence efficiency. It indicates
- High sales
- Low selling price
- Increase in demand of goods/service
- Business activity has gone up

The slower the inventory is sold indicates more funds are tied up in
inventory hence in-efficiency. It indicates
- Lower sales
- High selling price
- Fall in demand for goods/service
- Business activity has gone down

3
WAREHOUSING 3. BUILDERS TOOL SHED: A temporary warehouse used
The protection given to goods from the time they are produced until by builders/construction companies to keep their
when they are needed by consumers. tools/equipment, building materials, site rations as well as
their uniforms and protective clothing.
IMPORTANCE OF WAREHOUSING
4. PUBLIC SECTOR WAREHOUSE: large depots used by
 It protects goods from damage due to bad weather /theft government departments and parastatal bodies to store their
therefore reduced chances of loss to the business. supplies and government strategic reserves.
 It helps to stabilize prices by preventing either shortage or E.g. the central Medical Stores used by ministry of health to store
excess developing on the market hence efficient budgeting medical supplies,
 Ensure a regular supply of goods to customers hence Silos used by Botswana Agricultural marketing boards to store grains
customer satisfaction.
 Help the business to be able to produce/buy in large 5. SEAPORT AND AIRPORT AUTHORITY
quantities thereby enjoys economies of scale. WAREHOUSE: Warehousing facilities provided by port
 It provides space necessary for the preparation of goods for authorities to facilitate the worldwide distribution of goods
sale by repackaging, branding labeling and blending. in international trade by storing goods while on transit
 It provides space for the display of goods for customers to awaiting customs clearance and transport.
inspect the goods before buying them. 6. WHOLESALE WAREHOUSE: Warehouses used by
wholesalers to store their goods, break the bulk and prepare
TYPES OF WAREHOUSES AND THEIR USES the goods for sale.

1. COLD STORAGE WAREHOUSE: A form of specialist 7. LARGE SCALE RETAILER’S WAREHOUSE:

warehouse used mainly for the storage of perishables like Warehouses used by large scale retailers to store their goods
fruits and vegetables, fresh milk, meat etc. they enable in order to supply to the branches after buying them in bulk
perishables to be exported throughout the world without the through their central purchasing department.
fear that they would go bad on transit.
8. BONDED WAREHOUSES: Warehouses used for storage
of dutiable goods on which duty has not yet been paid. They
are under the control of BURS department
2. MANUFACTURE’S WAREHOUSE/DEPOTS: These are  They are important as they help economize the
warehouses used by manufactures to store raw materials, working capital of traders as those who do not have
components, tools and machinery necessary for production enough working capital may sell their goods while
to take place and also for storing finished products before still in bond in order to avoid the payment of duties.
selling them.  Goods may also be prepared for sale while on bond.

4
Bonded warehouses may be preferred to other types of 1. Informative advertising: type of advertising mainly
warehouses when: designed to inform consumers in a clear and straight forward
 The imported goods are dutiable and the trader does not have manner without persuading them to buy the product.
sufficient capital to pay the duties immediately.
 The goods imported are not required immediately and they 2. Competitive advertising: a type of advertising used to
therefore need to be stored under the control of the customs increase sales by persuading consumers to believe that the
authorities without payment of duties until they are removed. advertised product is the best, thereby influencing them to
 The goods are to be re-exported on which in which case the buy the business’s product.
importer would not have to pay duty.
 The goods need to be prepared for sale 3. Collective advertising: an advertising placed jointly by a
bottling/packaging/blending/labeling. group of producers in order to promote the use of that
The trader does not have the correct license in place for the imported product. It does not mention any brand or make by name.
goods and needs time to obtain them. E.G A group of farmers can advertise ‘eat more fruits and
keep the doctor away’

ADVERTISING FACTORS TO CONSIDER WHEN DESIGNING THE

It is the spreading of information or awareness about a product or an ADVERTISEMENT
event.
 Medium to use and its availability: one should choose a
PURPOSE OF ADVERTISING medium which reach out the largest possible target group.
 To inform customers about the availability of products in  Good timing: ensure that the advert is placed at the best
order to generate awareness. time when the target audience is most likely to by the
 To persuade consumers to buy a particular product/ brand product.
so as to increase sales.  Budget available: consider how much the advert and
 To remind customers that a particular product still exist so medium will cost and see whether the budgeted money will
as to come and buy. be enough to cover the costs
 To inform job seekers on available vacancies.  The message to be taken by the targeted market; the
 To create brand image message should make the target market to want to know
more about the product and make them to but at the end.
 What the business wants to achieve
 Skills the company has

TYPES OF ADVERTISING

5
METHODS OF ADVERTISING APPEAL  Mislead consumers through false claims.

 Sex appeal: designing an advert portraying a beautiful ADVANTAGES OF ADVERTISING TO THE

young woman/man using the product in order to grab PRODUCER/BUSINESS
customers attention  Inform and persuade customers to buy hence increased
 Famous personality: designing an advert showing a sales/ market share and possibly profits however it is costly
celebrity using the product e.g. a football star to advertise.
 Hero worshipping: using cartoons or film characters such  It help create a distinctive brand image which helps the
as Spiderman and Dora the Explorer in advertising business to stand out from competitors hence attract more
 Image appeal customers to buy however experts are need to design the
 Gender appeal advert which can increase business costs.
 Help the business to find workers and fill job vacancies.
ADVANTAGES OF ADVERTISING TO THE CONSUMER  Help maintain sales by keeping the business products
 Better quality goods due to greater competition among before the consumer’s eyes.
producers hence improved standards of living however it  Help launch new products and help them penetrate the
raises the prices of the product which makes it expensive for market quickly
the consumer to buy.
 It informs consumers on what goods are available and ADVERTISING MEDIA
provide them with information to make informed choice by
comparing prices and quality of different brands however FACTORS TO CONSIDER WHEN CHOOSING THE
this may lead to irrational choice of goods. ADVERTISING MEDIUM
 Lower prices: due to increased sales which results in lower  Target group: should choose a medium which reaches the
production costs hence more consumers are able to afford targeted market most effectively to ensure best coverage.
more goods and services however it may influence people to  Area to be covered: should determine whether the area to
buy goods they do not need hence waste money. be covered is local or national so as to choose the best
 Helps keep down costs of newspapers/ radio and TV medium. If coverage is local then posters are the best and if
licenses thereby increasing consumers access to information it is national, radio/TV should be chosen for wider coverage.
and news however  Nature of the product: medium chosen should suit the
product, expensive products should be advertised on
DISADVANTAGES expensive medium and cheaper ones on cheaper medium so
 Makes goods expensive as advertising costs are added to the as for the business to be able to cover the costs.
price of the product.  Cost of the medium: the cost should be considered in
 May influence consumers to buy what they do not relation to the budget available, but the business should
need/impulse buying weigh the relative benefits with the relative costs.
 Irrational choice of goods  Duration of advertising company:

6
  Availability of the medium
- A popular song can be played However there is complete
DISCUSS THE ADVANTAGES AND DISADVANTAGES OF along with the advert to grab the absence of visual impact [1] so
DIFFERENT ADVERTISING MEDIA. attention of the listeners [1] so will it may not be effective
get the message and go and buy [1]
ADVANTAGES DISADVANTAGES
- Provide opportunity to target However some listeners may
TELEVISION particular segment of the market not get the message as they
through special interest may not pay attention to the
- Combines visual with audio However the adverts are short programmes [1[ therefore advert [1] hence limiting the
impact [1] so it is effective as it is lived [1] so many people may customers will be able to receive number of
appealing to different senses hence not see the advert/forget the message [1] customers [1]
growing people’s desire to buy the quickly [1]
products [1] leading to increased short lived
sales [1] - Cheaper than TV advertising

- Wider coverage [1]so can be seen However the adverts are not NEWSPAPERS
many viewers at peak hours hence always well received by
leading to a larger market share [1] viewers as some take it as * Wide national coverage However the message can
entertainment/interruption [1] especially the daily news [1] so reach only the literate people
so may not get the message [1] many customers will see the advert [1[ hence limiting the number
- Adverts are attractive as they are hence not buy [1] hence come and buy in large of customers [1]
shown in colour [1] so can create numbers [1] leading to increased
impulse buying [1] leading to However TV adverts are sales [1]
increased sales and possibly expensive so this may increase However there is no audio
profits[1] operational costs of the * Relatively cheap [1] hence visual impact [1] leading to
business [1] leading to reduced reduces advertising costs [1] less people buying [1]
profits [1] leading to increased profits [1]
However poor quality print
* Information can be stored and may reduce the effectiveness
However most FM stations do referred to later/has long life span of the advert [1] hence less
RADIO not cover the whole country [1] hence help maintain awareness customers buying as the advert
- Wide coverage [1] leading to [1] so this may limit the [1] may be unattractive [1]
more customers buying [1] hence number of customers [1]
increase in sales [1] leading to reduced sales [1] However newspapers are

7
* Offer targeted marketing through general and do not appeal to a message [1]
certain pages [1] this help grab the particular group [1] LEAFLETS [for local advertising
attention of the viewers and may only]
end up buying the advertised However the leaflets have to
product [1] - Cheaper and easier to design [1] be handed from person to
hence low costs to the business [1] person [1] so this may lead to
MAGAZINES/CATALOGUE leading to increased profits [1] high distribution costs [1]
- Adverts are shown in colour and However there is absence of reducing profits [1]
in good quality paper [1] so can audio visual impact [1] leading - Advice and explanation can be
create inspiration and persuade to less people buying [1] given when necessary [1] hence However leaflets are quickly
customers to buy [1] able to persuade the customers to destroyed [1] so may not be
buy [1] effective [1]
- Have long life span [1] so it can However they have limited
help maintain awareness as it can readership/appeal to certain
be kept and referred to later [1] class of people [1] so this ADVERTISING AGENCIES
reduces the number of
- Offer targeted advertising [1] so customers [1] These are firms that specialize in the production, planning and
the message get to the right people However it is suitable for placing of advertisements on behalf of their clients.
who will end up buying [1] literate people only/ it is
infrequent [1] FUNCTIONS OF ADVERTISING AGENCIES
BILLBOARDS
 media planning and booking: they give advice and
* Low cost of production/cheap to However they are open to assistance on the choice of medium to be used that would be
advertise [1] therefore reduced vandalism/damaged by harsh most effective, they also reserve space and time on media
expenses for the business [1] hence weather conditions [1]  Design and production of adverts: they have fully staffed
increased profits [1] and computerized creative studio where they design creative
However there is no audio adverts to promote client’s products.
* Long life span/High repeat kinetic impact [1]  Client servicing: they have agency account executives who
exposure [1] which helps maintain communicate clients’ requirements to studio and media
awareness [1] departments to ensure that the adverts that are produced and
However there is creative placed fit the clients’ requirements.
* Can be shown in colour and in limitations as messages are  Market research: they carry out research to clarify public
large size[1] so it may be effective limited to simple short and opinion about a particular product and gain understanding on
as it can attract consumers to buy clear statements [1] so competitive product penetration, quality wanted by target
[1] customers may not get the full market for strategic planning.

8
  Consumer vigilance: consumers can protect themselves
WHY BUSINESSES MAY CHOOSE TO USE ADVERTISING from unscrupulous advertisers by acting rationally and
AGENCIES voluntarily

 To cut costs as it may not be economical for the RELATIONSHIP BETWEEN ADVERTISING.PACKAGING
business to have its full time advertising AND BRANDING
staff/department
 To make use of highly equipped and specialized staff  Branding and packaging help consumers to identify
of advertising agencies so as to produce effective products being advertised (brand name and
adverts. wrapping).
 They may not have the staff with the necessary  Branding and packaging do the advertising as the
expertise and experience in large scale advertising. packages have instructions on uses, sizes, effects,
qualities etc.
CODES OF ADVERTISING PRACTICE  Branded and packaged goods allow customers to
serve for themselves.
Rules which businesses voluntarily agree to keep but which have no  Most attractive packages attract customers.
legal status in order to avoid abuse of advertising by placing
misleading, exploitative and harmful adverts.

HOW ADVERTISING CAN BE CONTROLLED

 Legislation: raising of law by government that makes it

illegal to make false advertisement and setting out to
penalties to offenders.
 Media: can refuse to accept unsuitable adverts in their media
 Self-regulation: advertisers can come up with set standards
to be followed by members when advertising.

9
INSURANCE

Insurance is the protection given against a risk that we are not sure would occur but which if it occurs
would cause a financial loss.

Nature & Insurance Pool

Insurance works on the principle of “pooling of risks” This means that the premiums of many people pay
for the loss of a few people. Every business or person is faced with risks, pays a small amount of annual
In this way a fund (collection of premium or pool) is created at the insurance company out of this pool,
compensation can be paid to those who suffer financial losses. Thus the premium of many compensates
the loss of a few.

Dividends to insurance company

Shareholders (owners)

Premium paid Surplus funds

The insured Insurance

public and Pool Investment
businesses or (Premiums, in business
(policy Interest and activities
holders) Profits)
or lent out
Claims paid out Interest and profits

Running costs and expenses

(Salaries, rent, tax, stationery, transport etc.

Importance of insurance

1. Insurance enables the business to be compensated in case of financial loss that resulted from the
occurrence of a risk.
2. It provides businessmen with confidence to continue trading knowing they will be covered in
case they face a risk.
3. Insurance provides a saving plan and benefits the dependents of the assured in times of loss of
loved ones hence as they cannot remain suffering.
4. Insurance companies work as investors as they also lend money to businesses which generates
interest for the company to be used in different activities of the company.
5. Insurance helps individuals to overcome misfortunes like theft, damage of property as they get
compensated upon suffering a risk.

10
 6. It is an invisible export and it brings income to the country as well as improves the balance of
payment position.

Business Risks:
A risk is an event that causes financial loss. It could be fire, accident, burglary theft, death etc. There are
two types of risks:

1. Insurable risks: are those whose likelihood to occur can be predicted with accuracy. The prediction on
occurrence can be easily calculated on the basis of past experiences and statistics. A fair premium can be
fixed. For e.g. the incidence of robbery in a given region can be calculated on the basis of past statistics. It
is therefore possible for insurance companies to fix a fair premium, which will cover most claims.

2. Non-insurable risks: are those which cannot be assessed due to lack of records as their likelihood of
occurring is not known, hence cannot be calculated on the basis of past experiences and statistics. A fair
premium cannot be fixed so; the insurance companies do not provide cover for such risk. For e.g. Risk of
losses due to low sales cannot be accepted by insurance companies as they cannot be calculated on the
basis of past statistics. The loss of profit due to bad or poor management.

The importance of statistics and other information on in calculating risks and premiums
Statistics and other information are required to enable the insurance company to estimate the number of
people to be insured against a particular risk. It is therefore possible for insurance companies to fix a fair
premium which will cover most claims and even earn profit.

THE PRINCIPLES OF INSURANCE:

The operations of insurance are governed by a set of principles failure to comply with the principles may
make the policy null and void, in which case the insurance company would not pay any claim. The main
principles are:

1. The principle of indemnity:

Indemnity means that the insured must be restored to the same position as before the risk occurred.
Indemnity does not allow the insured to make profit out of insurance by over insuring or under insuring
as it is limited to the sum insured. It does not apply to life and personal accident.

i. Over insurance occurs when the insured insures his property for an amount more than the actual worth
of the property. E.g. A man insures his property which is worth only P10, 000 for P12, 000. Even if his
property is totally destroyed, the maximum compensation given will be only P10, 000 and not 12,000 as
insurance is a contract of indemnity.
ii. Under Insurance: is when the insured insures his property for an amount less than the actual worth of
the property. E.g. A man insures his property worth P10, 000 for P8000.00 if his properly is totally
destroyed, the maximum he could get is only P8000.00 and not P10, 000.

Indemnity works through three rules: namely, subrogation, contribution and average clause.
a. Subrogation: this means to take over the remains or scrap of the damaged property by the insurance
company so that the insured does not benefit from it as well. After paying the compensation by buying
Mr. Ben another car of similar value, model and the insurance company will subrogate the scrap because
Mr. Ben is not to make profit by selling the remains of the old car. This principle confers the rights of an
owner onto the insurer once the insurer makes payment of a claim.
Eg.2. if Mpho has insured his car against fire and in case of fire then Mpho gets compensated for
the loss by the insurance company. The damaged car remains can now be taken away by the
insurer who can sell it to the scrap yard for a price.

11
b. Contribution: Contribution applies when the same property is insured under two different companies.
In case of loss, each company would contribute half the value of the damaged or lost property to prevent
the insured from making profit out of insurance.
E.g. Mr. Ben insures his goods worth P1000 against fire with 2 insurance companies (P1000 with
each insurance company) In case of fire, Mr. Ben would receive a maximum of P1000, from both
the insurance companies jointly and P1000 from each insurance company because he cannot make
profit from insurance.

c. Average clause: A rule that prevents the insured from making a profit out of insurance by under
insuring their property. If the property is partly damaged, the company will only pay a fraction of the
repair costs since the property was partly insured and the insured will have to pay the balance.
E.g. if one insures a car worth P18, 000 for only 15000 and if it is later on partly damaged in an
accident such that it needs P6000 for repair, the insurance company would pay only P6000
Calculation: insured value x cost of repairs
Actual value
P15000 X P6000
P18000
= P5000 since the property was partly insured

2. Utmost good Faith; the principle compels both the insurer and the insured to be truthful or honest to
each other. The proposer must disclose fully all material facts known, in answering all questions in the
proposal form. Failure to disclose the whole truth will make the policy void and the insurance company
will refuse to pay compensation should a loss occur. The insurer must also show utmost good faith by
explaining in detail the nature of insurance contract and terms of the contract i.e. when the insured may or
may not be compensated.
Utmost good faith should be observed since the answers or information on the proposal form
enables the insurance company to:
- Assess the risk
- Decide whether to cover the risk or not
- Fix a fair premium
- Come up with an insurance contract which is fair to the insurer and the insured.

3. Insurable Interest:
It prevents the people from making profit out of insurance by insuring property that they do not own i.e.
property they have no direct interest and legal right to. The principle allows people to insure a property
for which they would personally suffer a financial loss if it is stolen or damaged.
Example: If you buy a car and later it is stolen, you will certainly suffer a financial loss [lost the
money you spent on the car]. This means you have insurable interest in your car, your sister or friend
cannot suffer any loss if the car is lost because she has no insurable interest in it.

4. Proximate Cause:
The insurance company will pay compensation if the loss suffered was caused by the risk that was
covered by the policy and the cause of the risk is within the precise terms of the policy.

E.g.1 If the goods stored in a warehouse are insured against fire and flood then the goods are lost or
damaged due to an earthquake, then no claim can be made.

E.g.2. If your house is insured against accidental fire then you deliberately decide to burn it down
yourself in order to get compensated, the insurance company will not pay any compensation because
you deliberately caused the fire, yet the house was insured against accidental fire.

12
CLASS EXERCISE
Q1. Mr. Jones insured a house worth P12000 with 3 insurance companies against the risk of fire.
Unfortunately the house caught fire and was totally destroyed.
a. How much would he be paid as compensation?
b. Calculate how much compensation would be paid by each insurer.
c. Give reasons why each insurer would not compensate him fully.

Q2. A house worth P12000 is insured for P10000. Later the house is partly damaged and the repairs
cost P9000.
a. Calculate how much compensation the insured would get from the insurer.
b. Give reasons to support your answer.

Q3. Mr. Pule rents a house in Gaborone. Explain why he can insure his property inside the house
against risks and not the house.

Q4. Mr. Pule insured his car against the risk of accident at P14000 and yet the actual value is
P17000.
a. How much would Mr. Pule receive as compensation if the car is totally destroyed in an accident?

Q5 A business insured its machine against fire and the building was broken into and the machine
was stolen
a. What do you think the insurer would do and why?

Q6. Frank insured a house against risk of fire. The house caught fire one day and in the process of
putting off the fire the next house was partly damaged.
a. Who would be compensated by the insurance company and why?

The insurance Premium – it’s the monthly payment made by the insured to the insurer in return for an
insurance cover.

Factors that determine the amount of premium to be charged

1. The amount of risk involved; the greater the likelihood of the risk occurring, the larger will be the
premium. The amount also depends on individual circumstances. E.g. A 50 year old driver with a clean
30 years accident free license will be charged a lower premium compared to an 18 year old with one year
‘s driving experience and has had 3 accidents.

2. The total number of people insuring against a certain risk: the more people come to insure against
a certain risk the lower the premium each of them will pay because the larger the number of people
contributing a small amount in premium leads to a large pool being created.

3. Claim free grouping: customers are grouped on how frequent they make claims; customers who do
not make a claim are rewarded by being put in a claim free group which entitles them for discount next
time they renew their policies.

4. Other factors depend on individual cases

e.g. –When insuring a car: they may consider age of the driver, type and cost of the car e.t.c.
- When insuring a house they may consider method of construction, contents location e.t.c
-When assuring life they may consider record of health, occupation, lifestyle e.t.c.

13
TYPES OF INSURANCE COVER

There are two types of insurance namely General Insurance and Life Assurance

1. GENERAL INSURANCE - it involves the following: Fire Insurance, Marine Insurance, Aviation
Insurance and Accident Insurance.

1. FIRE INSURANCE: It covers property against the risk of fire. The insurance company agrees to
compensate private individuals and businesses for damage to their buildings and contents caused by
accidental fire and not deliberate fire. The cover also caters for lightning and explosions are also covered
here and natural events like storms, floods and earthquakes.

The damage caused by water used to put off a fire on neighboring property is also covered by fire
insurance. For example, if fire had started in second floor of an apartment, and the water used to put it off
flows down to damage properties for people in the first floor, they would also be compensated.

2. ACCIDENT INSURANCE: It covers the risks of accidental damage to property and personal accident
and even burglary. There are two types of policies under this which are: Personal accident and Group
personal accident.

- Personal accident insurance: It covers the insured against partial or total disability arising from
accidental cause. E.g. Professional sports stars can take this insurance cover such that if they get injured
or get disabled while playing, and cannot play permanently or for a period of time, their income may be
compensated.

- Group personal accident: This policy provides a similar cover as in personal accident but only for
members of a particular group, e.g. a football team, dance troop or tourists.

3. LIABILITY INSURANCE: The branch of insurance provides cover against claims arising from the
deaths of or injuries to third parties as well as loss or damage to their property.
There are four policies under liability insurance which are:
i. Public liability insurance: The policy covers the business against claims made by members of the
general public who have suffered losses as a result of the fault of the business.
For example, a trader may put floor tiles, some of which are loose, on his or her shop floor and as a
customer gets in to buy goods she/he trips, fall and breaks a leg. The injured customers would claim
compensation from the trader.
ii. Employer’s liability (workmen compensation): This policy covers the business against claims
arising from the deaths or injury of an employee while on duty. This policy is necessary because some
occupations are very dangerous and may cause injury or illness to employees. This policy is required by
law and all businesses must have liability insurance certificate displayed at the work place, preferably at
the reception.

iii. Fidelity bond: This insurance covers the business against losses resulting from the dishonesty of the
business own employees. The insurance company can compensate losses arising from employee theft
provided it can obtain satisfactory reference about the employee’s character.
iv. Professional indemnity insurance: It protects businesses that sell knowledge and skills against
claims sought by a client if they have made mistakes or are found to have been negligent in some or all of
the services that they provide them e.g. law firms, advertising agencies.

14
4. PROPERTY INSURANCE: It includes household insurance, which is divided into two types namely
content insurance and building insurance.

- Contents insurance: It covers all moveable items in the insured’s home, e.g. Furniture, carpets, sports
equipment, records, TV and videos, jewellery, etc. against losses resulting from theft, fire, flooding,
lightning accidental damage and the like. The insured gets compensated the money equal to the value of
the goods at the time the risk occurred considering wear and tear i.e. they will give you enough money to
replace exactly what you have lost.
E.g. If your five year old LG flat screen TV gets stolen from your house, you will be paid enough
money to buy another five year old LG flat screen TV not a brand new one. However one can take a
policy that is called ‘new to old’ contents policy which offers a new replacement for lost items.

- Building insurance: This insurance covers you against any risk occurring to your house For example,
fire, explosion, damage by vehicles or aircraft, flood, Lightening and subsidence. It may also cover claims
for personal accidents and liability, especially if the building collapses and injures a person.

5. CASH IN TRANSIT: -it covers the loss of money from the business’s premises as well as when it is
being taken to the bank due to armed robbery or theft. The term money does not only refer to bank notes
and coins but it also includes cheques, postal orders, credit cards, vouchers e.t.c.

6. MOTOR INSURANCE
This covers the risks of fire, theft, accidental damage to the vehicle as well as loss to third parties who
happen to be traveling in the car or knocked down by the car of their belongings damaged in a car
accident. It has three main policies:

-Third party policy: It covers the death or bodily injury caused to third parties (passengers or other road
users) as well as damage to their properties. The policy is compulsory and a minimum legal requirement
for anyone buying a car.
-Third party fire and theft policy: It covers the insured against a risk of fire and theft, damage to the
vehicle and loss of properties in the vehicle as well as injury to or death of the insured. The premium is
higher than that in third party insurance.
- Comprehensive Policy: This is the most secure policy which covers third party, fire and theft, damage
to the vehicle and loss of properties in the vehicles as well as injury to or death of the insured.

7. MARINE INSURANCE
This is the insurance of mainly ships and their cargoes against perils at sea. These perils include fire,
theft, piracy, jettison, capture, and seizure, detention by government, bad weather, foundering and
collision. There are four types of marine insurance which are:

- Hull insurance: This form of marine insurance is useful in the event of loss of ship due to fire, accident
and sinking of the ship on the sea. It can be a time policy lasting twelve months or two years, or a voyage
policy lasting from port of departure to port of arrival.

- Cargo insurance: it covers goods which are being transported by a ship against loss or damage at sea.
The insurance may be covered on a particular trip or voyage. E.g. from London to Durban, or it may be
open to travel anywhere.

- Freight insurance: It covers the transport charges by the shipping company for carrying the goods. It is
usually paid in advance but the shipping company is entitled to it only if the cargo is safely delivered. If
the goods are not delivered for some reason, maybe because it was lost at sea, the shipping company may

15
face a claim not only for compensation for the goods lost but also for the refund of the freight charges (if
it was prepaid).

- Ship owner’s liability Insurance: It covers the ship owner against claims from third parties like
injury/death of passengers travelling in the, damage to loss of their property and damage to port facilities
or other ships.

8. BUSINESS INTERRUPTION/ LOSS OF PROFIT DUE TO FIRE / CONSEQUENCIAL LOSS

It covers the business against loss of profit due to fire which may lead to the business being temporarily
closed or forced to restrict production waiting for repairs to be completed. It also extends to cover risk
such as breakdown of machinery, accidental damage by vehicles/aircraft, power failure e.t.c

9. GOODS IN TRANSIT: It covers goods transported against risk of theft or damage by fire, water or
careless handling that may occur during transit.

2. LIFE ASSURANCE
The insurance of people’s life so that when they die their dependents may have some money to sustain
their needs. Principle of indemnity does not apply to life assurance because a dead person cannot be
brought back to life.

Types of Life Assurance Cover

1. Whole life policy – This is a policy under which a person assures his life for a certain sum of
money which will be paid to his dependents upon death. The assured decides the amount of
money they wants to assure their life for, and pays a certain amount of premium their entire
working life until they retire or dies.

2. Terms policy: This is a policy which covers a person for only a fixed period of time say 20
years. If the assured dies within the period of cover, the money is paid to their dependents but if
they live up to the end of the policy nothing is paid to the assured. The premiums here are
cheaper than in whole life policy because the insurer does not have to pay the insured anything if
they live up to the end of the period covered.

3. Life endowment policy: - Under this policy the assured is covered for a specific period of time
e.g. 20 years, if the person dies before the maturity date, the money is paid to him/her personally.
There are two types of this policy:

4. i) With profits policy assurance: the policy pays the assured the sum assured plus a bonus or
profits.
ii) Without profits: pays the assured a lump sum upon expiry of the cover.

5. Annuity Assurance: This policy provides regular payments to the assured from a fixed future
date until the person dies. A person may arrange for such payment to begin at his/her retirement
time. It is suitable policy for self-employed people who have no pension plan.

6. Group Policy – this policy mainly provides funeral expenses to members of a group. E.g.
Employees of a company.

7. Family Income Policy – under this policy if the policy holder dies, his dependents will be paid
an agreed sum at regular intervals for a specific period of time. This helps the spouse to continue
providing for kids until they can fend for themselves.

16
 8. Educational policy: taken out by people for their children’s education in future. The policy pays
out educational expenses.

INSURANCE BROKERS AND AGENTS

1. Insurance Agents: Agents who work on behalf of the insurance company. They never handle
premiums but are paid directly to the insurance company. They are paid commission based on the number
of clients they have found. They deal with life policies only.

2. Insurance brokers: these are also agents but mostly companies whose work is to link those seeking
insurance cover and the insurance company. They are paid a commission based on the amount of
collected from the insured (usually 15%)

3. Underwriters: Underwriters are people who accept insurance risks (i.e.) they insure by themselves.
This means that they receive insurance premiums from their clients in exchange for the insurance cover
and if the risk occurs they pay out compensation from their own pockets. However if no risk occurs they
enjoy the premiums collected.

INSURANCE DOCUMENTS

1. The proposal form: It is an application form supplied by the insurance company where the proposer
fills it, answering all the questions asked in good faith. Its purpose is to collect the information from the
proposer which would assist the insurance company to make an assessment of the risk and calculate a fair
premium to be paid.

2. Cover note: This is a document that proves that the two parties have entered into an agreement. It is
issued on the same day the contract is signed and acts as a temporary policy document.

3. Insurance policy: The insurance policy is the final document that is issued by the insurance company.
It clearly states the terms and conditions under which the contract has been entered into as well as the
obligations of both parties.

4. Claim form: It is a form used for making claims when the risk has occurred. It is filled by the claimant
giving all the details of the risk and amount of loss suffered.

5. Police Report: A document from the police that a claimant must get which explain the cause of the
accident and point whose fault it was and the actions taken to try and reduce the loss. It accompanies the
claim form. The police carry out a thorough investigation to determine the circumstances and cause of the
accident.

PROCEDURE OF BUYING INSURANCE

To insure one’s property:
1. The proposer must approach the insurance company directly or can go through an insurance broker.
2. The proposer would be given a proposal form to full in, where he has to give full, accurate and detailed
information about the risk being insured against.
3. The insurance broker then investigates, assesses the risk being covered and calculates the premium to
be charged.
4. Upon payment of premium the proposer is now insured, who is then given a cover note.
5. The full policy would be issued within a month or so.

17
6. At the end of period of cover, the insurance company issues a renewal notice to remind the insured to
pay a further premium.

PROCEDURE INVOLVED IN MAKING CLAIMS.

If the risk insured against occurs, the insured shall at his own expense
1. Inform the police of the event or loss of property
2. Notify the insurance company as soon as possible
3. Complete a claim form giving full details of the loss suffered.
4. The insurance company will arrange to inspect the damage to assess and determine the extent of loss
suffered, and compare it with the sum claimed. This is done by qualified assessors.
5. An agreement of loss is signed by the client.
6. The insurance company then settles the claims by paying out a monetary compensation to the insured.

BOTSWANA EXPORT CREDIT INSURANCE: (BECI)

This insurance covers exporters who sell goods to foreign buyers on credit against the risk of not being
paid by their foreign customers BECI thus enables exporters to sell on credit to foreign buyers knowing
that they would be compensated in case their foreign customers fail to pay.

REASONS WHY FOREIGN CUSTOMER MAY FAIL TO PAY

i. Lack of foreign exchange or insolvency

ii. Due to political problems such as civil wars or the foreign government has prevented the buyer from
paying.

BECI’s new function includes the protection of exporting businesses and private businesses selling
locally against the risk of loss due to non-payment by their customers.

ADVANTAGES OF BECI
It diversifies the export market of the country, Export credit insurance enables exporter to take on more
business and reach new market by offering competitive credit terms without having BECI in Botswana is
offered by Export Credit Insurance and Guarantee Company, Botswana (PTY) Limited or (BECI) for
short. It is a 100% wholly owned subsidiary of Botswana Development Corporation (BDC) formed to
underwrite export credits and develop non-traditional exports to worry about being paid.
1. BECI can help exporters to obtain information on their prospective foreign buyers.
2. The insurance can provide useful security for exporters to obtain export finance from their banks.

Reinsurance: Reinsurance is the spreading of risk to other insurance company. E.g. If an insurance
company accepts a risk which is considers to be far too big for it to cover alone, it can reinsure it with
another company, in which case the premium collected would be partly passed on to the other company.
If the risk occurs the two insurance companies would share it according to the percentage of cover
granted by each.

18
COMMUNICATION

This is the process of transmitting information from one place to another. It can take written, oral,
visual or physical forms. There are two branches of communication namely-postal services and
telecommunication services.

The benefit of fast and accurate transmission of commercial information to commerce

 It enables a manager to issue instructions to staff. This helps them to communicate politely so the
business will also operate smoothly and effectively.
 It enables the businessmen to instruct one another about the delivery of raw materials or goods e.t.c to
prevent waste of time in production.
 It enables the businessman to gain knowledge about price and conditions in other markets in order
that they can compete favorably
 Communication provides a link between the businessman and other markets in the world and this
helps the businessman to enlarge his market
 The businessman can deal with enquiries as well as complaints from his customers
 Communication enables quick and rapid exchange of information which increases the efficiency of
business. Managers can issue instructions to their subordinates for the smooth and efficient running of
the business.

Postal services
1. Letter Post: - a businessman can send written information to his customers or suppliers through the
post office. He/she has to buy the correct amount of stamp and affix this on the envelope before
posting. The letter may be posted FIRST class which implies that the letter is delivered overnight. A
SECOND class mail is not so urgent so it is delivered within three days Letters weighing 750 grams
or more will be treated by the post office as second-class mail.
2. Business Reply service: - This is a special service provided by the post office to businessmen who
want to encourage replies to is questionnaires or advertisements. The businessman first obtains a
license from the postmaster to use the service. He then sends self-addressed envelopes showing his
license number to his customers to mail their replies. The businessman pays for the cost of postage on
all replies received at the post office. In addition he pays certain fixed charge for utilizing the service.
3. Freepost: - a businessman who wishes to encourage responses to his advert on his products applies to
the post office for a license to use the freepost service. Respondents are instructed to send their replies
to a special address with the word “freepost" written below the addressee's name. The post office
charges a fee for providing the service.
4. Registered letter: - a businessman who wants to send valuables to another businessman through the
office must first register the letter or parcel at the post office before mailing. The businessman or
sender has to mark the envelope or parcel with a cross on both the front and back before presenting it
to the postal clerk. The postal clerk then enters the name and address of the addressee in a special
registration receipt book. A copy of the receipt is given to the sender. The letter "R" and the receipt
number are written on the letter to be posted. The cost of posting the letter is higher than that of an
ordinary letter. When the letter arrives at its destination, the addressee is sent a registration slip or
receipt informing him of the arrival of his registered article. The addressee is expected to report at the

19
 post office with the slip and a personal identification before being given his letter or parcel. If a
registered item is lost is the post, the post office pays compensation to the sender.

5. Cash on delivery: This is a service provided to mail order companies. The post office undertakes to
collect payment on behalf of the businessman at the time goods are delivered to the buyer. This
means that if the buyer does not pay for goods, he cannot take delivery of them. The mail order
company is protected from incurring bad debt. The post office charges a fee for providing the service
to the mail order companies.
6. Franking machines: These are special portable machines used for posting letters in place of stamps.
The machine makes some wavy lines on the envelope where stamps are normally affixed. Businesses
that deal with a large volume of correspondence apply to the post office for permission to lease or
purchase a franking machine. The machine has a meter which records the number of letters passed
through it so that the businessman pays the correct amount to the post office when the machine is
taken there for reading of the meter. A businessman may also prepay for the cost of postage and if the
amount is used up he/she has to pay more money to the post office to continue using the service.
7. Expedited Mail Service (Courier service): This is a cheap courier service provided by the post
office for businessmen to send their letters and parcels. The sender has to complete a special address
slip at the post office stating his particulars including his phone or fax number and the particulars of
the addressee including his/her phone number. A record of the time of delivery of the letter or parcel
is made. A copy of the slip is affixed on the EMS envelope supplied by the post office for dispatching
the mail. When the letter or parcel arrives at its destination, the addressee is contacted by the quickest
means for fast delivery.
8. Poste restante: This service is provided to a person visiting a town but he/she does not know where
he/she will be staying. The person contacts the post office to apply for the use of the service. His/her
letters have to be addressed to the main post office in the town and the inscription poste restante has
to be indicated on the letter. The letters are kept at a special counter with poste written across. The
addressee has to call personally at the post office to collect his or her mail.
Example of poste restante: J.Tebogo
Poste Restante
Post Office
Gaborone
Botswana
9. Express mail: A businessman who wants his letter to be delivered urgently to a supplier or customer
will pay extra for the letter to be labeled 'EXPRESS' in order that it is sent by the fastest available
means to its destination.
10. Private box: a businessman may apply to the post office to rent a private box. If the request is
granted, he is given a box number and keys to the box so that he can collect his/her letter anytime.
11. Data post: The post office delivers packages overnight from door to door. The packages are
transported by road to their destination Packages can be collected and returned at pre-arranged times.
12. Airmail service: this service is provided to businessmen who want to send letters or parcels abroad.
The mail is transported using air transport. The postage charge is higher than that for surface mail.
13. Surface mail: These letters are sent by rail, ships, and boats or by trucks. The cost of postage is low.
14. Parcel post: This service is used for posting large or heavy items. Although the post office has a
weight restriction a special arrangement can be made for much larger and heavier items. A postage
forward service is also available where the receiver pays for the cost of postage. A license has to be
obtained to use this service.
15. Other services: Philatelic services: the post office sells decorative stamps commemorating some
special events. These stamps are not for posting letters but for stamp collection.

20
16. Financial services: the post office assists businessmen and individuals to send money by using postal
orders or money order. Agency services payment of old age pension, Botswana savings bank,
Department of Transport, Department of Customs, Botswana Telecommunications Corporation and
The Red Cross.

PAYMENTS THROUGH THE POST OFFICE

a) National Giro Bank: This is a facility for making payments which allows monetary transfers between
account holders.

b) Postal orders: This is a facility offered by the post office for sending small amounts of money. The
post office provides postal forms to be filled in by the sender indicating the name of the payee, the post
office of payment e.g. Monarch Post Office. The orders are marked not negotiable as this protects the
payee should the postal order be stolen.

c) A crossed postal order cannot be cashed over the counter but it has to be paid into the bank account. It
is a safe way of sending amount of money and a small commission is made for using this facility.

d) Money Orders: These are used for sending much more money and the commission charge by the
postal office is higher than postal order service. Money needed urgently can be sent through telegraphic
money orders. The sender pays telegram charges and supplementary fees.

The post office instructs the post office by telegram to pay a certain amount of money to the payee. The
sender may add extra message for an extra cost.

FACTORS AFFECTING THE CHOICE OF MEDIUM OF COMMUNICATION

a) Speed of transmission: If communication is urgently needed then express mail delivery should be faster
than ordinary mail. However, if faster and instant communication is required, a telephone, telex or fax can
be used.

b) Cost of medium: where two methods are equal in efficiency, the cheapest can be used.
Mail services are the cheapest while telecommunication services are sophisticated and expensive.

c) Safety of medium: to ensure that information is received it is sometimes necessary to send by

registered post which is very useful for sending legal documents such as certificates, cheques e.t.c. where
acknowledgement of receipt of the document is important.

d) Record of information: A letter, telex, fax will serve as a best method as it keeps record of transmission
and such can be used in a court of law. A telephone does not keep a record of the message sent.

e) Accuracy of information: For accuracy sake, a telex, or letter can be used as they convey a full message
unlike a telephone or telegram which economizes on the usage of words. When detailed information is
required e.g. when exact copies of the original can be sent electronically by a telefax, is can be more
accurate too.

f) Length of message: If the length of the message is long. Verbal communication would not be
appropriate as the receiver would not be able to remember all the details so written information would be
necessary such as telex, fax, and e.t.c.

21
g) Nature of the message: Some messages need confidentiality or secrecy while others can be displayed
for anyone. Letters especially registered mails are more confidential.

TELECOMMUNICATION

In Botswana, telecommunication services are provided by Botswana Telecommunication Corporation.

Telephone: This is an instrument that enables a businessman to contact his partners and other businesses
both locally and abroad to discuss business issues. The subscriber Trunk Dialing (STD) enables the
businessman to dial directly without passing his call through the operator. The telephone provides many
services to the user. This includes answering services, voicemail for receiving and recording messages
while the line is busy with another call, redirecting calls to another number and toll free service
(Freefone)

Advantages:
1. It is a very fast means of communication
2. It is easy to use
3. It is cheap for local calls
4. It allows discussion or dialogue for efficient resolution of problems and misunderstanding

Disadvantages:

1. There is no written record of the transaction therefore further confirmation has to be made in
writing.
2. They are expensive over long distances especially in the case of international calls.

Facsimile transmission (Fax): This is a special machine that is connected to the telephone system for
sending exact copies of documents. In order to send a message to his partner, the businessman will dial
the fax number of the partner after putting the document he wants to send into the fax machines. The
businessman presses the start button of his fax machine and if the partner's fax is not busy, the document
is immediately reproduced in the partner's office.

Advantages:

1. It is a fast means of communication

2. It is easy to use It provides a written or permanent record of the transaction
3. The businessman can send exact copies of drawings and plans to his partner
4. Multiple copies of a document can be sent at the same time
5. It is cheaper to use than the telephone
6. The message can be delivered even if the office is closed
7. The machine may be used as a photocopier

Disadvantages:

1. It does not allow for secrecy because anyone in the office can read the message unless codes
have been used.
2. It does not allow for dialogue

Telegram:

22
It is used to send urgent messages. The businessman who wants to send a message will go to the post
office to complete a telegram form IN addition to the message to be sent, the businessman has to write the
name and address of the addressee.
There is a flat charge for the first thirteen words. Any additional words are charged per word. The
message is transmitted from the sending post office to the addressee’s post office using telephone, a fax
or telegraph. The message is written on a new telegram form and delivered to the addressee.

Advantages

1. It is a fast means of communication

2. It provides a written record

Disadvantages

1. The message is usually brief because of the cost

2. The message may be misinterpreted
3. The message cannot be sent if the post office has closed.

Confravision or Videoconferencing:

Businessmen is different locations can arrange a joint meeting without physically coming together
although they can see and hear each other. The conference room of each group is a special studio with
speakers and a screen to enable the groups to hear and see each other.

Advantages:

1. Decisions can be made quickly due to dialogue

2. It provides both visual and audio impact
3. It reduces the need to travel and the payment of hotel bills for management staff
4. Top management staff do not have to leave their duty post during meetings
5. There is a reduction in the organization’s budget for travel and hotel

Inter-com system

This is communication within a particular building but not between different geographical areas.
The system is made up of loudspeakers located at strategic positions in the building and linked to a
central circuit. Messages are transmitted form the central circuit and these are echoed throughout the
building by the loudspeakers.

Advantages:

1. It is easy to operate
2. It is a fast means of communication

Disadvantages

1. It is a one way communication therefore no dialogue can take place.

2. The message is not limited to the receiver only therefore it may be disruptive.
3. There is no selectivity

Voice mail

23
This is a special service offered by the telecommunication authority. It allows both subscribers and non-
subscribers to receive and leave messages through a voicemail box.
To be connected to the service, the businessman must first register with Botswana telecoms and receive a
voicemail box number. In order to send a message to a subscriber, you dial his voicemail number and
leave the message. In order to receive the message, the owner of the mail box dials his secret code
number to access the messages that have been left.

Advantages:

1. It provides 24 hour service

2. Both subscribers to private telephones and non-subscribers can use the service.
3. The service is cheap
4. It allows for privacy
5. It can store up to twenty messages at a time

Radio paging

This is a service that allows a businessman to be contracted through a beeper which he carries.
If the businessman is needed, his number is dialed and his beeper automatically alerts him to make
contract. In some cases the beeper flashes a message to the businessman.
The radio pagers are connected to telephone lines and airwaves.

Advantages

1. It is a fast means of communication

2. It provides 24 hours service

Disadvantages

1. It does not allow for dialogue

2. The person carrying the beeper has to use a telephone to make contact with the sender of the
message

Internet service

This is a worldwide communication network by which individuals as well as businesses can

communicate. The businessman's computer is connected via telephone lines to a modem. This allows him
to access others on the internet and also to find information on web.

Advantages:
1. Information on a wide range of topics can be accessed information on the websites.
2. Business can advertise and sell their goods and services
3. It is used it to obtain suppliers
4. It is used it to obtain assistance
5. It helps to speed up communication
6. The businessman can order goods from the comfort of his home or office

Disadvantages

1. It contains a lot of uncensored information

24
 2. If the correct address is not used, the search for relevant information may be futile.

Electronic mail (e-mail)

This is an electronic communication system similar to the internet except that the e-mail allows for
personalized communication.
To communicate using the e-mail, a businessman must have his own e-mail address. Messages are sent
and received by typing on the computer and posting the message electronically.

Advantages

1. It can be used to send files, graphics, audio and video files

2. It is a fast means of communication
3. It is easy to used provided one can type
4. A hardcopy of the message can be kept for future reference

Disadvantages

1. It is expensive to use.

Datel
Similar to the internet except that it is not global. It connects a company's computers to those of its
branches. Information can be transmitted from one branch of the company to another branch in foreign
country. It is suitable for multinationals and chain stores.

Advantages

1. Fast means of communication

Toll free service

This is a telephone service where the business man provides a telephone number for customers to dial
when they have complaints or want some information. The cost of the telephone call is paid by the
business.

Telex
The sender types the message on the telex machine and it is printed by a teleprinter in the receiver's
office.

Advantages
1. Fast method of communication
2. Provides written record

V-sat Network
This is a communication network connecting computers of a company's with those of branches through a
satellite.

Advantages
1. It is fast

25
2. It is very flexible suitable for both short and long messages.
3. Extends to remote areas
4. It can be easily relocated.

The benefit of fast and accurate transmission of commercial information

1. Mangers can issue instructions to their employees to promote efficiency in the organization.
2. Appropriate business decisions can be made quickly.
3. Orders can be received and sent quickly so production is not delayed.
4. Firms can contact suppliers for rapid delivery of inputs for production.
5. Complaints and queries from customers can be dealt with quickly
6. Businesses can expand their market to include overseas markets.
7. It has created an efficient banking and financial system.

Factors to consider in choosing and method of communication

1. Cost: A businessman will choose the cheaper method of communication to reduce his expenses

2. Speed of transmission: A business will choose the fastest method of communication for urgently
needed messages or information

3. Accuracy of information: If exact copies of documents or messages e.t.c are required, the
businessman will use a fax, telex or letter post.

4. Record of information: if the businessman wants to keep a record of the transaction or message, the
telex, fax e.t.c may be used as opposed to the telephone.

5. Safety: when sending important business documents e.t.c, it is better to use a registered mail or EMS
especially if the businessman wants to be certain that the information will be received by the addressee.

TRANSPORT

It is the movement of people, goods, raw materials and equipment from one place to another.

EXPLAIN THE IMPORTANCE OF TRANSPORT

 It enables workers to efficiently move to and from work so as to start production on time[1] hence
increased productivity.[1]
 It levels out supply by transferring goods from where they are produced to where they are
needed[1] thereby preventing scarcity which can push the prices of goods.[1]
 Enables goods to reach the right place at the right time and in the right condition [1]so as to
satisfy human needs and wants.[1]
 It provides opportunities for mass production and foreign trade[1] leading to cheaper goods for
consumers hence high standard of living.[1]
 Reduce the amount of capital and storage of space required by producers[1] by delivering goods
regularly and quickly.[1]

IDENTIFY THE MODE OF TRANSPORT SYTEMS USED IN HOME AND FOREIGN TRADE

a. land- comprises of road transport and rail transport

b. pipelines

26
 c. air transport
d. water transport-made up of sea and inland waterways

EXPLAIN THE FACTORS AFFECTING THE CHOICE OF TRANSPORT

 Cost- as transport cost is going to be included in the final price of goods so it must be
considered seriously. Expensive transport is suitable for valuable goods like diamonds,
medicine and jewellery while cheaper transport is suitable for cheap and bulky goods
such as grains, coal, timber and bricks.
 Urgency/speed- if goods are urgently needed the quickest means like air is used but if
goods are not urgently needed then slower modes of transport like rail and sea can be
used in order to cut costs.
 Distance- for short distance road transport is preferable as it offers door to door service,
for longer distances rail and sea transport are more economical.
 nature of goods- some goods such as pottery and glass products are fragile while others
such as meat, bread and fresh milk or fish are perishable and need quick delivery ;
therefore specially constructed trucks are used fort the goods.
 size and weight of the goods- bulky goods such as coal, iron ore, timber are transported
by rail and canals in home trade and by sea in foreign trade. In some cases road transport
can be used where big trucks specially designed for carrying heavy abnormal goods are
used.
 Safety- the chances of theft and damage of goods are more in some other modes of
transport. As for fragile goods rail transport cannot be used. This kind of risk can be
reduced by using containers.
 Terminal-it means where the journey begins and ends, such as railway station, sea port
or airport. Terminals may not be an important consideration in road transport as it offers
door to door service, but in others they will be a need of other forms of transport to
complete the journey, which will increase the overall cost of transport.
 The reputation of the carrier.

1. ROAD TRANSPORT

ADVANTAGES OF ROAD TRANSPORT

 It offers door to door service[1] which help reduce chances of damage and theft[1]
however crossing national borders can be slow and inefficient.[1]
 It is flexible[1] as different shapes and sizes of vans and trucks can be used to all kinds of
needs[1] however the capacity of haulage is always limited to few tones.[1]
 It does not follow a fixed time[1] schedule so goods can be moved as and when ready and
on any route to meet customer needs on time[1] however it is more easily disrupted by
bad weather.[1]
 It is relatively cheap for smaller loads and over short distance[1] so less money is
spent[1] however the direct vehicle operating costs are high such as licensing, fuel and
maintenance[1]
 It can reach places which are isolated, not easy to reach
 Fewer documentation needed

DISADVANTAGES OF ROAD TRANSPORT

 It is slower than rail over long distances because of delays caused by traffic congestion
 The social costs of road transport is very high as costs arising from accidents, and air
pollution from exhaust pipes
 Road journeys may be slowed down due to poor weather conditions

27
  Restrictions of driving hours, tonnage of trucks, speed makes to unsuitable in certain cases
 The direct vehicles operating costs are high such as drivers’ wages, motor vehicle licensing
e.t.c

TYPES OF ROAD VEHICLES

 Refrigerated lorry- used to carry perishables that needs to be kept cool and fresh
 Delivery van-used for short distance delivery of small loads
 Container lorry- used for transporting goods that are fragile and need protection
 Heavy good vehicles- used for bulky and heavy goods over long distances.
 Earth moving like tippers used by building contractors to transport sand, crushed rocks etc.

NEW DEVELOPMENTS IN ROAD TRANSPORT

 The development of roads and motorways which bypass towns and villages[1] to reduce
traffic congestion.[1]
 Traffic lights[1] which help control movement of vehicles.[1]
 Better policing of the roads[1] to improve safety[1]
 Introduction of cleaner fuel like unleaded petrol[1] so as to reduce air pollution.[1]
 Introduction of better, faster and more reliable trucks with bigger size.[1] which allow
carriage of more/bulky goods[1]

OWN FLEET- having own trucks/vehicles for delivering goods and collecting raw materials

ADVANTAGES OF OPERATING OWN FLEET

 Goods may be taken care of/protected as they are under the control of the business driver[1]
hence reduced damage[1] however drivers have to be paid regularly which increases
operational costs[1]
 Business can respond quickly to customer’s orders[1] hence satisfied customers[1] however
delays may be caused by traffic congestion.[1]
 Sides of the vehicles can be used for advertising the business[1] hence reduced advertising
costs[1] however it is expensive to operate own fleet of vehicles because of maintenance, fuel
etc[1]
 Flexible deliveries as one delivery trip may be arranged to made several stopovers to deliver
goods to different customers[1] hence reduced transport costs[1] however long distance
deliveries to overseas customers may not be possible.[1]
 Less documentation[1]- only a delivery note is required[1]
 Can be cheaper if the business produces enough goods to keep the trucks busy[1]

DISADVANTAGES OF OPERATING OWN FLEET

 Costly to provide garages and maintenance
 May be expensive if output is small
 Long distance deliveries to overseas customers may be impossible
 Traffic congestion may delay deliveries

2. RAIL TRANSPORT

ADVANTAGES OF RAIL TRANSPORT

 It is faster and more effective than road over long distance[1] hence timely delivery of
goods[1] however it has limited coverage of the country as there are few railway lines across
the country.[1]

28
  It can carry a larger quantity of goods in one trip[1] hence reduced costs[1] however it cannot
carry /long and extra wide goods.[1]
 It is less likely to be disrupted by bad weather conditions[1] hence faster deliveries[1]
however it follows a fixed timetable.[1]
 Special containers are available for specialized items like oil and livestock[1] however costs
tend to be high for short distances.[1]

DISADVANTAGES OF RAIL TRANSPORT

 It cannot deliver goods door-to -door
 It is not flexible as it follows a fixed time table and a definite route
 It is not suitable for emergency situations that require urgent delivery of goods
 Trans-shipment is necessary at the beginning and end of the rail journey hence increased
costs as well as higher risks of damage of goods
 Limited coverage of the country
 It is slower than road transport due to single way tracks

NEW DEVELOPMENTS IN RAIL TRANSPORT

 Freight liners[1]- these are container carrying trains which link up with special road and sea
terminals, and can be loaded and unloaded quickly by cranes.[1]
 Introduction of more comfortable passenger coaches[1] has increased passenger traffic.[1]
 Use of computers to monitor the operation of trains[1] has reduced costs and also improved
efficiency and volume of rail traffic.[1]

3. AIR TRANSPORT

ADVANTAGES OF AIR TRANSPORT

 air is the fastest form of transport for sending goods over long distances (1) suitable for goods
which are urgently needed (1) however it is sensitive to bad weather
 insurance and packaging costs are lower (1) as transit time is short and there is lower risk of
damage and theft of goods (1) however it is an expensive means of transport
 saves a lot of time and money (1) because both land and sea can be crossed in one journey
without the need to transfer goods from one mode of transport to another (1) however cannot
deliver door to door

Disadvantages of Air Transport

 a very expensive means of transport
 aircraft has got a limited carrying capacity both in weight, size and volume
 sensitive to bad weather
 causes pollution, especially noise
 not flexible, follows a fixed time-table

New Trends in Air Transport

 the building of larger and faster aircraft (1) hence increased loading capacity
 improved loading through large doors at the nose and tail (1) hence reduced loading time
 improvement of storage and cargo handling facilities (1) hence high levels of security
 improved landing and navigation systems such as ‘autopilot’ (1) which improves safety
 introduction of special light weight containers for air cargoes (1) which are used to speed up
cargo loading and unloading at airports

29
  improved design of the fuselage and engine (1) hence increased fuel economy

4. SEA TRANSPORT

ADVANTAGES OF SEA TRANSPORT

 it is a cheaper means of transport over long distances (1) which saves operation costs (1) however
bad weather can cause serious delays and losses at sea
 very large quantities of goods can be carries in one shipload (1) hence cost per unit of goods
transported comes down (1) however prone to sea pirates
 the use of container ships increase safety of goods (1) since it minimizes handling of goods on
transit (1) however trans-shipment is inevitable
 tramp ships provide a very flexible service (1) as they are not bound to a fixed time table and
route (1) however does not offer door to door service

DISADVANTAGES OF SEA TRANSPORT

 it is very slow, hence it is not suitable for urgently required goods such as medical supplies.
 it does not offer door to door service
 bad weather can cause serious delays and losses at sea
 packaging of goods will be expensive as the goods have to be well packaged to protect them
against damage on transit
 goods can be easily lost or damaged because of large tonnage carried
 restricted to areas with access to sea hence land locked countries do not get the full benefits of sea
transport
 it requires other forms of transport to take the goods to and from sea ports (trans-shipment) this
increases the cost of shipment as well as the risk of loss and damage of goods on transit.

There are four main types of ships that are available to offer sea transport

i) Passenger liners- these are ships for carrying people, although they may also carry
cargo. They follow fixed routes and keep to a regular timetable. They charge higher
freight costs, so most freights are limited to high value cargoes only. The main
advantage is that they are regular, so transport can be planned ahead and space
booked.
ii) Cargo liners- these ships are used for delivering goods although they may also carry
few passengers. They follow fixed routes and regular timetable. Their charges are
fixed jointly by shipping conferences
iii) Tramp ships- this is a cargo ship which does not belong to any special line of
service or sail to any special place. It is normally hired or chartered by those who
want to transport their goods. A charter party agreement is signed between the ship
owner and the trader. Charges are based on space available, weight and distance.

Ways of hiring a tramp

a. Time charter- in this the ship is hired for a specific period of time e.g. two months, six months etc…
b. Voyage charter- here the ship is hired for a particular trip or voyage.

iv) Specialized vessel and general cargo- there are a variety of purpose built ships for carrying special
types of cargoes e.g.

30
a. bulk carriers- this ships are used for mainly carrying large quantities of one item e.g. refrigerated
ships for fresh produce.
b. tankers- they are used to carry liquids, especially oil. They maximize safety and simplify loading and
unloading of the liquids. Their large size helps to cut costs of transporting large amounts of oil.
c. roll on roll off ferries- these ships are specially designed to allow vehicles to drive on and off without
difficulty. They are used for short trips. They provide door to door without time consuming loading and
unloading of goods. They cut costs and reduce the chances of loss and damage of goods on transit.
d. container ships- this ships are used to carry large standardized containers that can be loaded and
unloaded by means of cranes.
e. coastal shipping- it is an alternative to inland transport for bulk trade. it is used by countries which
have long coast lines e.g. from Durban to Cape Town to send goods such as timber, coal, wheat, maize
etc..

New Trends in Sea Transport

 Introduction of merchandised cargo handling equipment hence efficient loading and
unloading of cargo
 The building of more sea ports worldwide hence increased international
transportation of goods by sea
 The development of Freeport and removal of custom barriers hence reduced costs of
sea transport

5. INLAND WATERWAYS

This is transport by lake, rivers, canals and dams using boats. Mainly goods such as timber, sand,
drinking water, coal are transported from one place to another through inland water ways. e.g. in East
Africa, a lot of trade is carried out over lake Victoria which is shared by three countries (Uganda, Kenya
and Tanzania)

Advantages of inland waterways

 It is cheaper than other modes of transport (1) because of low energy/fuel cost which
reduce costs however labour cost is high in relation to short distances
 It is suitable for fragile goods like glass ware, chinaware and pottery (1) because it
provides smooth carriage (1) however it is very slow because of restricted speed of
barges
 Barges can efficiently carry large loads of bulky goods such as coal, cement etc. (1)
which reduces costs (1) however canals can be very narrow and cannot take wide
barges

Disadvantages of inland waterways

 it reaches only a limited number of locations

 it is very slow because of the restricted speed of barges
 many canals are very narrow and cannot take wide barges
 labour cost is high in relation to short distances
 in winter the waterways can freeze and stop transport completely
 canals are very expensive to maintain

6. PIPELINES
Pipelines are used for transporting water, gas and oil without using vehicles. In Botswana it is used by the
Water Utilities Corporation to supply water to their customers.

31
Advantages of Pipelines
 reduce the risk of pollution especially for oil (1) hence create a toxin free environment
however are expensive to install
 increase the safety in the transportation of flammable liquids (1) which is attractive and
safe (1) however they are often attacked in cases of conflict
 pipelines can be erected on land or laid under water (1) there by saving space (1) however
are vulnerable to sabotage
 economize in the use of trucks (1) hence reduce the traffic congestion on roads (1)
however are highly specialized [only transport a limited range of goods]

Disadvantages of Pipelines
 pipelines are vulnerable to sabotage during conflict
 pipelines are expensive to install
 pipelines are highly specialized

7. CONTAINERASATION
It means the use of containers to carry goods. Containers are standardized strong metal boxes used to
pack goods ready for transport and can be carried by trucks, rails or ships. Goods are packed into
containers at the factory and delivered direct to the destinations. Containers have provided firms with a
fast, cheap and reliable method of transporting large quantities of goods.

Disadvantages of Containerization
 It is expensive to establish container ports
 Not all modes are standardized to carry containers hence more costs since the business
still have to hire standardized trucks and ships
 Not economical for carrying small loads as there would be wastage of space
 Many bulky goods such as timber are unsuitable for transportation in containers

PORTS

Ports include sea ports, air ports and dry ports. They are provided by independent organizations

Importance – they provide

- A place where goods in transit can be temporarily stored
- A place where cargo can be prepared for the next stage of the journey
- A place where cargo can be loaded and unloaded
- It’s a place where the journey begin or end
Facilities provided by port authorities

i) Good transport connection inland- they link the port to the inland and rail way networks by a system.
ii) Mechanized handling facilities like gantry and wharf chains are used for speedy discharge and loading
of vessels.
iii) Warehouse and office buildings for shipping companies, banks, restaurants, customs and immigration
authorities.
iv Ship repair yards
v) Sheltered docking and deep water access.
vi) Specialized facilities for handling certain cargos such as timber, loose grains, coal e.t.c

32
a. Sea Ports – port authorities are responsible for ships to dock, load, unload, fuel and get other
provisions efficiently. These facilities affect not only the efficiency but also the cost of sea transport.

Importance of seaport facilities

 Enable ship to dock, load, unload, and refuel
 Efficient cargo handling saves the time of ships and reduces the dock and freight costs
 Enables goods to be imported and exported efficiently increasing the volume of world
trade

b) Air Ports- in most developing countries, airports are state owned through parastatal bodies. In
Botswana, the Dept. of Civil Aviation is providing airport facilities.

The role of the department of Civil Aviation

 to provide the safety, security, efficiency and regularity of air transport services
 to develop, design, construct, install and manage all civil aviation infrastructure and air
ports facilities
 to develop and implement national civil aviation laws, policies and regulations

c) Dry Port facility- Botswana Railways have established GABCON (Gaborone Container Terminal) for
locally based importers and exporters. Similar Dry Port facilities has been established in Francistown and
Selebi-Phikwe.

Importance of Dry Port facilities

 It offers door-to-door delivery service direct from the port to a company’s warehouse.
 They reduce the average delivery time by avoiding clearance formalities at the port
because the clearing of paperwork is done in advance before the goods arrive.

FINANCE AND BANKING

METHODS OF PAYMENT IN BOTSWANA

1. Cash: anything which is generally accepted as a medium of exchange and as a means of settling debts
and obligations.
-It is universally acceptable so no one can refuse to accept cash as a means of payment however it
attracts the attention of thieves

-It simplifies transactions since it reduces the time spent in exchanging of goods and services however it
is not suitable to be sent or posted to the payee

-It encourages people to give you discount which reduces expenses however Fake bank notes can be
easily used by dishonest people to pay your company.

2 Cheques: -Cheques are safer and more convenient-because they can be written for any amount since
they are not bulky-this reduces the risk of carrying large sums of money.

-The clearing of cheques provides proof of payment so no receipts are required when paying by cheque
however -wastes time since they need to be taken and deposited into the bank account

33
-Cheques are numbered so they can be traced if lost or stolen however cheques can be safely sent by post
especially when crossed which is convenient however they may be valueless if the drawer does not have
enough money in his/her account

-Cheque stabs that remain in the cheque book allows for easy banks reconciliation-They are no practical
when paying small amounts

3. Money orders: this is a means of payment through the post office where a sender fills in a money
order form stating the amount they want to send. The money order is then faxed to the paying office. The
payee is given a notifying slip with the amount to be paid to him/her.

Advantages - it is very quick because it can be faxed however network failure may delay payment.

4. Postal orders: these are post office documents issued in lieu of cash issued in specific denominations.
The sender fills it in and posts it to the payee who then takes it to the named office to get cash. A fee
called poundage is paid by the sender.

Adv.- they are safe since money is obtained from the post office however poundage is paid.

5. Credit transfers: -facility provided to current account holders for making regular payments directly
into the payee’s account. It can be used to make both single and multiple payments to large numbers of
people.

Advantages of credit transfer facility

-leads to improved administration, less reconciliation and less errors for the business
-There is no restriction on the number of payees
-It is quicker and safer since one does not have to carry money to make payment.
-There is no chance of dishonoured cheques which reduces penalties

6. Debit cards: These are ATM cards that can also be used to buy goods and services from participating
businesses.-Debit cards do not entitle holders to obtain credits but to spend money they have in their
accounts.

Adv- they are safe since they can be cancelled when lost or stolen however a small commission is paid
for the service.

7. Credit card: This is a card that enables the holder to buy goods and services on credit from certain
businesses
Advantages of credit cards
-They provide easy credit to the card holder which enables them to get goods whenever they need them
however not all businesses accept credit cards
-Convenience- cards are quicker and cheaper to use than cheque books however they are prone to fraud.
-Cards are globally recognised which allows one to buy from cheaper international suppliers however a
fee is charged for the service.
-Provides fast access to cash which is convenient however some bad debts may occur

8. Bill of exchange: -These are usually drawn for a future date, either for 3 months or more.

34
-They are used where the buyer requires short term credit but the seller is not prepared to give it.
-The seller draws up the bill setting out the debt and demanding payment in the stated period and gives
the buyer for acceptance.
-By signing the bill the buyer acknowledges the debt and promises payment on maturity date.
-If the buyer has a good reputation and record, banks can accept and discount such a bill.

9. Standing orders: a facility used when making regular payments, of fixed amounts on fixed dates.
Importance: -the bank will not forget to make such regular payments on the client’s behalf which
reduces the penalty of interests from creditors hence reducing expenses.

10. Direct debits:-a facility used for making regular payments of varying amounts and varying intervals.
Importance
-it is the payee to initiate payment, which reduces incidents of bad debts.
-it is convenient to the debtor who does not need to remember to make regular payments.
- It saves the business clerical work since the bank does this on its behalf thus saving time for other
business needs.

11. Cable transfers: – a system whereby a customer’s computer is linked to the bank’s main computer
system which enable the customer to carry his/her banking transactions in the comfort of his/her home

Importance
- Works 24 hours hence customers can assess services at any time however on-line fraud is prevalent
- Convenient since can check balances/make payments in the comfort of your home however can be
affected by power cuts/computer virus
- Easy to process data since can download account information to analyze on your computer however it
requires installation of special banking software on the computer
- It is cost effective since charges are often lower than for ordinary account however it needs internet

12. Documentary credit: the facility guarantees payment to the exporter in advance of despatching
goods and the importer is made certain that the ownership of the goods is assured before payment can be
made.

13. Letter of credit: it is commonly used in foreign trade. This is an order from a domestic bank to a
foreign bank, authorising payment of a certain amount to a named person.
Importance
-it helps guard against default by the importer since the credit worthiness of the importer is not known
however it can be revoked or cancelled by the importer
-it gives the exporter guarantee of payment before he/she hands over the documents to the importers’
bank.
-the importer knows for sure he/she would have ownership of the goods before payment is made.

14. Bankers ‘draft: this is a cheque drawn by a bank on itself and is made payable to someone you want
to pay.
Adv: the exporter has more confidence in receiving payment since the cheque is guaranteed by the bank.

35
 THE CENTRAL BANK

The bank is run by the governor and the board of directors. The governor is appointed by the State
president. It is the nation’s banker and its main customers are commercial banks and the government.

Functions of the central bank

I. Issuing bank notes and coins: The BOB is responsible for arranging the printing, minting, storing and
circulation of notes and coins.

ii. Keeping the government’s account: The government has an account with the BOB from which
payments are made and to which revenues are deposited the central bank looks after the government’s
money and maintains the government’s account.
iii. Servicing the national debt: The central bank manages loans borrowed by Botswana from other
countries and international financial institutions such as World Bank and IMF.

Iv .Lender of last Resort: The central bank can lend money to commercial banks as a last resort, if they
cannot get money from any other source.

v. The banker’s bank: All commercial banks have a deposit account at the central bank from which they
can replenish their cash stock and pay debts owed to other banks.

COMMERCIAL BANKS

Functions of commercial banks

1. Safe keeping of money-to protect it from theft, Fire, floods e.t.c

2. Making and receiving Payments: through cheques, Bank giro, standing orders, direct debit and
remittances which is convenient.

3. Lending Money-In the form of loans and overdrafts to start or expand the business.

Types of accounts offered by commercial banks

1. DEPOSIT ACCOUNT: it is an account suitable for keeping temporary liquid capital or money which
one does not want to use immediately.
-A high interest is paid by the bank depending on the amount deposited and duration
-No ledger fees and cheque books
-To withdraw money, seven days’ notice is given to the bank

2. FIXED DEPOSIT ACCOUNT: This is an account with a fixed investment period, ranging from one
to twelve months. The money cannot be withdrawn before the expiry date. The minimum deposit varies
from bank to bank

Features of a fixed deposit account

-Money is deposited for a fixed period of time

-Interest rates are fixed for the duration of the deposit
-Interest is paid by the bank at the end of the period

36
-Customers can choose to reinvest their money with or without interest

3. SAVINGS ACCOUNT

-Provides a safe place for people to keep their money until they need it.
-It is intended for small savers with regular incomes but do not qualify for current accounts.
-Has a low opening and low minimum balance
-No cheque books issued

4. CURRENT ACCOUNT: This is a non- interest bearing account which provides cheque books and
cash cards.

Features of a current account

-It is available to persons over the age of 21 with a regular monthly income, companies, clubs, societies,
trustees, partnerships and religious bodies
-Cheque books are issued to customers
-Account holders pay a ledger fee
-It offers free bank statements at regular intervals
-Current account holders are eligible for other banking services such as credit transfer, standing orders
direct debiting and overdraft facilities

5. CALL ACCOUNT: This is an immediate access deposit account with a high minimum balance of
over P10 000 in the case of Barclays Bank. It is available to all businesses and personal customers. High
interest is earned from the account

Features

-Balances are transferred to and from a current account on request.

-Interest is paid on balances even though the money is deposited for a short term
-funds are available on demand
-Tiered interest rates is paid according to the size of the deposit held.

6. PREMIUM DEPOSIT ACCOUNT: This is a deposit account which pays a special rate of interest. It
is available to all high value personal customers clubs, societies, and associations. It is not available to
business customers.

Features

-It has a high minimum balance. E.g. Barclays is P2500.

-Interest on daily balance is paid quarterly
-Provides instant access to cash
- No restriction on the amount or number of withdrawals as long as the minimum balance is maintained.
-No ledger fees charged
-Customers are served from current account tills.

IMPORTANCE OF SAVING TO THE INDIVIDUAL AND THE COUNTRY

-it is a process by which capital is accumulated, thus people save and create wealth.

37
-Provide cash for emergencies such as draught, floods etc.

METHODS OF MAKING PAYMENTS ON BEHALF OF CUSTOMERS

1. Cheques:
2. Bank giro
3. Standing/ stop order
4. Direct debit
5. REMITTANCES- Travellers’ cheques, credit cards, debit card, Telegraphic transfers, Bankers ‘draft,
Bank guaranteed cheque:
THE USE OF COMPUTERS IN BANKING

-Store data-e.g. customer account details, sales records, stock control, bills
-Process data- e.g. prepare wages, prepare accounts on software such as EXCEL, ACCPAC to provide
meaningful reports
-Carry out business correspondence with branches which saves time
-Advertise and market their services and products on the internet which increase their sales

DIFFERENCES BETWEEN A BANK LOAN AND OVERDRAFT

Loan Overdraft
-is usually used for the purchase of capital items -used for short-term financial needs such as
e.g. buying motor vehicles buying stock
-collateral or security is needed - security is not needed
-interest is charged on the full amount -interest is only charged on the exact amount
overdrawn
-expensive way of borrowing -cheaper way of borrowing
-when a loan is granted a separate loan account is -no separate account is opened
opened
-money put in a current account does not reduce -money put in a current account reduces the
the loan balance overdraft balance

FACTORS CONSIDERED BY THE BANK BEFORE GRANTING A LOAN

-The applicant’s ability to repay the loan based on their income

-The security pledged by the customer
-In case of a business loan, the viability of the project, cash flow projections and the purpose

OTHER FINANCIAL INSTITUTIONS

These are non-bank financial institutions which also provide a wide range of services.

1. BOTSWANA SAVINGS BANK:-It is an independent national financial institution, wholly owned by

the government which operates through the post office.
-It provides ways of saving for the small saver and provides financial services to all people of Botswana
under the supervision of the bank of Botswana.
-provides savings accounts and basic banking services

38
2. BOTSWANA BUILDING SOCIETY:-It is owned by shareholders, It Provides long term loans for
the purchase or building of houses.
ROLES
-Provides Batswana with access to finance to acquire affordable home ownership
-encourage savers to own shares in the society
-contribute and participate in, the growth, prosperity and future of the society and nation

3. NATIONAL DEVELOPMENT BANK-NDB: it was established by the government to offer finance

for risky ventures where banks are reluctant to provide fund e.g. in agriculture and industrial sectors.it
gets funds from the government and does not accept deposits from the public
-The loans have fixed interest and for longer periods than commercial banks.

4. BOTSWANA DEVELOPMENT CORPORATION:-Provides venture or start-up capital to

businesses in the form of shares to help businesses begin operating or expand.
-It also gives advice on how to set up and run businesses.

5. MERCHANT BANKS:-African Banking Corporation is the merchant bank in Botswana

Functions

-arranges loans to companies

-dealing in international finance
-buying and selling shares
-Launching new companies on the stock exchange

6. MICRO LENDERS:-sometimes called loan sharks; people or organisations that offer illegal or
unsecured loans at high interest rates to people who cannot get loans from mainstream lending institutions
like banks.

THE CHEQUE SYSTEM

A cheque is an unconditional order to the bank to pay a certain amount to the named person or company
or his/her order.
Parties to a cheque
Drawer: a person who has a current account with the bank and writes the cheque to withdraw his/her
deposits.
Drawee: the bank which the cheque is drawn from.
Payee: the person named on the cheque to whom it is made payable.

TYPES OF CHEQUES

These are bearer cheque and order cheque.

Bearer cheque Order cheque

- This is a cheque made payable to the bearer i.e. This is cheque made payable to the named person
anyone who presents it to the bank. or organisation or to their order.
-The order reads: Pay.............or bearer. The order reads: Pay.................or order
-It is not a safe means of payment since anyone -It is a safe means of making payments but good
who presents it to the bank would be paid for someone with a bank account
-cannot be transferred by endorsement -can be transferred by endorsement

39
CHEQUE CROSSINGS

-Refers to drawing two parallel lines on the face of the cheque to ensure that the cheque is deposited into
a bank account not cashed over the counter. This is a secure way of paying someone by cheque.

TYPES OF CHEQUE CROSSINGS

1. General Crossing
-This is when two lines are drawn across the face of the cheque. The phrases ‘Account payee only’ or
‘And company’ or ‘not negotiable’ may be added between the parallel lines.
-This means that the cheque can only be deposited into a bank account

ii) Special crossing

-This is when the parallel lines are drawn down the face of the cheque with the name of the payees’ bank
and branch written in between the lines.
-This means that the cheque can only be paid into the named branch

Endorsement of cheques: means to sign it at the back in order to transfer the right of payment to a third
party.

Dishonoured cheques: This is when the bank refuses to make payment to the named person, organisation
or their order. Instead the bank teller would write RD meaning refer to drawer on the face of the cheque
and return it to the payee. Such a cheque is known as a dishonoured cheque.

Reasons for dishonouring cheques

-The signature on the cheque differs from the specimen provided to the bank
-The drawer has stopped payment
-The drawer has already closed the account
-The bank has been notified of death, insanity or bankruptcy of the drawer

40
-the cheque has some error e.g. date is not written
-The drawer does not have enough money in his or her account
-The amount in words differs from that in figures.
-It is stale
-It is post dated

THE CLEARING OF CHEQUES

This is when banks come together and settle the amounts they owe each other as a result of their
customer’s business transactions. This takes place in a clearing house at the central bank

WAYS BY WHICH BANKS CLEAR CHEQUES

1. Branch or local clearing

Takes place where both the payee and drawer keep their money at the same bank and same branch. The
bank simply transfers the amount from the drawer’s account to the payee’s account.
-the cheque does not need to go to the clearing house

ii) Internal or in-house clearing

-This occurs when the payee and the drawer have accounts in the same bank but different branches.
-The cheque is sent to the bank’s central clearing department at is headquarters
-The cheque does not need to go to the clearing house

iii) Town clearing

-This occurs when two or more banks are involved but all of them are in one town or city
-The cheques passes through the clearing house but are cleared on the same day rather than taking many
days.

iv) General or national clearing

-This takes place when two or more banks are involved and they are not all in one town.

41
STEP 3 Cheque sorted and sent to Cheques exchanged between
clearing house banks

Step 2 Cheque sent to bank’s Cheque returned to its

headquarters
headquarters

Customers pay by cheque Cheque sent back to its

and cheque is deposited at branch and debited from
the bank customer’s account

42