An old system of credit trading which enables people to buy goods on credit without entering into a hire purchase agreement or opening a credit account with the supplier. Prospective purchasers 'buy' checks from a company (usually a finance company), which they pay for over an agreed period. These checks can then be used for the purchase of goods at retailers who have 'joined' the scheme. The retailer then redelivers the checks to the financing company, which will give cash for them after making a service charge, i.e. it discounts hem much as a discount house will buy bills of exchange.
The financing company may lose on some defaulting customers but stands to gain on three counts: (1) its discount charge to thc retailer; (2) its charge, if any, to the cus- y tomer; (3) the investment benefits on the monies paid in by the customers (in the same way as a bank can profit from monies held on current accounts), which although individually fluctuating represent a fairly large constant balance in hand.
|Reference: The Penguin Business Dictionary, 3rd edt.|