What Are The Instruments Of Credit?

The main in the street ordinarily thinks that paper money and metallic coins are the main media of exchange. The fact is that credit is playing a dominant role in the modern business by transferring money to the borrowers and then subsequently back to the lenders. There are numerous ways by which the credit can be extended. Some of them involve the use of credit instruments and in certain cases the credit is extended without any written contract. The main instruments of credit are pay roll credit, book credit and written instruments.

Pay roll credit is also called oral agreement. In advanced and developing countries of the world, some credit is extended to individuals, friends, and businesses associates without keeping any record or documents. The agreement to pay back the money is purely oral. If a borrower refuses to pay the money the creditor cannot prove the existence of any obligation. Oral agreements are mostly confined to small loans. Open book account merely consists of entries on the books of business concerns. These entries appear as an account receivable on the books of lender and as an account payable on the books of the borrower. The main advantage claimed for he book account is that it is very simple and speedy way of carrying on the business transactions.