Internal Trade and its Types

What is Internal Trade?

Internal trade is the trade of buying and selling of goods and services within the borders of a country. Internal trade takes place when goods are purchased from an individual or establishment within a country, such as a neighborhood shop, a central market, a department store, a mall, or even a door-to-door salesperson or an exhibition. There are no customs or import duties levied on such trade because the goods are part of domestic production and intended for domestic consumption. Payment must be made in the country’s legal tender or any other acceptable currency.

Wholesalers buy and sell goods and services in large quantities, and retailers buy in smaller portions from them; eventually, customers buy from the retailer in the quantity required. Both retailers and traders play an important role in the internal trade market. They serve as intermediaries, carrying out the basic distribution function. They serve as the deliverer of goods to the final consumers. Internal trade functions to equitably distribute goods throughout the country at a reasonable cost and good speed.

Manufacturers, wholesalers, and retailers are the three main constituents of internal trade. Manufacturers are responsible for producing goods on a large scale, wholesalers are responsible for purchasing goods in bulk from manufacturers, and retailers are able to purchase goods in smaller quantities from wholesalers and selling them directly to customers. All of these are connected to one another.

Types of Internal Trade

Internal trade is divided into two broad categories: 1. Wholesale trade and 2. Retail trade.

1. Wholesale Trade:

Wholesale trade is the buying and selling of large quantities of goods and services for resale or intermediate use. Wholesaling refers to the activities of individuals or businesses that sell to retailers and other merchants, as well as industrial, institutional, and commercial users, but do not sell in significant quantities to target consumers. Wholesalers play an important role in connecting manufacturers and retailers. They allow producers to not only reach a large number of buyers spread across a large geographical area (via retailers), but also to perform a variety of functions in the distribution of goods and services. They usually take ownership of the goods and bear the business risks by buying and selling them in their own name. They buy in bulk and sell to retailers or industrial users in small lots.

They perform a variety of tasks such as grading products, packing them into smaller lots, storing them, transporting them, promoting goods, gathering market information, collecting small and scattered orders from retailers, and distributing supplies to them. They also relieve retailers of the burden of maintaining a large stock of articles and provide credit to them. The majority of wholesalers’ functions are non-cancellable. If no wholesalers exist, these functions must be performed by either manufacturers or retailers.

2. Retail Trade:

A retailer is a business that sells goods and services directly to the final consumers. The retailer typically purchases goods in large quantities from wholesalers and sells them in small quantities to ultimate consumers. Retail is the final stage of distribution wherein goods are transferred from the hands of manufacturers or wholesalers to the final consumers or users. Retailing is the branch of business that deals with the sale of goods and services to end users for personal and non-commercial purposes.

A retailer performs functions in the distribution of goods and services. He or she buys a variety of products from wholesale distributors and others, arranges for proper storage of goods, and sells the goods in small quantities, bear business risks, grades products, gathers market information, extends credit to buyers, and promotes product sales through displays, participation in various schemes, and so on.

Important terms of Trade

• Cash on delivery (COD): It is a type of transaction in which payment is made for goods or services at the time of delivery. If the buyer is unable to pay when the goods or services are delivered, the goods or services will be returned to the seller.
• Free on Board or Free on Rail (FoB or FOR): It refers to a contract between the seller and the buyer in which the seller agrees to bear all expenses up to the point of delivery to a carrier (which could be a ship, rail, lorry, etc.).
• Cost, Insurance and Freight (CFF): It is the price of goods that includes not only the cost of goods but also the insurance and freight charges that must be paid on goods up to the destination port.
• Errors and Omissions Excepted(E&OE): It refers to the term used in trade documents to indicate that mistakes and things that are forgotten should be taken into account.