Category: Commerce Notes PPT

Economics is broadly divided into two different categories namely microeconomics and macroeconomics.  Microeconomics is the study of specific segments and markets of an economy. It looks at the issues like consumer behavior, individual labor market, and theory of firms. On the other hand, macroeconomics is the study of the whole economy. It looks at the aggregate variables such as aggregate demand, national output, and inflation. Read the article below to know more about the difference between Microeconomics and Macroeconomics with examples.

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What is Microeconomics?

Microeconomics focuses on the choices made by individual consumers as well as businesses concerning the fluctuating cost of goods and services in an economy. Microeconomics covers several aspects, such as – 

• Supply and demand for goods in different marketplaces.

• Consumer behaviour, as an individual or as a group.

• Demand for service and labour, including individual labour markets, demand, and determinants like the wage of an employee.

One of the main features of microeconomics is it focuses on casual situations when a marketplace experiences certain changes in the existing conditions. It takes a bottom-up approach to analyse the economy.

What are the Different Components of Microeconomics?

The different components of microeconomics include:

• Market demand and supply (For example Textile)

• Consumer Behavior ( for example Consumer Choice Theory)

• Producers are driven by individual preferences.

• Market-specific labor markets ( For example demand labor wage determination in specific markets).

What is Macroeconomics?

Macroeconomics studies the economic progress and steps taken by a nation. It also includes the study of policies and other influencing factors that affect the economy as a whole. Macroeconomics follows a top-down approach, and involves strategies like – 

• The overall economic growth of a country.

• Reasons that are likely to influence unemployment and inflation.

• Fiscal policies are likely to influence factors like interest rates.

• Effect of globalization and international trade.

• Reasons that affect varying economic growths among countries.

Another feature of macroeconomics is that it focuses on aggregated growth and its economic correlation.

What are the Different Components of Macroeconomics?

The different components of macroeconomics include:

• National Output

• Unemployment

• Inflation

How do Microeconomics and Macroeconomics Interdependent on Each Other?

The two parts of Economics i.e. microeconomic and macroeconomics are not interrelated but are mutually exclusive. A close connection exists between the two terms. All microeconomic studies can analyze the better understanding of micro and macroeconomics variables. Such a study will help in the formulation of economic policies and programs. As we know, changes and processes in the economy are a result of both small and large-scale elements which retain the capacity to affect each other or are directly affected by each other.  For example: Although the tax increase is a macroeconomic decision, its impact on firms ‘ savings is a microeconomics analysis.

Let us understand another example: if we know how the price of any commodity is determined and what is the role of buyer and seller in the price determination then it would help us in analyzing the changes that take place in the general price level for all commodities in the economy as a whole. A study of determining the price of a commodity and the role of buyers and sellers in this process is known as microeconomics whereas the study of the general price level in economics is a macroeconomic process. Similarly, if we want to determine the performance of an economy we will first have to find out the performance of each sector of the economy, and to find out the performance of each sector of the economy we have to find out the performance of each sector individually or in groups. A study of each sector of a production unit or each group is a microeconomics study whereas the study of all the production units of all the sectors is a macroeconomics study. Hence, microeconomics and macroeconomics are two interrelated parts of economics. Therefore, the study of both terms is important in economics.

Difference between Microeconomics and Macroeconomics

Examples of Microeconomics and Macroeconomics

Examples of Microeconomics

• Price determination of a particular commodity.

• Consumer equilibrium.

• Output generated by an individual organization.

• Individual income and savings.

Examples of Macroeconomics 

Effect of Micro and Macro Economics 

Any changes in these categories have a direct impact on a country’s economy. Several factors affect it; let’s take a look

Decision Making

Uncontrollable external factors such as changes in interest rate, regulations, number of competitors present in the market, cultural preferences, etc. play a key role in influencing an organization’s strategies and performance. These can have a cumulative effect on a nation’s economy as well.

Economic Cycles

Experts consider macroeconomics as a cyclic design. Higher demand levels, personal income, etc. can influence price levels, which in turn can affect a nation’s economy. Contrarily, when supply outweighs demand, the cost of daily goods reduces. This pattern continues until the next cycle of supply and demand.

Price of Products and Services

The primary goal of an organization is to keep costs at the minimum and increase the profit margin. The cost of labor is one of the highest expenses incurring factors in microeconomics, thereby directly affecting the overall cost of production and retail.

Did You know?

• The founding father of Macroeconomics ‘John Maynard Keynes’ wrote the General Theory of Interest, Employment, and Money in 1936.

• Alfred Marshall is regarded as the founding father of Microeconomics. 

• The Economist John Maynard Keynes tried to merge microeconomics and macroeconomics by introducing a microeconomics foundation for the macroeconomics model. The reason behind these efforts is the belief that individual households and businesses act in their best interests.

• Microeconomics study is determined by the method known as Partial Equilibrium whereas Macroeconomics study is determined by the method known as Quasi General Equilibrium Analysis.

• Microeconomics study is applied in the field of agricultural economics, international economics, labor economics, comparative economics, consumer economics, regional economics, welfare economics, aspects of public finance, and other fields. On the other hand, Macroeconomic studies are applied in the fields of formulation and execution of economic policies, studying economic development, understanding microeconomics, welfare studies, the study of inflation and deflation studies, and even international comparisons lie in the study of macroeconomics.

Conclusion

Although there are some dissimilarities between Micro economics and Macro economics, both are important and need to be understood to get a comprehensive knowledge of economics. To understand the domestic economy is important but at the same time it is also important to understand the household economy and the economy as a whole as it helps to to set a nation’s economic policy.

Every organisation, firm, company and even the Indian Government incurs several forms of expenditure for various reasons. Some of these reasons include generation of higher revenue and others may involve investment strategies to bolster maintenance or finance business expansions which would help the entire organisation in the long run.

So, when companies prepare their upcoming calendar budget, they categorise it into two parts, i.e. expenditure and receipts, which can be further subdivided into its revenue and capital variants. 

The primary concern for companies and organisational bodies in incurring expenditure is to improve the overall efficiency of the business, which in turn transcends to increased profit returns. In the branch of commerce, understanding the difference between capital expenditure and revenue expenditure helps students to realise the fundamentals of the budget allocation of a company, firm, or an entire nation. 

These are high-value expenditures that have longer requirements duration, thus they are termed as long-term expenditures. Due to this, there is an increase in earning capacity and a decrease in the price of the assets.

As the costs of the assets are continuously revised according to the depreciation, the future costs are reduced. The capital expenditures enhance the position of the business and trade.

The following are some of the examples of different capital expenditure

• Money spent as cash for business purposes.

• Purchase of Plants and machinery items

• IT items

• Electric power equipment

• Permanent add ons to existing fixed assets

What is Capital Expenditure?

Capital Expenditure, also referred to as CapEx, is the funds used by a company, firm, enterprise or an organisation to acquire, upgrade and maintain its fixed assets. Such assets include its PP&E (i.e. its Plants, Property and Equipment) which are mainly, workstations, machinery, infrastructure, etc. Such assets are usually long-term and offer productivity for more than one accounting period.

When any enterprise or organisation makes investments on assets for generation of profit in the days to come, such expenditures are mainly capital in nature. Through capital expenditure, companies and firms can buy new equipment or even use it for maintenance of assets. 

Example

Examples of capital expenditures include the following –

• Office buildings (expenses concerning acquisition and sustenance of a building/s)

• Workplace equipment like computers, printers, coffee machines, furniture, other appliances, etc.

• Patents, copyrights, trademarks, etc.

Since such assets offer income-generating value for an organisation for a certain period, organisations are not allowed to subtract the total cost of the asset in the year when such capital expenditure is incurred. Instead, the organisation must recover the cost of such assets by annual depreciation over the years the asset is being of use to the organisation.

Expenditure is defined as spending on something that can be in the format of paying in cash or exchange for some valuable item for goods or services. It causes liability by a commodity. The records of expenditure are kept as receipts and invoices. An expense is very similar to expenditure but the difference is that expense shows the value deducted from the asset whereas the expenditure is simply the obtaining of assets. There are generally two types of expenditures present on the basis of time durations, they are

• Capital expenditures

• Revenue expenditures

Revenue Expenditures

It is totally different from capital expenditure, they are not high-value items, but they are the routine expenditures in the normal business which maintains fixed assets.

Unlike capital expenditure, it does not increase the revenue but stays maintained. The assets are consumed in an accounting year and there are no future benefits. The asset prices are stable or fixed. The assets are consumed within a year and hence purchase should be made again. This is a recurring expenditure. It is classified into two sub-categories, they are

Direct Expenses: They consist of the cost of manufacturing raw material to convert into a finished product.

Indirect Expenses: They are connected to only selling and distribution of goods other than manufacturing.

Difference between Capital Expenditure and Revenue Expenditure

Need for Classification

Revenue expenditures and capital expenditures are two totally different things. Where the revenue expenditure is an investment of money that is periodically done. It does not benefit either the business or lead to any loss in any way. Whereas on the other hand, capital expenditure is the long-term investment that only benefits the business.

It is very essential to find out the capital nature or revenue nature as both of them have their own advantages and shortcomings that are not understandable separately.

When the drawee fails to make the payment on the date of maturity of the bill in case of dishonor, it is called dishonor of bill. Under the dishonor of the bill, the liability of the acceptor is restored. In this section, we will learn what is the treatment for the dishonor of bills and its relating effect which is shown bypassing journal entries.

 

Dishonor of Bill of Exchange

A bill is dishonored either by non-acceptance or by non-payment. That is, the person on whom a bill is drawn (the drawee) refuses to accept it or if he accepts the bill and agrees to pay but later fails to do so on the due date, then the bill of exchange is said to be dishonored. As per Section 42 of the Bills of Exchange Act, 1882, when a bill is duly presented for acceptance and is not accepted within the customary time, the person presenting it must treat it as dishonored by non-acceptance. If he does not, the holder shall lose his right of recourse against the drawer and indorses.

 

When the drawee of a bill of exchange is not able to make the payment for the bill on the date of maturity, it is called  Dishonor of bill. In such instances, the liability of the acceptor has been restored i.e. the holder of the bill can recover the amount from the drawer or any other previous endorsers. Therefore, the entries made on the receipt of the bill should be reversed.

 

A bill is said to be dishonored when the drawee is not able to make the payment on the date of maturity. A bill is said to be dishonored either by non-payment or by non-acceptance.

 

Dishonor by Non-Payment

A bill of exchange is said to be dishonored by non-payment when the drawee or other drawees who are not partners, makes default in paying when it was being duly required to pay the due. A promissory note, bill of exchange or cheque is said to be dishonored by non-payment when the maker of the note, acceptor of the bill or drawee of the cheque, commits a failure in payment upon being duly required to pay the same.  

 

The Negotiable Act further states that when a promissory note, bill of exchange or cheque is dishonored by non-payment, the holder or some party who remains liable must give notice that the instrument has been so dishonored. This is done to all other parties whom the holder seeks to make severely liable and to one of several parties whom he seeks to make jointly liable.

 

Dishonor by Non-Acceptance

According to The Negotiable Instrument Act 1881, A bill of exchange is said to be dishonored by non-acceptance when the drawee, not being partners, makes default in acceptance upon being duly required to accept the bill. It is said to be dishonored where presentment is excused and the bill is not accepted.

 

The bill may be treated as dishonored where the drawee is incompetent to contract or the acceptance is qualified. When a bill is duly presented for acceptance and is not accepted within the customary time, the person presenting it must treat it as dishonored by non-acceptance. If he does not, the holder shall lose his right of recourse against the drawer.

 

Features of Bill of Exchange

• The Bill of Exchange must be in writing

• The Bill of Exchange must include an unconditional promise to pay.

• The bill of exchange must be appropriately stamped and signed.

• The amount that needs to be paid i.e. the total amount payable must be certain.

• It must be signed by the maker and payable to a certain person.

 

Parties of Bill of Exchange

A bill of exchange comprises 3 parties: Drawer, Drawee, and Payee. 

 

Drawer: The drawer issues the bill of exchange. The bill is signed by Drawer, the maker of the bill of exchange. A drawer also referred to as a creditor who is authorized to receive payment from the debtor can draw a bill of exchange. 

 

Drawee: Drawee, also referred to as ‘Acceptor’, has to pay the money to the drawer. Drawee is the debtor, the person upon whom the bill of exchange is drawn. 

 

Payee: The payee is the person to whom payment of the bill has to be made, and he/she may be the drawer himself/herself or a third party.

 

Bill Discounted Dishonored

Bills discounted dishonored means the bill holder has been discounted from the bank by debiting bank charges in the form of a discount. However, at the time of maturity when the bank demanded money from drawee, drawee had no money and did not pay to the bank. Then it will be called a dishonored bill. At that time, the bank will go to the notary office to note this dishonor. Now, the bank will pay the note fees on behalf of the bill holder; later the bill holder will take the same amount from the drawee who accepted the same bill for payment.

 

When a bill of exchange discounted with a bank gets dishonored at the due date, in that case, the following effect is recorded as a journal entry:

In the books of Drawer:

 

In the books of Bank:

 

In the books of Drawee:

 

This entry overall implies that on dishonor, the drawee again becomes the debtor of the drawer and bank becomes the creditor of the drawer (due to non-payment by drawee on due date). 

 

Thus it can be concluded that a promissory note, bill of exchange or cheque is said to be dishonored when the maker of the note or the acceptor of the bill or the drawee of the cheque makes a default by not paying off the liability which lies upon him. Such a person has a liability or duty to discharge himself of the liability by making the payment as stipulated by the instrument. When he fails to do so the instrument is called to be dishonored.

 

Advantages of Bill of Exchange

The bill of exchange, an instrument of credit, is used often in businesses because of the following stated advantages:

Framework for relationships: A bill of exchange represents a device in writing containing an unconditional order. It provides a framework for enabling the credit transaction on an agreed basis between the seller/ creditor and buyer/debtor.

 

Certainty of terms and conditions: The creditor knows the time when he would receive the money so also the debtor is fully aware of the date by which he has to pay the money. This is because of the fact that terms and conditions of the relationships between drawer and drawee such as date of payment amount required to be paid,  interest to be paid if any, place of payment is clearly mentioned in the bill of exchange.

 

Convenient means of credit: The Buyer can buy the goods on credit and pay after the period of credit by means of the bill of exchange. However, by endorsing it in favor of a third party or by discounting the bill with the bank, the seller of goods can get the payment immediately even after the extension of credit.

 

Conclusive proof: The bill of exchange is referred to as legal evidence of a credit transaction. It implies that the buyer has obtained credit from the seller of the goods, therefore, he is liable to pay the seller during the period of the trade. In case of a refusal to make the payment, the creditor will have to obtain a certificate from the Notary in order to make it conclusive evidence of the happening according to the law..

 

Easy transferability: by transferring a bill of exchange through endorsement and delivery, A debt can be settled.

Economic reforms were introduced in the year 1991 for faster and better economic growth. It was initiated by the Narasimha Rao Government for the sake of building people’s trust in the Indian economy.

There were many reasons to bring about such a huge change in our economy, majorly in order to give our nation a much-needed upgrade during the time. It was all required in more than one aspect of the country. 

Reasons For Economic Reforms

There were many reasons due to which economic reforms were a necessity in our country. These were:

• The Industrial Sector’s Poor Performance: Before the 1990s, the industries were mostly Government-owned. The employees did not feel the need to be either competitive or effective because their jobs were secure. The State had the ultimate authority. Thus, the industries were in the red. 

Although there were several disciplinary measures kept in place, still the vision was always on hold. It was only when the new economic reforms took place that they helped kick-start the Indian economy in a new and fresh direction.

• Adverse Balance of Payments: One of the biggest factors that played a major role in bringing about the economic reforms was the fact that India’s Balance Of Payments or BOPs were unsustainable. It was also true that the little foreign exchange there was as resources with the country were not enough. There was even an unprecedented rise of 11 percent in the BOPs. 

At this juncture, the only step that would work was to seek external help. And that was to introduce the LPG formula and bring about a New Economic Policy or NEP. All of these three were eventually done. As a result, it was even termed as the foundation for what led to the financial reforms in India.

• Rise in Fiscal Deficit: India’s current account was bleeding. The Centre did not have any funds in its hands. The reason for such a deficit was due to factors that were present both externally and internally. Suffice to say that the deficit had been a constant since the First Planning Commission’s tenure which started in 1950.  

By 1991, the rates were unsustainable. It was the time when inflation was on the rise and could not be curbed. Consequently, the Government of India took a decision that would lead to the implementation of the NEP. This was done to bring about the Indian economic reforms. 

• Galloping Inflation: The rate of inflation at the time was immense. Poor and marginalized people of the society did not have enough access to food. At a massive 13.88%, this inflation rate could not be borne anymore. Liquidity had to be poured into the economy and had to be done very quickly. 

• The First Gulf War: This is regarded as the second-most-important factor which necessitated the NEP. In 1991, Iraq, under the dictator Saddam Hussein, invaded Kuwait despite international warnings and an Armada of American warships asking Hussein not to.

When this happened, the crude oil price skyrocketed. India was already tottering and this was the straw that broke the camel’s back. Oil was necessary, but India could not procure it from any source due to the 4 factors mentioned above. 

This led to the First Gulf War. Kuwait’s oil fields would not be serviceable for several months. The decision for the new NEP was thus taken immediately.

All recent economic reforms in India follow the pattern that started in 1991. 

Were the Reforms Necessary?

Apart from the familiar LPG (Liberalisation, Privatisation, and Globalisation) formula, there was a series of brave and profitable decisions which were taken on a war footing. A loan of USD7 billion was taken from the IMF and the World Bank in anticipation of the New Economic Policy. 

• The NEP and the LPG reforms which were propounded by Dr. Singh and his team of experts laid out the following reasons for its existence.

• To decrease the exchange rate of the Indian Rupee vis-a-vis the American Dollar. This exchange rate is highly disruptive if it gets above the psychologically sensitive 75 mark. In 1991, the rate was very high and steps had to be taken.

• To help the introduction of private players in some of the most closely-guarded economic corridors. Until 1991, there were very few sectors in which the private players could compete against the government-held establishments. 

• This had led to the creation of the infamous ‘License Raj’ which is a derogatory term for the corrupt and inefficient bureaucracy. Once private players poured in, the real might of the Indian market was put on full display. This is another reason why the then PM has been hailed as the master of economic reforms in India.

• To help the economy avail the contents of the private purse, the NEP was essential. Besides, the loans from the IMF and the World Bank were directly tied to the NEP’s implementation.

• Another reason for the rollout of the NEP was to end the monopoly of certain government enterprises in specific sectors like defence manufacture and food processing. These sectors had virtually had no private competition to speak of before 1991. 

Post that, the scenario changed. Economic reforms led to a sudden glut of major private players. The government-owned companies had to tidy up their act.

A pressing reason for the reforms was to ensure that the Indian Banking Sector did not collapse. There were no private banks, and all the people’s savings and earnings were put in PSU banks. This was a recipe for disaster. 

While the RBI had done a commendable job, there was a false notion that all the PSU banks were ‘too big to fail.’ Dr Singh noted that this was not the case and the spirit of private banking, as we know it now, was ushered in.

The world business community had to know that there would be no more slow-motion economic progress. Decision making was left to talented and high-powered committees which were run mostly by technocrats like Sam Pitroda, who later became one of the driving figures of the Indian Telecom Revolution. 

Pitroda had been handpicked by the PM and his FM. Technocracy was encouraged, and this has led to such innovative programs like ‘Make in India’ and ‘Start-Up India.’ All these are legacies of economic reforms in India.

To introduce more Foreign Direct Investment or FDI, a new fiscal policy had to be put in place. This was done in 1991 and 3 special economic terms were added to the Indian lexicon- Deregulation, Privatisation and Exit Policy. Simply put, this gave an extra impetus to many foreign companies to invest in India’s economy. 

They had the liberty to take a good look at the existing laws and then take decisions that would suit them the best. Previously, the FDI norms had been rather vague. The picture sharpened after liberalisation and privatisation were adopted.

Finally, perhaps an overriding aspect that jolted the Government into action was the rationale that most of the other major South Asian countries were going past India in their growth stories. India’s per-capita GDP was still inadequate. The banking sector was lackadaisical in giving loans. Poverty was still a looming presence. If the country had to enter the new century, something drastic had to be done. This was the New Economic Policy.

Thanks to the bold decisions of the policymakers of 1991 and later, India is on its way to becoming a USD5 trillion economy. To know more about economic reforms, and find all the related details about India’s economy, visit ’s website today.

The business is ever evolving. As the market sphere increases in size, not only in terms of physical shape but also in terms of reach of customers the business or the market expands its usual meaning. Now, business is not restricted to a land, rather it spreads all over the world where the customers can access the market space with the help of the internet.

This new form of market is the emerging mode of the business, known as E-Business. We will further our discussion on the same topic that is – Emerging mode of Business.

What is E-Business?

Electronic Business Refers to business that is conducted online. The e-business processes include buying and selling goods and services. Through this e-business the model customers are given services, the payments are processed, the production control is managed and all of these are done over the internet, along with the collaboration of the business partners .A range of functions is included in the E-business mode, which includes the development of intranets and extranets. In recent times, e-business has grown in leaps and bounds and has given rise to new requirements of this new business.

Types of E-Business

Business-to-Business (B2B) is the most common type of Business, where transactions occur between two businesses with their goods and services. 

Business-to-Consumer (B2C) is the most popular among other e-business models. The transactions occur online.

Business to Business E-Commerce

B2B e-commerce or business-to-business electronic commerce is the sale of goods or services between two or more businesses via the online platform. This is actually used to enhance a company’s sales effort. Sales Representatives manually attending calls from the telephone are digitally replaced by e-mail orders received electronically. This is also effective in reducing the over-all over-head costs. 

B2B business means business transactions between two businesses rather than business and customers. In the wholesale lot, the transaction is usually Business to Business while in retail level, the transaction is from a business to an individual consumer. Business to Business is recognised by the fact of the high value of transactions both in terms of goods or services and in terms of money value. While the business to consumer consists of less value than the B2B.

Emerging Modes of Business

We see, the module of a business is ever emerging. Now we have an e-business that caters to the need of online shopping and selling. Not only this, other functions to run a business now are done electronically. This emerging form of business is as useful as it is risky. In seconds purchasing and selling is done, in a matter of a few minutes we can sign into documents and launch our unique product. Also, the cyber-crimes are slowly heightening its pace as well. Frauds and cheats are taking place online. Fraud in e-commerce is a regular news now, hence stricter online securitized mode is to be conducted to transact the business. 

Emerging modes of business are e-business or e-commerce that have hit world wide trade. In the upcoming years, figures of this business are expected to be multiplied.

A business Letter is used to convey a written message formally or professionally between the organizations, between the company and clients, to the employees, employers, suppliers, managers, etc. An effective Business Letter is used in many ways, like sending invoices, offering Letters, apologies, invitations, orders, instructions, meetings to be held, allocation of work, etc. An excellent qualified Business Letter plays a vital role in the workplace. So let’s understand what makes a good Business Letter, parts of a Business Letter, essential qualities of a good Business Letter, how it impacts, etc.

 

As the Business Letter helps to create a reasonable opinion on the company, one should be attentive and try to impress the receiver with an Effective Business Letter. We should concentrate on the essential qualities of a formal letter to make it more effective. So while writing a Business Letter, everyone should remember these points. Let us understand the characteristics of a good Business Letter in detail.

 

How to Start a Good Business Letter?

We can start a good Business Letter in a particular format. It has specific rules and regulations to make it more effective. Also, there are different parts of a perfect professional Letter. A minimum of 10 to 12 parts is essential for a good Business Letter. A professional letter can be written in various forms like block style, semi-block and modular block, etc. 

 

Essentials of Effective Business Letter

While writing an effective Business Letter, we should consider these essential characteristics as given below:

The tone of the letter should be professional 

One should write a formal Letter professionally. The tone of your Business Letter should be confident, sincere, encouraging and polite. The superiors or subordinates, whoever will read, should be pleased and can feel the liveliness of your Letter. It should not appear like a copy-paste or a machine’s work. Then only we can say that the essential Business Letter will act as the best communication tool.

 

Clarity of Thought

One should write a Business Letter clearly and concisely. Whatever the sender wants to convey should reach the reader straight away. We should not prolong or add unnecessary stuff to the Letter, which leads to miscommunication. The clarity of thought is one of the best characteristics of an Effective Business Letter. 

Organized Information 

It is another essential quality for a good Business Letter. If you need to send the formal Letter to multiple receivers, the information must be organized and it should be clear as to which instruction applies to whom. One also needs to form multiple paragraphs if necessary. The content of an effective Business Letter should be logical and clear.

 

Highlight the Special Words with Colour 

It is a great idea to colour the words which you think will get the receiver’s attention. You may just highlight the words or phrases you want.  However, make sure to choose a colour if it needs to be given for printing because some colours may not appear.

 

Auto Text 

It is an additional feature for which we need to modify settings so that the company name, sender’s name, etc. some vital information will appear with colour without giving commands. There will be no need to add colour to every word. It helps not only in highlighting but also in saving time.

 

Show your Optimism 

A good Business Letter should build a positive and smooth relationship between the sender and the receiver. It helps to maintain Business activities with pleasure.

 

Estimate the Pulse of the Reader 

The sender needs to forecast how the receiver can react with the proposal posting in that particular Business Letter. Based on that, the sender needs to write professionally.

 

Conclude with a Reminder 

The conclusion part of a professional Letter should be like a calling option or to make the receiver react etc.

 

Proofreading 

Proofreading is the most characteristic of a good Business Letter. Before sending it, it’s better to check once or twice is always suggestible. 

 

These are some of the essentials for a good Business Letter. Besides these, we have some more characteristics to make the formal Letter more effective. They are categorized as Inner Quality and Outer Quality.

 

Inner Quality

• Clear: try using simple and lucid sentences. Do not complicate things and explain them with ease. Do not use huge sentences and complicated vocabulary. 

• Concise: A Letter should always convey the matter with minimum usage of words. You can use particular terms which sum up the meaning of an entire topic. Try to use those kinds of words in the Letters to save your time and also the reader’s time. 

• Concrete

• Courtesy

• Accuracy

• Well mannered

• Completeness etc.

 

Outer Quality 

• Size, colour, quality of the paper, etc. Sometimes, we get instructions about Letter writing format, like the font size, colour and paper size to be used. Try to stick to the instructions to maintain uniformity. 

• Envelope

• Way of folding etc. Try not to crumple the Letter and keep it neat and clean. This way, it appears formal and pleasant. The reader will also like to read a Letter that looks pleasant. 

Also, the characteristics of an effective Business Letter can be explained with a principle of 7 C’s. It can be shown below.

 

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Hence, by constituting all the above points, one can say that using all essentials of a Business Letter only will make it an effective and professional way of communication.