Bills Receivable and Bills Payable Accounts

Bills receivable book is a subsidiary book used to record all bills of exchange and promissory notes received by a business from its customers. These financial instruments serve as evidence of a customer’s obligation to pay a specified amount at a future date. The bills receivable book captures essential details, including the date of receipt, customer name, amount, due date, and any discounts applicable. This systematic record helps businesses manage their receivables, monitor cash flow, and track payments effectively, ensuring timely collection of funds and accurate financial reporting.

Features of Bills Receivable Book:

  • Detailed Record Keeping

The bills receivable book captures detailed information about each bill received, including the date of receipt, the name of the customer, the amount, the due date, and any applicable discounts. This thorough documentation aids in precise tracking and management of receivables.

  • Facilitates Cash Flow Management

By maintaining a bills receivable book, businesses can monitor their expected cash inflows effectively. It provides visibility into when payments are due, allowing companies to plan their cash flow and manage working capital more efficiently. This is crucial for maintaining financial stability and ensuring that the business can meet its obligations.

  • Tracking of Due Dates

The bills receivable book enables businesses to track the due dates of various bills. This feature is vital for ensuring timely collection of payments. By being aware of upcoming due dates, businesses can follow up with customers and reduce the risk of late payments, which can impact cash flow.

  • Identification of Discounts

The bills receivable book allows businesses to record any discounts that may be applicable to the bills received. This feature helps businesses optimize their cash collections by ensuring they take advantage of any early payment discounts offered by customers, enhancing profitability.

  • Management of Customer Relationships

By systematically recording bills receivable, businesses can improve their communication and relationships with customers. The book serves as a reference point for discussions about outstanding payments, fostering transparency and trust between the business and its clients.

  • Integration with Accounting Systems

The bills receivable book is often integrated with a company’s accounting software. This integration ensures that all receivables are accurately reflected in the financial statements, allowing for seamless reconciliation of accounts and better financial reporting.

  • Facilitates Financial Analysis

The information recorded in the bills receivable book can be used for financial analysis. Businesses can analyze their receivables turnover ratio, assess customer payment behaviors, and make informed decisions regarding credit policies and risk management. This analytical capability supports strategic planning and enhances overall business performance.

Example Entries of Bills Receivable Book

Date Bill No. Customer Name Amount Due Date Status
2024-10-01 BR001 John Doe $1,000 2024-12-01 Unpaid
2024-10-05 BR002 Jane Smith $500 2024-11-05 Unpaid
2024-10-10 BR003 XYZ Corp. $2,000 2025-01-10 Paid
2024-10-15 BR004 ABC Ltd. $750 2024-12-15 Unpaid
2024-10-20 BR005 Global Traders $1,500 2025-01-20 Paid

Bills Payable Book

Bills Payable Book is a subsidiary book used to record all bills of exchange and promissory notes that a business has issued to its suppliers. These documents represent the business’s obligation to pay a specified amount at a future date. The bills payable book captures crucial details, including the date of issuance, supplier name, amount, due date, and any discounts applicable. This systematic record helps businesses manage their liabilities, track payment schedules, and ensure timely payments to suppliers. By maintaining an accurate bills payable book, businesses can enhance cash flow management and uphold strong supplier relationships.

Features of Bills Payable Book:

  • Comprehensive Record Keeping

The bills payable book meticulously documents all details related to bills payable, including the date of issuance, supplier name, amount owed, due date, and any applicable discounts. This thorough documentation facilitates accurate tracking and management of outstanding liabilities, ensuring that the business remains organized and informed about its financial obligations.

  • Effective Cash Flow Management

Maintaining a bills payable book aids businesses in managing their cash flow more effectively. By keeping track of upcoming payments, businesses can better plan their cash outflows and allocate funds accordingly. This feature is essential for maintaining liquidity, as it helps ensure that the business can meet its financial obligations on time, thus avoiding late fees or penalties.

  • Due Date Tracking

One of the most critical features of the bills payable book is its ability to track due dates for each bill. By having a clear record of when payments are due, businesses can prioritize their payments and ensure timely settlements. This helps to build positive relationships with suppliers and can lead to better credit terms in the future.

  • Management of Supplier Relationships

The bills payable book supports the management of supplier relationships by providing a reliable reference for payment schedules. By consistently honoring payment commitments, businesses can foster goodwill with suppliers, which may lead to favorable credit terms or discounts in future transactions. Maintaining healthy supplier relationships is crucial for the ongoing success of any business.

  • Integration with Accounting Systems

Typically, the bills payable book is integrated with the business’s accounting software. This integration allows for seamless updates to the general ledger, ensuring that all liabilities are accurately reflected in financial statements. This feature enhances the overall efficiency of financial reporting and facilitates better decision-making.

  • Facilitation of Financial Analysis

The information contained within the bills payable book can be invaluable for financial analysis. Businesses can assess their payment patterns, evaluate their liabilities, and analyze the accounts payable turnover ratio. This analysis supports informed decision-making regarding credit policies, supplier negotiations, and cash management strategies.

  • Control Over Credit Limits

By maintaining a detailed bills payable book, businesses can monitor their outstanding obligations and ensure they do not exceed their credit limits with suppliers. This feature aids in avoiding over-leveraging and helps maintain financial discipline. By keeping track of all payables, businesses can make informed decisions regarding additional purchases and manage their credit risk effectively.

Example Entries of Bills Payable Book:

Date Bill No. Supplier Name Amount Due Date Status
2024-10-01 BP001 ABC Supplies $1,200 2024-11-01 Unpaid
2024-10-05 BP002 XYZ Wholesalers $800 2024-10-25 Paid
2024-10-10 BP003 Global Traders $1,500 2024-11-10 Unpaid
2024-10-12 BP004 Best Goods $950 2024-12-01 Unpaid
2024-10-15 BP005 Supply Co. $600 2024-11-15 Paid

Key differences between Bills Receivable Book and Bills Payable Book

Feature Bills Receivable Book Bills Payable Book
Nature Asset Liability
Purpose Track incoming payments Track outgoing payments
Recorded by Business Receivers Business Payables
Customer Relationship Receivable from Customers Payable to Suppliers
Financial Impact Increases Cash Flow Decreases Cash Flow
Status Unpaid/Paid Receivables Unpaid/Paid Payables
Documentation Bills and Promissory Notes Bills and Promissory Notes
Due Date Monitoring Collection Dates Payment Dates
Financial Statements Accounts Receivable Accounts Payable
Management Focus Revenue Collection Expense Management
Analysis Receivables Turnover Payables Turnover
Integration Revenue Accounts Expense Accounts

Accounting Functions and Attributes

Accounting refers to the systematic process of recording, classifying, summarizing, and interpreting financial transactions of a business or organization. It provides essential information about financial performance and position, aiding in decision-making and compliance with regulations. Key elements include assets, liabilities, equity, revenues, and expenses.

Functions of Accounting

  1. Keeping Systematic Records

Accounting is to report the results of most business events. Hence, its main function is to keep a systematic record of these events. This function embraces recording transactions in journal and subsidiary books like cashbook, sales book etc., posting them to ledger accounts and ultimately preparing the financial statements [final accounts].

  1. Communicating the Results

The second main function of accounting is to communicate the financial facts of the enterprise to the various interested parties like owners, investors, creditors, employees, government, and research scholars, etc.

The purpose of this function is to enable these parties to have better understanding of the business and take sound and realistic economic decisions.

  1. Meeting the Legal Requirements

Accounting aims at fulfilling the legal requirements, especially of the tax authorities and regulators of the business. It discharges this function in accordance with certain fundamental truths and uniform enforcement of generally accepted accounting principles.

  1. Protecting the Properties of the Business

Accounting helps protecting the property of the business.

  1. Planning and Controlling the Business Activities

Accounting also helps planning future activities of an enterprise and controlling its day-to-day operations. This function is done mainly to promote maximum operational efficiency.

Attributes of Accounting

  1. Accounting is both an art and science

Analysis, interpretations and communication of financial results are the art of accounting requiring special knowledge, experience and judgment. As a science, accounting is governed by certain principles, concepts, conventions and policies. But it is not an exact science like other physical sciences; rather it is an exacting science.

  1. It involves recording, classifying, and summarizing

Recording means systematically writing down in account books the transactions and events reasonably soon after their occurrence.

Classifying is the process of grouping of transactions or entries of one nature at one place. This is done by opening accounts in a book called ledger. Summarizing involves the preparation of reports and statements from the classified data [i.e., ledger]. This involves the preparation of final accounts.

  1. It records transactions in terms of money

This provides a common measure of recording and increases the understanding of the state of affairs of the business.

  1. It records only those transactions and events, which are financial in character.

Non-financial events, howsoever important they may be for the business, are not recorded in accounting.

  1. It is the art of interpreting the results of operations

It aids to determine the financial position of the enterprise, the progress it has made, and how well it is getting along.

  1. It involves communication

The results of analysis and interpretation are communicated to the management and other interested parties.

Financial Accounting

Financial Accounting is concerned with providing information to external users. It refers to the preparation of general purpose reports for use by persons outside a business enterprise, such as shareholders (existing and potential), creditors, financial analysts, labour unions, government authori­ties, and the like. Financial accounting is oriented towards the preparation of financial statements which summarise the results of operations for selected periods of time and show the financial position of the business at particular dates.

Advantages

Maintain Business Record

Financial accounting records each and every transaction of business organization. It systematically maintains a proper book of accounts of all monetary transactions. Unlike human memory which has a limited capacity to remember things, financial accounting can record large amounts of transactions.

Prevention and Detection of Fraud

Avoidance and detection of frauds or errors is important role played by financial accounting. It records all financial data fairly which is used by management for analysis purposes. This data acts as proof and reduces the chances of any frauds or errors.

Present true Financial Position

Financial accounting reveals and interprets the true financial position of organizations. It records each financial aspect and supplies it from time to time to the internal management team. Managers get the real ideas of all financial resources of the organization regularly through data supplied by financial accounting. It helps them in making proper decisions for managing the overall financial position.

Helps in preparing Financial Statements

Preparation of financial statements is a must for knowing the true profit or loss and real worth of the organization. Financial accounting supplies all relevant accounting data for the preparation of financial statements like profit and loss account and balance sheet.

Comparison of Result

Financial accounting helps in comparing the performance of business organizations. It systematically records and stores financial data for many accounting years. This way comparison of present data with previous year’s data can be easily done.

Acts as legal Evidence

Financial accounting serves as legal evidence of all data and helps in settling of all business disputes. It prepares and maintains systematic books of accounts of all financial transactions which can be used for avoiding any confusion or misunderstanding.

Assists the Management

Managers depends on financial accounting for various data for taking managerial decisions. It provides the full information’s regarding all cash flows in an organization. They can easily anticipate any surplus or deficit of funds in an organization and take decisions accordingly.

Limitations of Financial Accounting

  1. Supplies Insufficient Information

Financial accounting provides the information about the financial activities as a whole and not individual-wise, i.e., it does not record information relating to product-wise, department-wise etc.

  1. Controlling Cost not Possible

In financial accounting control of cost is not possible since the costs are known at the end of the financial year or a specified period of time whether the expense or cost has already been incurred, i.e., nothing can be done to control either the account of expense or the cost. In other words, if it is even found that a particular cost is more, it is not possible to control it.

But the same is possible only when the cost accounting system is being introduced.

  1. Historic in Nature

Since the financial accounting records all transactions relating to a particular period, it is rather historic in nature. In short, present financial information relating to a past period and not for the future although all financial decisions are taken on the basis of past financial data.

  1. Recording Actual Cost

The financial accounting records the actual cost only, the historical cost of the assets. The value of assets may be changed, but record only the cost of acquisitions of such assets. In other words, financial accounting does not record the price fluctuations or change in price level. As a result it does not present the correct information.

  1. Difficulty in Price Fixation

We know that the total cost of a product can be obtained only when all expenses relating to a product have been incurred. That is why it is not possible to ascertain the price of the product in advance for the purpose of estimated selling price. As total cost (i.e., fixed cost, variable cost, direct cost and indirect cost of a product) depends on many factors, all such factors cannot be supplied by financial accounting.

  1. Technical Subject

Since financial accounting is a technical subject, it is not possible for a common man to understand it. Without the proper knowledge of principles and conventions of accounting it is not possible to analyse the financial data to take any financial decision. Naturally, it has got little value to a person who is not conversant with the subject.

  1. Unanimity about Accounting Principles

Although there is IASC (International Accounting Standard Committee), the accountants differ in their opinion on the application of accounting principles in the same matter.

For example, some accountants prefer to use FIFO method for valuing inventory whereas others prefer to use LIFO or some other method; or, some accountants prefer to use Straight-line Method of depreciation but others prefer to use Diminishing Balance Method etc.

  1. Not Possible to Evaluate Accounting Principles

Whether the existing accounting principle is sound/correct or not, that cannot be evaluated, i.e., actual performance cannot be compared with the budgeted figure as we can do in case of Standard Costing/Budgetary Control. In other words, the actual result cannot be compared with the budget.

Financial accounting presents only the result of the business through profit and financial positions, i.e., the rate of profitability. But the profit may be affected by many of outside factors which are not recorded by financial accounting.

  1. Supply Quantitative Information

Financial accounting supplies quantitative information only through absolute figures which do not present always the required information although they are needful to the users. But relative financial information are more important and informative.

  1. May be Manipulated

Financial accounting may be manipulated, i.e., it may be presented as per desire of the management. For example, profit sometimes may be reduced in order to evade tax and to avoid bonus to the employees. On the contrary, more profit may be shown in order to raise fresh equity shares or to pay more dividend to attract the shareholders and others.

Bangalore University BBA Notes

Latest 2024-25 SEP Notes

1st Semester

Fundamentals of Accounting (Updated) VIEW
Management Dynamics (Updated) VIEW
Business Environment (Updated) VIEW
Quantitative Analysis for Business (Updated) VIEW
Quantitative Analysis for Business Decisions (Updated) VIEW
Environmental Studies (Updated) VIEW

2nd Semester

Financial Accounting (Updated) VIEW
Marketing Dynamics (Updated) VIEW
Organization Behaviors (Updated) VIEW
Data Analysis for Business Decisions (Updated) VIEW
Quantitative Techniques for Business Decisions VIEW
Computer Accounting Tally Prime (CATP) VIEW

3rd Semester

Corporate Accounting (Updated) VIEW
Financial Management (Updated) VIEW
Indian Financial System (Updated) VIEW
Supply Chain and Logistics (Updated) VIEW
Constitution of India (Updated) VIEW

 4th Semester

Fundamentals of Costing (Updated) VIEW
Digital Entrepreneurship (Updated) VIEW
Business Research Methodology (Updated) VIEW
Human Resource Management (Updated) VIEW
Soft Skills for Business (Updated) VIEW

NEP Notes

1st Semester

Management Innovation (Updated) VIEW
Fundamentals of Accountancy (Updated) VIEW
Marketing Management (Updated) VIEW
Digital Fluency (Updated) VIEW
Spreadsheet for Business (Updated) VIEW
Business Organization (Updated) VIEW
Office Organization and Management VIEW
Tourism and Travel Management VIEW
Event Management VIEW

2nd Semester

Financial Accounting and Reporting (Updated) VIEW
Human Resource Management (Updated) VIEW
Business Environment (Updated) VIEW
Retail Management (Updated) VIEW
Management of Non Government Organizations (Updated) VIEW
Digital Fluency (Updated) VIEW

3rd Semester

Elements of Cost Accounting (Updated) VIEW
Organisational Behaviour (Updated) VIEW
Business Statistics (Updated) VIEW
Artificial Intelligence (No Update) VIEW
Rural Marketing (Updated) VIEW
Social Media Marketing (Updated) VIEW

4th Semester

Management Accounting (Updated) VIEW
Business Analytics (Updated) VIEW
Indian Financial System (Updated) VIEW
Financial Management (Updated) VIEW
Constitution of India (Updated) VIEW
Business Leadership Skills (Updated) VIEW
Personal Wealth Management (Updated) VIEW

5th Semester

Production and Operations Management (Updated) VIEW
Income TaxI (Updated) VIEW
Banking Law and Practice (Updated) VIEW
FN1 Advanced Corporate Financial Management (Updated) VIEW
MK1 Consumer Behavior (Updated) VIEW
HRM1 Compensation and Performance Management (Updated) VIEW
DA1 Financial Analytics VIEW
RM1 Fundamentals of Retail Management (Updated) VIEW
LSCM1 Freight Transport Management (Updated) VIEW
Information Technology for Business(Excel & DBMS) (Updated) VIEW
Digital Marketing (Updated) VIEW
Cyber Security (Updated) VIEW
Employability Skills VIEW

6th Semester

Business Law (Updated) VIEW
Income Tax-II (Updated) VIEW
International Business (Updated) VIEW
FN2 Security Analysis and Portfolio Management (Updated) VIEW
MK2 Advertising and Media Management (Updated) VIEW
HRM2 Cultural Diversity at Workplace (Updated) VIEW
DA2 Marketing Analytics VIEW
RM2 Retail Operations Management (Updated) VIEW
LSCM2 Sourcing for Logistics and Supply Chain Management (Updated) VIEW
Goods and Services Tax (Updated) VIEW
ERP Application (Updated) VIEW

CBCS 2020-21 Notes

1st Semester

Accounting for Business (Updated)
VIEW
Enterprises Management (Updated)
VIEW
Corporate Regulations (Updated)
VIEW
Business Mathematics and Logical Reasoning (No Update)
VIEW

2nd Semester

Financial Accounting (Updated)
VIEW
Human Resource Practices (Updated) VIEW
Statistical applications in Business (Updated)
VIEW
Production and Inventory Management (Updated)
VIEW

3rd Semester

Corporate Skills (Updated) VIEW
Corporate Accounting (Updated) VIEW
Modern Marketing (Updated) VIEW
Financial Institutions and Regulatory Bodies (Updated) VIEW
Business Finance (Updated) VIEW

4th Semester

Cost Accounting (Updated) VIEW
Banking Operations and Innovations (Updated) VIEW
Business Research Methodology (Updated) VIEW
Behviourial Science (Updated) VIEW
Advanced Corporate Accounting (Updated) VIEW

5th Semester

Income Tax – 1 (Updated) VIEW
Entrepreneurship Development and Star-ups (Updated) VIEW
Management information and Technology VIEW
Financial Analysis and Reporting (Updated) VIEW
Accounting And Finance  
A&FN1 Advanced Accounting (Updated) VIEW
A&FN2 Derivatives and Risk management (Updated) VIEW
Marketing And Human Resource  
MK&HR1 Consumer Behavior and Marketing Research (Updated) VIEW
MK&HR2 Performance Management (Updated) VIEW
IT And Data Analytics  
IT&DA1 Entrepreneurship Resource planning (ERP) VIEW
IT&DA2 E-Governance VIEW

6th Semester

Income Tax – 2 (Updated) VIEW
Auditing and Attestation VIEW
Goods and Services Tax VIEW
Business Regulations (Updated) VIEW
Accounting And Finance
A&FN3 Costing Methods and Techniques (Updated) VIEW
A&FN4 Security Analysis and Portfolio Management VIEW
Marketing And Human Resource
MK&HR3 Logistics and Supply Chain Management VIEW
MK&HR4 Emotional Intelligence VIEW
IT And Data Analytics
IT&DA3 Data analysis for Social Sciences VIEW
IT&DA4 Business Analytics VIEW

Bangalore University B.Com Notes

Latest SEP Syllabus Notes

1st Semester

Financial Accounting (Updated) VIEW
Corporate Law (Updated) VIEW
Modern Marketing (Updated) VIEW
Quantitative Analysis for Business Decisions (Updated) VIEW
Business Quantitative Analysis (Updated) VIEW
Environmental Studies (Updated) VIEW

2nd Semester

Advanced Financial Accounting (Updated) VIEW
Modern Banking (Updated) VIEW
Banking Operations (Updated) VIEW
Human Capital Management (Updated) VIEW
Human Resource Management (Updated) VIEW
Business Data Analysis (Updated) VIEW
Quantitative Techniques for Business Decisions VIEW
Computer Accounting Tally Prime VIEW

3rd Semester

Corporate Accounting (Updated) VIEW
Financial Management (Updated) VIEW
Fundamentals of Costing (Updated) VIEW
Digital Entrepreneurship (Updated) VIEW
India Constitution (Updated) VIEW

4th Semester

Advanced Corporate Accounting (Updated) VIEW
Costing Methods (Updated) VIEW
Stock and Commodity Markets (Updated) VIEW
Business Research Methodology (Updated) VIEW
Soft Skills for Business (Updated) VIEW

NEP Syllabus Notes

1st Semester

Financial Accountancy (Updated) VIEW
Business Management & Startups (Updated) VIEW
Principles of Marketing (Updated) VIEW
Digital Fluency (Updated) VIEW
Spreadsheet for Business (Updated) VIEW
Financial Literacy (Updated) VIEW
Business Documents (Updated) VIEW

2nd Semester

Advanced Financial Accounting (Updated) VIEW
Business Ethics (Updated) VIEW
Banking Innovations (Updated) VIEW
E-Business (Updated) VIEW
Fundamentals of Investments in Capital Market (Updated) VIEW
Digital Fluency (Updated) VIEW

3rd Semester

Corporate Accounting (Updated) VIEW
Business Mathematics & Statistics (Updated) VIEW
Indian Financial Services (Updated) VIEW
Company Law & Administration (Updated) VIEW
Constitution of India (Updated) VIEW
Entrepreneurship Skills (Updated) VIEW
Investments in Stock Market (Updated) VIEW

4th Semester

Advanced Corporate Accounting (Updated) VIEW
Cost Accounting (Updated) VIEW
Business Regulations (Updated) VIEW
Artificial Intelligence (No Update) VIEW
Corporate Governance (Updated) VIEW
Investments in Commodity Markets (Updated) VIEW

5th Semester

Financial Management (Updated) VIEW
Income Tax Law and Practice-I (Updated) VIEW
Principles and Practice of Auditing (Updated) VIEW
A1 Indian Accounting Standards-I (Updated) VIEW
F1 Financial Institutions and Markets (Updated) VIEW
M1 Retail Management (Updated) VIEW
H1 Human Resources Development (Updated) VIEW
I1 Basics of Business Analytics (Updated) VIEW
GST Law & Practice (Updated) VIEW
Digital Marketing VIEW
Cyber Security (Updated) VIEW
Employability Skills VIEW

6th Semester

Advanced Financial Management (Updated) VIEW
Income Tax Law and PracticeII (Updated) VIEW
Management Accounting (Updated) VIEW
A2 Indian Accounting Standards2 (Updated) VIEW
F2 Investment Management (Updated) VIEW
M2 Customer Relationship Management (Updated) VIEW
H2 Cultural Diversity at Work Place (Updated) VIEW
I2 HR Analytics (Updated) VIEW
Assessment of Persons other than Individuals and Filing of ITRs (Updated) VIEW
ECommerce (Updated) VIEW

CBCS 2020-21 Syllabus

1st Semester

Financial Accounting (Updated) VIEW
Fundamentals of Management and Life Skills (Updated) VIEW
Business Organization & Market Dynamics (Updated) VIEW
Business Mathematics (No Updated) VIEW

2nd Semester

Advanced Financial Accounting (Updated) VIEW
Marketing & Event Management (Updated) VIEW
Human Capital Management (Updated) VIEW
Quantitative Analysis for Business Decision (Updated) VIEW

3rd Semester

Corporate Accounting (Updated) VIEW
Financial Management (Updated) VIEW
Elements of Costing (Updated) VIEW
Indian Financial System (Updated) VIEW

4th Semester

Advanced Corporate Accounting (Updated) VIEW
Costing Methods (Updated) VIEW
E-Business & Computerized Accounting (Updated) VIEW
Business Regulations (Updated) VIEW

5th Semester

Subjects
Income Tax I (Updated) VIEW
Cost Management (Updated) VIEW
Indian Accounting Standards (Updated) VIEW
Auditing and Reporting (Updated) VIEW
Accounting & Taxation Group  
AC5.5 Advanced Accounting (Updated) VIEW
AC5.6 Accounting for Government and Local Bodies (Updated) VIEW
Finance Group  
FN5.5 Corporate Financial Management (Updated) VIEW
FN5.6 Strategic Financial management (Updated) VIEW
Marketing Group  
MK5.5 Consumer Behaviour & Market Research (Updated) VIEW
MK5.6 Advertising & Media Management (Updated) VIEW
HR Group
HR5.5 Performance Management (Updated) VIEW
HR5.6 Strategic Human Resource Management (Updated) VIEW

6th Semester

Subjects
Income Tax II (Updated) VIEW
Management Accounting (Updated) VIEW
Goods & Services Tax VIEW
Entrepreneurship and Ethics (Updated) VIEW
Accounting & Taxation Group
AC6.5 Business Taxation (Updated) VIEW
AC6.6 Financial Reporting and Corporate Disclosures (Updated) VIEW
Finance Group
FN6.5 Derivatives and Risk Management (Updated) VIEW
FN6.6 International Financial Management (Updated) VIEW
Marketing Group
MK6.5 Retail Management (Updated) VIEW
MK6.6 International Marketing Management (Updated) VIEW
HR Group
HR6.5 Labour Welfare and Social security (Updated) VIEW
HR6.6 International Human Resource Management VIEW

 

Advertising Creative Process, Creative Strategy Development, Advertising campaign

Creativity in advertising does not exist in a vacuum. Productive originality and imagination are useful in all areas, even those that relate to such typically managerial tasks as the planning and organisation of advertising departments, and the establishment of controls.

In a recent survey of top managers in large corporation the lacks of innovative thinking in promotion was identified as a major concern. Specifically, there appeared to be general unwillingness to take necessary risks, as well as inability to define new methods for promoting products to customers in the face of major increase in the cost of media advertising and personal selling.

The creative process is not a scientific process; rather it evolves from insight or inspiration. Nonetheless creativity in advertising must not only produce unique and interesting results, it must also produce useful solutions to real problems. Baker describes the concept of creativity as a pyramid divided into three parts.

Advertising creativity frequently takes off from a base of a systematic accumulation of facts and analysis. The second phase represents processing, or analysis, and the third part—the idea—is the culmination of creative efforts.

English sociologist Graham Walls outlined the four steps in creative process as follows (Fig.):

Fig: Graham Walls creative process

Step-I:

Preparation:

Gathering background information needed to solve the problem through research and study.

Step-II:

Incubation:

Getting away and letting ideas develop.

Step-III:

illumination:

Seeing the light or solution.

Step-IV:

Verification:

Refining and polishing the idea and seeing if it is an appropriate solution. One of the most popular approaches to creativity in advertising was developed by James Webb Young, a former creative vice president at the J. Walter Thompson agency.

Young said that “the production of ideas is just as definite a process as the production of Fords; that the production of ideas, too, runs an assembly line; that in this production the mind follows an operative technique which can be learned and controlled; and that its effective use is just as much as a matter of practice in the technique as in the effective use of any tool”.

Young’s model of the creative process contain five steps (Fig.):

Fig: James Webb Young creative process

Step 1:

Immersion:

Gathering raw material and information through background research and immersing yourself in the problem.

Step 2:

Digestion:

Taking information, working it over, and wrestling with it in the mind.

Step 3:

Incubation:

Putting the problems out of your conscious mind and turning the information over to subconscious to do the work.

Step 4:

illumination:

The birth of an idea The “Eureka! I have it” phenomenon.

Step 5:

Reality or Verification:

Studying the idea to see if it still looks good or solves the problem, then shaping the idea to practical usefulness.

Model of the creative process are valuable to those working in the creative area of advertising, since they offer an organised way to approach an advertising problem. Preparation or gathering of information is the first step in the creative process.

The advertiser and agency start by developing a thorough understanding of the product or services, the target market, and the competition. Attention is also focused on the role of advertising in the marketing and promotional programme.

These models do not say much about how this information will be synthesized and used by the creative specialist because this part of the process is unique to the individual. In many ways, it is what sets apart the great creative minds and strategists in advertising.

Fig: Sequence of event in the development of message

Principles of Advertising Strategy:

As all advertising process begin with an advertising strategy. Advertising strategy is the formulation of advertising message that communicate the benefit or problem solution characteristics of the product or service to the market.

The message must be consumer oriented in meeting consumer needs or wants and must offer the desired consumer benefit, otherwise even a brilliant advertising strategy will not succeed. Hence, the advertising message must be the right one which when projected to the right audience at the right time, will bring the desired results.

Following principles (guide lines) are to be kept-in mind while formulating the advertising strategy:

(a) The consumer benefit must be directly related to the specific features of the product. This strategy would differentiate the product from the competitors. Then the consumer need or want associated with a particular brand reduces the competitor’s edge.

(b) Right type of media should be chosen for the product/service advertising for the proper and effective communication

(c) The benefit offered to the consumer must be wanted by the consumers. The product features offered must be what the consumer actually wants and not what the manufacturer thinks that the consumer wants.

(d) The advertising message must be clear that the product offered will solve a consumer problem and fulfill a consumer need or offer a consumer benefit. The benefit must be clearly communicated.

Advertising Campaign

Advertising campaigns are the groups of advertising messages which are similar in nature. They share same messages and themes placed in different types of medias at some fixed times. The time frames of advertising campaigns are fixed and specifically defined.

The very prime thing before making an ad campaign is to know-

Why refers to the objective of advertising campaign. The objective of an advertising campaign is to

  • Inform people about your product
  • Convince them to buy the product
  • Make your product available to the customers

The process of making an advertising campaign is as follows:

  1. Research: First step is to do a market research for the product to be advertised. One needs to find out the product demand, competitors, etc.
  2. Know the target audience: One need to know who are going to buy the product and who should be targeted.
  3. Setting the budget: The next step is to set the budget keeping in mind all the factors like media, presentations, paper works, etc which have a role in the process of advertising and the places where there is a need of funds.
  4. Deciding a proper theme: The theme for the campaign has to be decided as in the colors to be used, the graphics should be similar or almost similar in all ads, the music and the voices to be used, the designing of the ads, the way the message will be delivered, the language to be used, jingles, etc.
  5. Selection of media: The media or number of Medias selected should be the one which will reach the target customers.
  6. Media scheduling: The scheduling has to be done accurately so that the ad will be visible or be read or be audible to the targeted customers at the right time.
  7. Executing the campaign: Finally the campaign has to be executed and then the feedback has to be noted.

Mostly used media tools are print media and electronic media. Print media includes newspaper, magazines, pamphlets, banners, and hoardings. Electronic media includes radio, television, e-mails, sending message on mobiles, and telephonic advertising. The only point to remember is getting a proper frequency for the ad campaign so that the ad is visible and grasping time for customers is good enough.

All campaigns do not have fix duration. Some campaigns are seasonal and some run all year round. All campaigns differ in timings. Some advertising campaigns are media based, some are area based, some are product based, and some are objective based. It is seen that generally advertising campaigns run successfully, but in case if the purpose is not solved in any case, then the theory is redone, required changes are made using the experience, and the remaining campaign is carried forward.

Advertisement Creativity: Introduction, importance

Creativity is probably one of the most commonly used terms in advertising ads. The people who develops ads and commercials are known as creative professionals. And advertising agencies develop reputations for their creativity. Perhaps so much attention is focused on the concept of creativity because many people view the specific challenge given to those who develop an advertising message as being creative.

It is their job to turn all of the information regarding product features and benefits, marketing plans consumer research and communica­tion objectives into a creative concept that will bring the advertising message to life. This begs the question: What is meant by creativity in advertising?

Creativity is generally defined in aesthetic terms:

The ability to produce new, useful ideas; originally, imagination: or the capacity for joining two or more elements to form a new unity or purpose. However, each definition leaves out the utilization or productive function of creativity which applies to advertising.

An individual creates an environment which affects the extent and manner of his creativity. What emerges is not only an expression of the inner state of the creater; it is also designed to meet externally defined needs and goals. Creativity in advertising is an example of a combination of both aesthetics and problem solving.

Perspective on what constitutes creativity in advertising vary. At one extreme are those who argue that advertising is creative only if it sells the product. An advertising message or campaign’s impact on sales counts more than whether it is innovative or wins awards.

At the other end of the continuum are those who judge the creativity of an ad in terms of its artistic or aesthetic value and originality. They contend creative ads can break through the competitive clutter, grab the consumer’s attention, and have some impact.

What constitutes creativity in advertising is probably some where between the two extremes. To break through the clutter and make an impression on the target audience, an ad often must be unique and entertaining. Research has shown that a major determinant of whether a commercial will be successful in changing brand preferences is its “likability” or the viewer’s over all reaction.

Television commercials and print ads that are well designed and executed and generate emotional responses can create positive feelings that are transferred to the product or service being advertised. Many creative people believe this type of advertising can come out only if they are given considerable latitude in developing advertising messages.

But ads that are creative only for the sake of being creative often fail to communicate a relevant or meaningful message that will lead consumers to purchase a product or service.

Everyone involved in planning and developing an advertising campaign must understand the importance of balancing the ‘it’s not creative unless it sells’ perspective with the novelty/uniqueness and impact position.

Marketing and product managers or account executives must recognise that imposing to many sales and marketing oriented communica­tion objective on the creative team can result in mediocre advertising which is often ineffective in today’s competitive, cluttered media environment.

At the same time, the creative specialists must recognise that the goal of advertising is to assist in selling the product or service and good advertising must communicate in manner that helps the client achieve this goal.

Advertising creativity is the ability to generate fresh, unique, and appropriate ideas that can be used as solutions to communication problems. To be appropriate and effective, a creative idea must be relevant to the target audience.

Many ad agencies recognise the importance of developing advertising that is creative and different yet communicates relevant information to the target audience. The agency views a creative advertising message as one built around a creative core or power idea and using excellent design and execution to communicate information that interests the target audience.

Advertising creativity is not the exclusive domain of those who work on the creative side of advertising. The nature of business requires creative thinking from everyone involved in the promotional planning process.

Individuals in the agency, such as account executives, media planners, researchers and attorneys, as well as those on the client side, such as marketing and brand managers must all seek creative solutions to problems encountered in planning, developing and executing an advertising campaign.

Advertising Creative Strategy Evaluation:

  1. The end product advertising planning and creative strategy, and its execution, is the form in which an advertisement appears.
  2. There are variations according to the media used.
  3. The creation of an advertising message commences with the overall marketing and advertising goals.
  4. Setting of advertising budget provides boundary parameters so that the formulation of the message may be trimmed down accordingly.
  5. The seeds of advertising message are to be found in the purchase preposition.
  6. The success or failure of the message, as measured by the reception by the audience depends a great deal on what the advertiser has to offer, not merely in terms of product quality and characteristics but more as to their relevance to the prospect’s requirements and mental make up.
  7. The entire copy should be structured along the AIDA line.

Determining the message theme/major selling ideas

Today every company needs to advertise its product to inform the customers about the product, increase the sales, acquire market value, and gain reputation and name in the industry. Every business spends lot of money for advertising their products but the money spent will lead to success only when the best techniques of advertising are used for the product. So here are some very common and most used techniques used by the advertisers to get desired results.

  1. Emotional Appeal

This technique of advertising is done with help of two factors – needs of consumers and fear factor. Most common appeals under need are:

  • need for something new
  • need for getting acceptance
  • need for not being ignored
  • need for change of old things
  • need for security
  • need to become attractive, etc.

Most common appeals under fear are:

  • fear of accident
  • fear of death
  • fear of being avoided
  • fear of getting sick
  • fear of getting old, etc.
  1. Promotional Advertising

This technique involves giving away samples of the product for free to the consumers. The items are offered in the trade fairs, promotional events, and ad campaigns in order to gain the attention of the customers.

  1. Bandwagon Advertising

This type of technique involves convincing the customers to join the group of people who have bought this product and be on the winning side. For e.g. recent Pantene shampoo ad which says “15crores women trusted Pantene, and you?”

  1. Facts and Statistics

Here, advertisers use numbers, proofs, and real examples to show how good their product works. For e.g. “Lizol floor cleaner cleans 99.99% germs” or “Colgate is recommended by 70% of the dentists of the world” or Eno – just 6 seconds.

  1. Unfinished Ads

The advertisers here just play with words by saying that their product works better but don’t answer how much more than the competitor. For e.g. Lays – no one can eat just one or Horlicks more nutrition daily. The ads don’t say who can eat more or how much more nutrition.

  1. Weasel Words

In this technique, the advertisers don’t say that they are the best from the rest, but don’t also deny. E.g. Sunsilk Hairfall Solution – reduces hairfall. The ad doesn’t say stops hairfall.

  1. Endorsements

The advertisers use celebrities to advertise their products. The celebrities or star endorse the product by telling their own experiences with the product. Recently a diamond jewellery ad had superstar Amitabh Bacchan and his wife Jaya advertising the product. The ad showed how he impressed his wife by making a smart choice of buying this brand. Again, Sachin tendulkar, a cricket star, endorsed for a shoe brand.

  1. Complementing the Customers

Here, the advertisers used punch lines which complement the consumers who buy their products. E.g. Revlon says “Because you are worth it.”

  1. Ideal Family and Ideal Kids

The advertisers using this technique show that the families or kids using their product are a happy go lucky family. The ad always has a neat and well furnished home, well mannered kids and the family is a simple and sweet kind of family. E.g. a dettol soap ad shows everyone in the family using that soap and so is always protected from germs. They show a florescent color line covering whole body of each family member when compared to other people who don’t use this soap.

10. Patriotic Advertisements

These ads show how one can support their country while he uses their product or service. For e. g some products together formed a union and claimed in their ad that if you buy any one of these products, you are going to help a child to go to school. One more cellular company ad had a celebrity showing that if the customers use this company’s sim card, then they can help control population of the country.

11. Questioning the Customers

The advertisers using this technique ask questions to the consumers to get response for their products. E.g. Amway advertisement keeps on asking questions like who has so many farms completely organic in nature, who gives the strength to climb up the stairs at the age of 70, who makes the kids grow in a proper and nutritious ways, is there anyone who is listening to these entire questions. And then at last the answer comes – “Amway : We are Listening.”

12. Bribe

This technique is used to bribe the customers with some thing extra if they buy the product using lines like “buy one shirt and get one free”, or “be the member for the club for two years and get 20% off on all services.”

13. Surrogate Advertising

This technique is generally used by the companies which cannot advertise their products directly. The advertisers use indirect advertisements to advertise their product so that the customers know about the actual product. The biggest example of this technique is liquor ads. These ads never show anyone drinking actual liquor and in place of that they are shown drinking some mineral water, soft drink or soda.

These are the major techniques used by the advertisers to advertise their product. There are some different techniques used for online advertising such as web banner advertising in which a banner is placed on web pages, content advertising using content to advertise the product online, link advertising giving links on different sites to directly visit the product website, etc.

Introduction to USP

The unique selling proposition (USP) or unique selling point is a marketing strategy of making a unique proposition to customers that convinced them to switch brands. It was used in successful advertising campaigns of the early 1940s. The term was coined by television advertising pioneer Rosser Reeves of Ted Bates & Company. Theodore Levitt, a professor at Harvard Business School, suggested that, “Differentiation is one of the most important strategic and tactical activities in which companies must constantly engage.” The term has been extended to cover one’s “personal brand”.

A unique selling proposition (USP) refers to the unique benefit exhibited by a company, service, product or brand that enables it to stand out from competitors. The unique selling proposition must be a feature that highlights product benefits that are meaningful to consumers.

As described by Dr. James Blythe, the USP “contains the one feature of the product that most stands out as different from the competition, and is usually a feature that conveys unique benefits to the consumer.” Communicating the USP is a key element of branding.

In Reality in Advertising, Reeves laments that the USP is widely misunderstood. He outlined three basic rules for an advertisement that encapsulated his ideas about the USP:

  • Each advertisement must make a proposition to the consumer not just words, product puffery, or show-window advertising. Each advertisement must say to each reader: “Buy this product, for this specific benefit.”
  • The proposition must be one the competition cannot or does not offer. It must be unique either in the brand or a claim the rest of that particular advertising area does not make.
  • The proposition must be strong enough to move the masses, i.e., attract new customers as well as potential customers.

Importance

In essence, your USP must communicate to your audience that your product has superior value, and that this value is only attainable if they buy from your brand.

A well-developed USP is vital when you’re setting out any marketing strategy. It gives you clarity around the content you want to develop for any online or offline marketing. Its benefits to your marketing strategy include:

A Clear Benefit

When your product or service’s benefit is well-defined by its USP, your target audience learns to appreciate it for that particular aspect e.g 24/7 support or calls returned in 1 hour. Otherwise, your customers will simply gravitate towards others that offer the lowest price, regardless of what other product benefits you may have to offer.

Improved Revenue

A strong product USP improves your marketing as a whole and helps bolster revenue because it gives your market a specific reason to buy. Combined with your product’s intrinsic benefits and a competitive price, your USP will help cement your product’s position in the market, so that your customers will want to keep paying for it.

Loyal Market

When you build a strong and positive product identity via a significant USP, it tells your market where they stand with you. You don’t want your product to be an option amongst other brands, after all. With a powerful USP, you can easily corner the market segment that needs and wants exactly what you’re offering, increasing their loyalty to your brand.

Streamlined Sales Strategy

A generic marketing and sales campaign may be hit-or-miss because it’s harder to highlight your product’s strengths. A good USP streamlines your strategy by allowing you to communicate how you want your market to perceive your product and brand, and focus on its particular benefits.

The USP concept has become one of the eight broad approaches to creative executions in advertising. The USP approach is recommended where high levels of technological innovation characterise a product category. A clear USP helps consumers to understand differences – even non-existent differences between brand offerings in a category, and may also help consumers to form a positive attitude towards a brand and may ultimately contribute to increased levels of brand recall.

In order to determine an appropriate USP for any given brand, marketers must undertake extensive research of the category as well as of consumers. It is important to be able to locate a space in the market, ensure that the feature is something that is unique, and also something that is valued by potential customers.

Sellers also need to try selling a brand to themselves; this is so they know they are passionate about a product and confident it can succeed. The seller needs a key point to use when trying to sell their product or service, and coming up with it prior to selling will benefit.

Having a point of difference to stand out is a major benefit in markets; customers will be drawn to a business if it offers something no one else has. Whether differences are subtle or blatant, they can be the driving force that ensures the end-consumer makes the desired decision in choosing one product over the competition. This is exactly what every business should be looking into whether it is home-delivery service from a store or all-organic food at a restaurant.

In markets which contain many similar products, using a USP is one campaign method of differentiating the product from the competition. Products or services without differentiation risk the consumer seeing them as commodities and fungible, thus lowering price potential. Thus having a unique selling point is essential to have a successful business that can handle current competition, as well as possible future comers in similar markets.

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