Class XIth Business Studies

CHAPTER 4 BUSINESS SERVICES

It has already been stated that commerce consists of trade and auxiliaries to trade. Auxiliaries or aids to
trade refer to the activities related to the buying and selling of goods and services. These auxiliaries to
trade are also known as business services or facilities. These services are essential and indispensable for the
smooth flow of trade and industry. The examples of business services are Banking, insurance, transport,
Warehousing , Advertisement and communication.
NATURE OF BUSINESS SERVICES:
1. Intangibility: Cannot be seen, touched or smelled. Just can only be felt, yet their benefits can be availed
of e.g. Treatment by doctor.
2. Inconsistency: Different customers have different demands & expectation.e.g. Mobile services/Beauty
Parlour.
3. In Separability: Production and consumption are performed simultaneously .For e.g. ATM may replace
clerk but presence of customer is must.
4. No Inventory : Services cannot be stored for future use or performed earlier to be consumed at a later
date. e.g. underutilized capacity of hotels and airlines during slack demand cannot be stored for future
when there will be a peak demand.
5. Involvement: Participation of the customer in the service delivery is a must e.g. A customer can get the
service modified according to specific requirement.
Type of Services:
1. Social Services: Provided voluntarily to achieve certain goals e.g. healthcare and education services
provided by NGOs.
2. Personal Services: Services which are experienced differently by different customers. e.g. tourism,
restaurants etc.
3. Business Services: Services used by business enterprises to conduct their activities smoothly. e.g.
Banking, Insurance, communication, Warehousing and transportation.
Banks -
A bank is an institution which deals in money and credit. It collects deposits from the public and supplies
credit, thereby facilitating exchange. It also performs many other functions like credit creation, agency
function, general services etc Hence ,a Bank is an organization which accepts deposits, lends money and
perform other agency functions.
FUNCTIONS OF COMMERCIAL BANK
A - Primary Function B - Secondary Function
Primary Functions
1. Accepting Deposits: Accepting deposits is the main function of commercial banks. Banks offer
different types of Bank accounts to suit the requirements and needs of different customers.
Different types of Bank accounts are as follows:
A. Fixed Deposit Account.
B. Current Deposit Account
C. Saving Deposit Account
D. Recurring Deposit Account
2. Lending Money - with the help of money collected through various types of deposits, commercial banks
lend finance to businessman, farmers, and others. The main ways of lending money are as follows:
A. Term Loans.
B. Bank Overdraft
C. Cash Credit:
D. Discounting of Bill of Exchange
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The secondary functions of commercial banks are as under:
(1) Agent Functions- As an agent of its customers a commercial bank provides the following services:
(I) Collecting bills of exchange, promissory notes and cheques.
(II) Collecting dividends, interest etc.
(Ill) Buying and selling shares, debentures and other securities.
(IV) Payment of interest, insurance premium etc.
(V) Transferring funds from one branch to another and from one place to another.
(VI) Acting as an agent of representative while dealing with other banks and financial institutions. A
Commercial banks performs the above functions on behalf of and as per the instructions of its customers.
(2) General Utility Functions:
Commercial banks also perform the following miscellaneous functions
(I) Providing lockers for safe custody of jewellery and other valuables of customers.
(II) Giving references about the financial position of customers.
(III) Providing information to a customer about the credit worthiness of other customers.
(IV) Supplying various types of trade information useful to customer.
(V) Issuing letter of credit, pay orders, bank draft, credit cards and travellers cheques to customers.
ELECTRONIC BANKING SERVICES/E-BANKING-
Use of computers and internet in the functioning of the banks is called electronic banking. Because of these
services the customers don't need to go to the bank every time for every transaction. He can make
transactions with the bank at any time and from any place. The chief electronic services are the following:
1. Electronic Fund Transfer: Under it, a bank transfers wages and salaries directly from the company s
account to the accounts of employees of the company. The other examples of electronic transfer are online
payment of electricity bill, water bill, insurance premium, house tax etc.
2. Automatic Teller Machines: (ATMs) ATM is an automatic machine with the help of which money can be
withdrawn or deposited by inserting the card and entering personal Identity Number (PIN). This machine
operates for all the 24 hours.
3. Debit Card: A Debit Card is issued to customers in lieu of his money deposited in the bank. The
customers can make immediate payment of goods purchased or services obtained on the basis of his debit
card provided the terminal facility is available with the seller.
4. Credit Card: A. bank issues a credit card to those of its customers who enjoy good reputation. This is a
sort of overdraft facility. With the help of this card ,the holder can buy goods or obtain services up to a
certain amount even without having sufficient deposit in their bank accounts.
Benefits of E-Banking to customer:
1. E-Banking provides 24 hours a day X 365 days a year services to the customers.
2. Customers can make transactions from office or house or while travelling via mobile telephone.
3. There is greater customer satisfactions through I-I-banking as it offers unlimited access and great security
as they can avoid travelling with cash.
Benefits of E-Banking to Banks:
1. E-Banking lowers the transaction cost.
2. Load on branches can be reduced by establishing centralized data base.
3. E-Banking provides competitive advantage to the bank, adds value to the banking relationship.
Meaning of insurance:
Insurance is a contract under which one party (lnsureror i.e,Insurance Company) agrees in return of a
consideration (Insurance premium) to pay an agreed sum of money to another party (Insured) to make
good for a loss, damage or injury to something of value in which the insured has financial interest as a
result of some uncertain event.
Principles of Insurance: These principles are :
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1. Utmost Good Faith: lnsurance contracts are based upon mutual trust and confidence between the
insurer and the insured. It is a condition of every insurance contract that both the parties i.e.insurer and
the insured must disclose every material fact and information related to insurance contract to each other.
2. insurable interest: lt means some pecuniary interest in the subject matter of insurance contract. The
insured must have insurable interest in the subject matter of insurance i.e., life or property insured the
insured will have to incur loss due to this damage and insured will be benefitted if full security is being
provided. A businessman has insurable interest in his house, stock, his own life and that of his wife, children
etc.
3. Indemnity: Principle of indemnity applies to all contracts except the contract of life insurance because
estimation regarding loss of life cannot be made. The objective of contract of insurance is to compensate to
the insured for the actual loss he has incurred. These contracts ‘provide security from loss and no profit can
be made out of these contracts.
4. Proximate Cause: The insurance company will compensate for the loss incurred by the insured due to
reasons mentioned in insurance policy. But if losses are incurred due to reasons not mentioned in
insurance policy than principle of proximate cause or the nearest cause is followed.
5. Subrogation: This principle applies to all insurance contracts which are contracts of indemnity. As per this
principle, when any insurance company compensates the insured for loss of any of his property, then all
rights related to that property automatically gets transferred to insurance company.
6. Contribution: According to this principle if a person has taken more than one insurance policy for the
same risk then all the insurers will contribute the amount of loss in proportion to the amount assured by
each of them and compensate for the actual amount of loss because he has no right to recover more than
the full amount of his actual loss.
7. Mitigation: According to this principle the insured must take reasonable steps to minimize the loss or
damage to the insured property otherwise the claim from the insurance company may be lost.
Types of insurance
1.Life Insurance
2. General Insurance – a)Fire Insurance, b) Marine Insurance, c)Other Insurance
Concept of Life Insurance:
Under life insurance the amount of Insurance is paid on the maturity of policy or the death of policy holder
whichever is earlier. If the policy holder survives till maturity he enjoys the amount of insurance. If he dies
before maturity then the insurance claim helps in maintenance of his family. The insurance company
insures the life of a person in exchange for a premium which may be paid in one lump sum or periodically
say yearly, half yearly quarterly or monthly.
Types of Life Insurance Policies:
1. Whole Life Policy: Under this policy the sum insured is not payable earlier than death of the insured. The
sum becomes payable to the heir of the deceased.
2. Endowment Life Insurance Policy: Under this policy the insures undertakes to pay the assured to his heirs
or nominees a specified summon the attainment of a particular age or on his death whichever is earlier.
3. Joint Life Policy: It involves the insurance of two or more lives simultaneously. The policy money is
payable on the death of any one olives assured and the assured sum will be payable to the survivor or
survivors.
4. Annuity Policy: This policy is one under which amount is payable in monthly, quarterly, half yearly or
annual installments after the assured attains a certain age. This is useful to those who prefer a regular
income after a certain age.
5. Children's Endowment Policy: This policy is taken for the purpose of education of children or to meet
marriage expenses. The insurer agrees to pay a assured sum when the child attains a certain age.
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Fire Insurance: It provides safety against loss from fire. If property of insured gets damaged due to
property as compensation from insurance company. If no such event happens, then no claim shall be given.
Marine Insurance: Marine Insurance provides protection against loss during sea voyage. The businessmen
can get his ship insured by paying the premium fixed by the insurance company. The functional principles of
marine insurance are the same as the general principles of Insurance.
OTHER INSURANCE
Health Insurance: With a lot of awareness today, Health insurance has gained a lot of popularity. General
Insurance companies provide special health insurance policies such as Mediclaim for the general public. The
insurance company charges a nominal premium every year and in return undertakes to provide up to
stipulated amount for the treatment of certain diseases such as heart problem, cancer, etc.
Communication: In this fast moving and competitive world it is essential to have advanced technology
for quick exchange of information with the help of electronic media. It is an important service that helps in
establishing links between businessmen. Organization, suppliers, customers etc. It educates people, widen
their knowledge and broaden their outlook. It overcomes the problem of distance between people,
businessmen and institutions and thus ,it helps in smooth running of business activities. The main services
can be classified into postal and telecom.
Postal Services: This service is required by every business to send and receive letters, market reports,
parcel, money order etc. on regular. All these services are provided by the post and telegraph offices
scattered throughout the country. The postal department performs the following services.
1. Financial Services :They provide postal banking facilities to the general public and mobilize their savings
through the following saving schemes like public provident fund (PPF), Kisan Vikas Patra, National Saving
Certificate, Recurring Deposit Scheme and Money Order facility.
2. Mail Services :The mail services offered by post offices includes transmission of messages through post
cards, Inland letters, envelops etc.
The various mail services are:
a. UPC (under postal certificate): When ordinary letters are posted the post office does not issue any
receipt. However, if sender wants to have proof then a certificate can be obtained from the post office on
payment of prescribed fee. This paper now serves as a evidence of posting the letters.
b. Registered Post: Sometimes we want to ensure that our mail is definitely delivered to the addressee
otherwise it should come back to us. In such situations the post office offers registered post facility which
serves as a proof that mail has been posed.
c. Parcel: Transmission of articles from one place to another in the form of parcels is known as parcel post.
Postal charges vary according to the weight of the parcels.
Allied Postal Services
1. Greetings Post: Greetings can be sent through post offices to people at different places.
2. Media Post: Cooperates can advertise their brands through post cards, envelops etc.
3. Speed Post: It allows speedy transmission of articles (within 24 hours) to people in specified cities.
4. e-bill post: The post offices collect payment of bills on behalf of BSNL and other organizations.
5. Courier Services: Letters, documents, parcels etc. can be sent through the courier service.lt being a
private service the employees work with more responsibility.
Telecom Services: Today's global business world, the dream of doing business across the world, will
remain a dream only in the absence of telecom services.
The various types of telecom services are
1. Cellular mobile services: cordless mobile communication device including voice and non-voice messages,
data services and PCO services.
2. Radio Paging Services means of transmitting information to persons even when they are mobile.
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3. Fixed Line Services includes voice and non-voice messages and data services to establish linkage for long
distance traffic.
4. Cable services Linkages and switched services within a licensed area of operation to operate media
services which are essentially one way entertainment related services.
5. VSAT Service (Very small Aperture Terminal) is a Satellite based communication service. It offers
government and business agencies a highly flexible and reliable communication solution in both urban and
rural areas.
6. DTH Services (Direct to Home) a Satellite based media services provided by cellular companies with the
help of small dish antenna and a setup box.
Transportation Transportation comprises freight services together with supporting and auxiliary
services by all the modes of transportation i.e rail, road, air and sea for the movement of goods and
international carriage of passengers.
Warehousing: The warehouse was initially viewed as a static unit for keeping and storing goods in a
scientific and systematic manner so as to maintain their original quality, value and usefulness.