The exchange of goods is a complex process beset with several types of hindrances. Commerce removes these hindrances.
According to James Stephenson, “Commerce embraces all those activities which help to break the barriers between producers and consumers.
It is the sum total of those processes which are engaged in the removal of hindrances of persons (trade), place (transport, packing and insurance) and time (warehousing) in the exchange (banking) of commodities.”
Thus, the main function of commerce is to remove the following hindrances:
1. Hindrance of person:
This hindrance refers to the lack of contact between producers and consumers. The producer is faced with the problem of finding the buyers who need the goods he has produced and who are able and willing to buy such goods.
The consumer does not know the source of supply of goods which would satisfy his needs at prices he can afford. Commerce removes this hindrance by means of trade.
Trade provides an organised market where the buyers and sellers can contact each other. It saves both producers and consumers from the time-consuming and expensive exercise of locating each other.
2. Hindrance of place:
A major problem faced by producers is to send their goods to distant places without loss through theft, pilferage, damage, etc. Commerce solves this problem by means of transport, packing and insurance.
Modern means of transport carry goods to far-off places quickly and safely. Packing of goods helps to preserve their quality in transit.
With the help of insurance, businessman can cover the risk of loss due to damage and destruction during transit. Thus, transportation, packing and insurance are useful commercial activities.
3. Hindrance of time:
In modern industry goods are produced on a large-scale in anticipation of demand. There is usually a time gap between the production and consumption of goods.
Therefore, it becomes necessary to store the goods until they are sold. This problem is solved by warehousing or storage. Warehouses provide suitable storage facilities to protect the goods from fire, rain, pests, etc. Warehousing is, thus, an integral part of commerce.
4. Hindrance of exchange:
Buying and selling of goods between persons living in different places requires a common medium of payment. Money serves as common medium of payment.
However, convenient, and safe means of payment are required to settle the transaction. Banks help to remove this obstacle in the process of exchange by making and collecting payments on behalf of their clients.
Now businessmen can send money from one place to another in the form of bank-draft, cheque, etc. without facing any risk. Banks also provide credit in the form of overdrafts, letter of credit, cash credit, discounting of bills, etc.
5. Hindrance of knowledge:
Often a producer or merchant finds it difficult to sell his goods and services because consumers are not aware of their benefits and uses. Advertising and sale promotion remove this hindrance by bringing goods and services to the knowledge of consumers. Advertising also persuades people to buy the goods and services.
Thus, commerce plays an important role in the distribution of goods. It makes available to the users goods produced in different parts of a country as well as from other countries. People are able to buy goods produced anywhere in the world.
The producers are relieved of the problem of marketing the goods and can concentrate on increasing production. Commerce provides the advantages of specialisation.
It helps to better satisfy human wants by collecting and distributing goods. Commerce provides the necessary link between the producers and consumers of goods.
It has brought countries close to one another and the world has become one big market. Large scale production is impossible without modern commerce. Commerce has contributed significantly towards the economic development of society and the quality of life of people.