Cambridge O Level Commerce (7100): Aids to trade that support commerce – Study Guide

Aids to trade are services that do not make or sell goods themselves but make buying and selling easier. Topic 5 of the Cambridge O Level Commerce (7100) syllabus focuses on three of them, advertising, banking and insurance, and adds a fourth section on sources of finance and commercial performance, which contains the six commercial calculations you must be able to carry out. Examiners expect you to define each service, explain how it helps a business, and judge which option suits a given situation.

Where does Topic 5 fit in the syllabus?

Topic 1 lists the six aids to trade: communications, transport, warehousing, advertising, banking and insurance. Communication is taught in Topic 2 (section 2.6) and transport and warehousing in Topic 4, Logistics in commerce. Topic 5 covers the remaining three in depth, then moves on to how entrepreneurs raise finance and measure performance. It leads into Topic 6, Sustainability and ethics, where misleading advertising returns as an ethical issue.

Syllabus coverage (7100, 2026-2028)

Section	What you must know
5.1 Advertising	Purposes and types of advertising; traditional and digital media; factors in choosing media; methods of appeal; sales promotion
5.2 Banking	Accounts, customer services, methods of payment and sources of finance; internet and mobile banking and their impact
5.3 Insurance	Purposes; types of insurance risk; pooling of risk; calculating premiums; proposal form, cover note and policy; the insurance broker
5.4 Sources of finance and commercial performance	Entrepreneurship; short- and long-term finance; financial terms; six commercial calculations; improving performance

What is advertising for, and what types are there? (5.1.1)

Advertising is paid communication that tells people about a product and encourages them to buy it. Its purposes are to inform customers about new products, prices and features, to persuade them to choose one product over another, to remind them of an existing product, and to build a brand image.

Type	What it does	Advantage	Disadvantage
Informative	Gives facts such as price, features and where to buy	Helps customers make a reasoned choice	May be less memorable
Persuasive	Uses images and slogans to create a desire to buy	Can raise sales quickly	Can mislead or encourage people to buy what they do not need
Collective (generic)	Promotes a whole product type for an industry, such as “drink more milk”	Shares the cost among many firms	Benefits rivals as well as the firms that pay
Competitive	Compares a brand with its rivals	Shows customers why this brand is better	Can provoke an expensive advertising war

Which advertising media should a business choose? (5.1.2)

Traditional media are television, radio, cinema, local and national newspapers, magazines and trade journals, leaflets and flyers, packaging, direct mail, sponsorship, catalogues and brochures, posters, transport vehicles, window displays, point of sale displays, signboards and word of mouth.

Digital media are social media advertising and other internet advertising (websites and search engines), display advertisements, video advertisements, email marketing, digital billboards and social media influencers.

Medium	Advantages	Disadvantages
Television	Huge audience; sound, colour and movement	Very expensive to make and to broadcast
Local newspaper	Cheap; reaches a local market	Black and white or low quality; short life
Trade journal	Reaches a specialist audience of buyers	Small readership
Social media	Cheap; can be targeted by age, location and interests; easy to change	Easy to scroll past; negative comments spread quickly
Influencers	Trusted by followers; reaches young audiences	Expensive for top influencers; damage if the influencer’s reputation falls

The syllabus names eight factors affecting the choice of medium: the audience, cost, cultural and legal considerations, flexibility to change, local and international market coverage, multi-channel advertising, timing and type of product. A good answer applies them: a small café with a local market and a low budget would choose leaflets, a signboard and social media, not national television.

How do advertisers appeal to customers? (5.1.3)

The methods of appeal listed are emotion, fear, humour, rational, ambition, social acceptance, romantic, adventure, music, and endorsement by celebrities and social media influencers. A rational appeal uses facts, such as fuel economy figures for a car; a fear appeal shows what could go wrong, which suits insurance or road safety; social acceptance suggests that buying the product will help you fit in, which suits fashion. In an exam, explain why the appeal suits the product and audience in the scenario.

What is sales promotion? (5.1.4)

Sales promotion means short-term incentives used to increase sales. The methods named are point of sale, special offers, sponsorship, displays, competitions, coupons, sales periods, loss leaders (products sold below cost to attract customers who then buy other items), free gifts and free samples. The choice depends on the type of business, what competitors are doing, cost, the nature of the product, whether the product is new or old, and timing. Free samples suit a new food product; a sales period suits clearing old seasonal stock.

What services do banks provide? (5.2.1)

Category	Services
Accounts	Current account for everyday payments, with cheques, cards and possible overdraft; deposit or savings account for money that is not needed immediately, which earns interest
Customer services	ATM, night safe (for depositing cash after closing time), foreign currency, financial advice, telephone banking
Payments	Cash, cheque, credit card, debit card, store card, credit transfer, standing order, direct debit, electronic transfer, documentary credit (letter of credit)
Sources of finance	Loan, overdraft, mortgage, hire purchase

Some pairs are often confused. A debit card takes money straight from the current account; a credit card borrows money that is repaid later, with interest if the full balance is not paid. A standing order pays a fixed amount on a fixed date and is changed by the account holder; a direct debit lets the receiver collect an amount that can vary, such as an electricity bill. A loan is a fixed sum repaid in instalments over an agreed period; an overdraft lets a current account go below zero up to a limit and suits short-term cash shortages. A mortgage is a long-term loan secured on property. Hire purchase lets a buyer use goods immediately while paying in instalments; the goods belong to the buyer only after the last payment.

How has digital technology changed banking? (5.2.2)

Internet banking uses a website and mobile banking uses a smartphone app. Advantages: 24-hour access, quick transfers and bill payments, no travel to a branch and lower costs for banks. Disadvantages: the risk of fraud and hacking, the need for a device and internet connection, and difficulty for some older or rural customers. The impact has been the closure of bank branches, the growth of digital-only banks and less use of cash, a move towards a cashless society.

Why do businesses insure, and against what? (5.3.1–5.3.2)

Insurance protects against the financial effect of a loss. The syllabus gives five purposes: risk reduction, compensation, financial protection, business confidence and investment (insurance companies invest the premiums they collect, providing funds for other businesses).

Type of insurance risk	What it covers
Consequential loss	Lost profit while a business cannot trade after, for example, a fire
Employer’s liability	Claims by employees injured at work
Fire	Damage to buildings, stock and equipment by fire
Motor	Damage to vehicles and claims from accidents
Premises	Damage to the business’s buildings
Public liability	Claims by members of the public injured on the premises or by the business’s products or activities
Theft	Loss of stock, cash or equipment through theft

How does insurance work in practice? (5.3.3)

Pooling of risk. Many policyholders pay premiums into a common fund. In any year only a few suffer a loss, so the fund can compensate them. This is why a business can accept risks it could never afford alone.

Calculating a premium. Premiums are usually quoted as a rate per $100 or per $1,000 of the value insured, so premium = (value insured / 100) x rate per $100. The rate is higher where a loss is more likely or would be larger.

Insurance documents come in a fixed order. The proposal form is the application, on which the person seeking insurance gives full and truthful details of what is to be insured. The cover note is temporary proof of insurance while the policy is prepared. The policy is the full written contract, setting out what is covered and the conditions.

The insurance broker is an independent adviser who compares policies from different insurers, recommends the most suitable cover at the best price and helps with claims. The broker is paid by commission from the insurer.

You may meet the “principles of insurance” (insurable interest, utmost good faith and indemnity) in older textbooks. They are not named in the 7100 subject content, so you are not required to learn them; the duty to answer the proposal form honestly is the practical point to remember.

How do entrepreneurs and enterprises raise finance? (5.4.1)

Entrepreneurship is setting up and running a business, taking risks in the hope of making a profit.

Short-term finance (under a year)	Long-term finance
Trade credit, debt factoring, hire purchase, leasing, sale and leaseback, overdraft, selling assets, owner’s savings, retained profit	Ordinary shares, preference shares, loans, debentures, venture capital, crowdfunding

Trade credit is buying now and paying the supplier later, usually within 30 to 90 days. Debt factoring is selling money owed by customers to a factor for immediate cash, less a fee. Leasing is renting equipment instead of buying it. Sale and leaseback means selling an asset such as a building and renting it back. Ordinary shares give voting rights and a variable dividend; preference shares receive a fixed dividend before ordinary shareholders. Debentures are long-term loans to a company at a fixed rate of interest; debenture holders are lenders, not owners. Venture capital comes from investors who fund risky new businesses in return for a share of ownership. Crowdfunding raises small amounts from many people online.

The right choice depends on the purpose and the time period. Finance for stock to sell in the next month suits trade credit or an overdraft; a new factory suits shares, a long-term loan or debentures. A sole trader cannot issue shares, so owner’s savings, loans and crowdfunding matter more.

You also need the financial terms sales, revenue, profit, working capital, assets and liabilities, interest, capital, cash discounts (a reduction for paying promptly) and trade discounts (a reduction given to traders buying for resale).

Which commercial calculations must you know? (5.4.2)

Measure	Formula
Revenue (sales or turnover)	Selling price per unit x number of units sold
Gross profit	Revenue - cost of sales
Gross profit margin (%)	Gross profit / revenue x 100
Net profit (profit for the year)	Gross profit - expenses
Working capital	Current assets - current liabilities
Mark-up (%)	(Average selling price - unit cost) / unit cost x 100

Worked example 1: commercial calculations

A trader buys 400 lamps at $15 each and sells all of them at $24 each. Expenses for the year are $1,500. Current assets are $6,200 and current liabilities are $2,700.

• Revenue = 24 x 400 = $9,600
• Cost of sales = 15 x 400 = $6,000, so gross profit = 9,600 - 6,000 = $3,600
• Gross profit margin = 3,600 / 9,600 x 100 = 37.5%
• Net profit = 3,600 - 1,500 = $2,100
• Working capital = 6,200 - 2,700 = $3,500
• Mark-up = (24 - 15) / 15 x 100 = 60%

Notice that the mark-up (60%) is higher than the gross profit margin (37.5%) because mark-up is measured on cost, which is smaller than revenue.

Worked example 2: an insurance premium

A shop insures its stock worth $64,000. The insurer charges $1.25 per $100 insured.

• Number of $100 units = 64,000 / 100 = 640
• Premium = 640 x 1.25 = $800 a year

If the shop installs a sprinkler system and the rate falls to $1.00 per $100, the premium falls to 640 x 1.00 = $640, a saving of $160.

How can a business improve its performance? (5.4.3)

To raise sales turnover, profit, mark-up or working capital, a business can reduce expenses (for example by cutting energy use or renegotiating rent), increase its mark-up, change its prices, improve its advertising or introduce new products. Always link the method to the measure: cutting expenses raises net profit but does not change gross profit, while raising the mark-up raises gross profit per unit but may reduce the number of units sold.

What are the common mistakes in Topic 5?

• Confusing a premium (paid by the insured) with compensation (paid by the insurer).
• Mixing up a standing order (fixed amount, set up by the payer) and a direct debit (variable amount, collected by the receiver).
• Calling a cover note the full policy.
• Treating debentures as shares: they are long-term loans.
• Mixing up mark-up (on cost) and gross profit margin (on revenue).
• Recommending expensive national television for a small local business without justifying it.

Frequently asked questions

What are the three aids to trade in Topic 5? Advertising, banking and insurance. Topic 5 also covers sources of finance and the six commercial calculations; communication, transport and warehousing are taught in Topics 2 and 4.

What is the difference between advertising and sales promotion? Advertising communicates through media to inform or persuade over time. Sales promotion uses short-term incentives, such as coupons, free samples or loss leaders, to raise sales quickly.

Why does pooling of risk work? Many people pay small premiums into a fund, but only a few suffer a loss in any year, so the fund can pay their claims and still cover the insurer’s costs.

Do I need to learn the principles of insurance? No. The 7100 syllabus asks for purposes, types of risk, pooling, premium calculations, the three documents and the broker, but does not name insurable interest, utmost good faith or indemnity.

Where can I practise?

Revise with the aids to trade revision notes, then try the aids to trade practice questions.

Official syllabus

Cambridge O Level Commerce (7100) syllabus for 2026, 2027 and 2028, Topic 5 Aids to trade that support commerce — official syllabus PDF.