Business Chapter 18

18.1 Vocab

1. merchant account

   1. a special form of bank account established by a business in order to process credit card payments from its customers

2. acquiring banks

   1. merchant accounts are managed only by a limited number of banks known as acquiring banks
   2. acquiring banks are approved by the credit card company and handle the funds connected to each credit card transaction from the point it is approved until the funds are transferred into the business's regular bank account and payment is collected from the customer

3. merchant account provider

   1. a merchant account can also be obtained through an independent merchant account provider
   2. a private company that acts as an intermediary between businesses and one or more credit card companies to establish and maintain credit services
   3. can explain the types of services available and their costs, recommend and sell the equipment the business will need to process credit sales, and then work with the business to make sure those credit sales run smoothly

4. installment credit

   1. a plan where a customer agrees to make a specified number of payments over a fixed period time at a specified interest rate
   2. often used for expensive purchases: furniture, cars, major home electronics
   3. have high interest rates, and interest charges are included in each payment by the customer; vary for promotional purposes

5. revolving credit

   1. combines the features of a store credit card and installment credit
   2. customers can make credit purchases at any time as long as the credit balance does not exceed a specified pre-determined dollar amount (credit limit)
   3. customers who make partial payments each month pay at least the amount of the unpaid balance in the account
   4. high interest rate on unpaid balances; credit card systems are a type of revolving credit

6. co-branded credit card

   1. co-sponsored by two companies and has benefits and rewards designed specifically for the companies' joint customers

7. affinity credit card

   1. builds on consumer loyalty; issued by a financial institution and cosponsored by an organization that receives a small percentage of the sales or profits generated by the card
   2. offered to people associated with the cosponsoring organizations

8. debit card

   1. using a debit card is equivalent to paying with cash
   2. it immediately transfers funds electronically from the cardholder's checking account to the business's account when a purchase is made
   3. consumers can also withdraw cash from their checking or savings accounts through ATMs and pay bills by phone or computer

9. smart card

   1. a plastic card with an embedded microprocessor that can store and process large amounts of information; has a reader "pad" on the surface instead of the magnetic strip used on credit and debit cards
   2. mainly used in Europe but have just recently become accessible in the US due to high security concerns
   3. currently, smart cards are used by businesses for computer security and in cell phones

18.2 Vocab

1. creditworthiness

   1. a measure of an individual's or business's ability and willingness to repay a loan

   2. to determine the creditworthiness of people or other companies, businesses gather information as part of the credit application process

      1. character, capacity, capital, and conditions

2. character

   1. a measure of an applicant's sense of financial responsibility or belief in the obligation to pay debts
   2. includes honesty, integrity, and attitude toward indebtedness
   3. check applicant's credit reputation, payment habits, and employment or business stability to judge the person's character

3. capacity

   1. a measure of earning power and reflects the applicant's potential to pay, based on current income and other financial obligations (debts)
   2. businesses look at the person's employment history, income level, and number and amount of debts

4. capital

   1. a measure of the applicant's current financial worth or ability to pay based on assets for an individual

5. conditions

   1. an assessment of the economic environment, such as the economic health of a community or the nation and the extent of business competition
   2. the local economy, for example, may be depressed, and, as a result, many people would be unemployed. Inflation and recessions also affect a business's willingness to grant credit

6. credit agency

   1. a clearinghouse for information on the creditworthiness of individuals or businesses
   2. the two types of credit agencies are those that provide credit information about individual consumers and those that provide credit information about businesses
   3. bureaus are private credit agencies, and they regularly receive data from businesses and publish confidential reports for their subscribers, who are usually retailers or financial institutions

7. aging of accounts

   1. a common method of studying accounts receivable
   2. a process in which customers' account balances are analyzed in categories based on the number of days each customer's balance has remained unpaid

18.3 Vocab

1. insurance

   1. if an important risk cannot be eliminated or reduced, the business may purchase insurance to protect against a loss that would result in it's failure
   2. a risk management tool that exchanges the uncertainty of a possible large financial loss for a certain smaller payment

2. reinsurance

   1. to protect themselves from greater than expected costs, insurance companies often share the risks they have assumed with other companies through reinsurance
   2. with reinsurance, another insurance company charges a premium to cover some of the risk facing the original insurer

3. insurance rate

   1. the amount an insurance company charges a policyholder for a certain amount of insurance
   2. rates vary according to the risk involved

4. actuaries

   1. review records of losses, determine the number of people or organizations to be insured, and then use the statistics to calculate the rates insurance companies must charge to be able to cover the cost of losses and make a reasonable profit

5. insurable interest

   1. generally defined as the possible financial loss that the policyholder will suffer if the property is damaged or destroyed
   2. the policyholder must have insurable interest to insure any kind of property

6. deductible

   1. the amount the insured pays for a loss before the insurance company pays anything
   2. makes the insured responsible for part of the loss in return for a lower premium

18.4 Vocab

1. insurance agents

   1. most insurance contracts are purchased from insurance agents
   2. insurance agents represent insurance companies and sell insurance to individuals and businesses

2. no-fault insurance

   1. some states have passed no-fault insurance laws
   2. each insurance company is required to pay the losses of its insured when and accident occurs, regardless of who was responsible for the accident
   3. the intent is to reduce automobile insurance costs that result from legal actions taken to determine fault and obtain payment for losses

3. health insurance

   1. provides protection against the expenses of individual health car
   2. typically, businesses offer three categories of coverage to their employees: medical payments, major medical, and disability

4. disability insurance

   1. offers payments to employees who are not able to work because of accidents or illnesses
   2. insurance companies typically do not pay disability claims unless the injured employee is unable to perform any work for the company over a period of time

5. life insurance

   1. pays money upon the death of the insured

6. beneficiaries

   1. the person or persons identified in the insurance policy to whom the payment is made upon the death of the insured are beneficiaries

7. liability insurance

   1. protects against losses from injury to people or their property that result from the products, services, or operations of the business

8. malpractice insurance

   1. a type of liability insurance that protects against financial loss arising from suits for negligence in providing professional services
   2. even if the business is not proven guilty for malpractice, the legal fees can be very high

9. bonding

   1. pay damages to people whose losses are caused by the negligence or dishonesty of an employee or by failure of a business to complete a contract
   2. often required for contractors hired to construct buildings, highways, or bridges, and for companies that transport large amounts of money between businesses and financial institutions