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chapt2 C&&C > CHCHAP3 > Flashcards

CHCHAP3 Flashcards

1
Q

It might be more accurate to refer to the customer - credit department relationship as ?

A

” in-trust “

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2
Q

The relationship that should exist between debtor and creditor must be based on two factors:

A

Confidentiality
Completeness

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3
Q

It is intended solely to assist a prospective creditor in reaching a
decision in a genuine credit problem. Any other use is a breach of confidence since credit information is not for
competitive use

A

CONFIDENTIALITY

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4
Q

An inquiry should clearly describe the subject, state its object, and scope and show that it is made
responsibly.

A

COMPLETENESS

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5
Q

T/F

The first and cardinal principle in credit investigation is to respect the confidential nature of the
information received

A

TRUE

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6
Q

T/F

In answering inquiries, the source of the information should be disclosed without permission.

A

F, should not be disclosed

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7
Q

T/F

Each letter of inquiry should indicate specifically the object and scope of the inquiry.

A

TRUE

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8
Q

T/F

All letters, including form letters should bear the signature of the inquirer to establish
responsibility.

A

F, manual signature

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9
Q

T/F

In answering inquiries, it is advisable to disclose all material facts bearing on the credit standing of the
subject including the basis upon which credit was extended.

A

TRUE

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10
Q

T/F

Where periodic revision of file information is made, it may not be desirable to give your own experience in
the letter of inquiry in order that duplication and unnecessary correspondence may be kept to a
minimum.

A

F, it is desirable

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11
Q

The work of a Credit Investigator may be divided into three (3) major phases;

A

Gathering of credit information.

Analysis of credit information; and

Dissemination of credit information

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12
Q

The Credit investigator will report to?

A

head of the Credit and Collection Department.

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13
Q

the investigation report should consist of

A

Who is requesting for credit accommodation?

Amount and type of the credit applied for

Purpose

Collateral (Security)

Sources and Mode of Payment

Nature of the Business

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14
Q

The type of security as well as its adequacy should be examined closely to guard against losses if the security
will have to be foreclosed.

A

Collateral (Security)

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15
Q

Normally, this information is secured through direct interviews with the applicant.

A

Sources and Mode of Payment

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16
Q

T/F

A thriving business may not be considered a more
desirable credit risk even if its short-term financial position is weak than a business showing more assets but
with decreasing income

A

F, it may be considered

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17
Q

The _____ is significant
because these are the main sources of funds for repayment.

A

profit trend

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18
Q

Upon the favorable recommendation for a credit grant, the same is forwarded to the _______ for
proper invoicing/documentation and delivery

A

Sales Department

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19
Q

ELEMENTS OF CREDIT

A

TRUST OR CONFIDENCE
RISK
PERIOD OR TERM OF PAYMENT
EXCHANGE OF VALUE

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20
Q

_______ and _____ are used interchangeably by credit and collection practitioners.

A

Trustworthiness and creditworthiness

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21
Q

This element can cause a creditor sleepless nights, especially when he begins having second thoughts about
his decision to extend credit.

A

Risk

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22
Q

The analysis of a credit risk always involves five (5) factors which are as follows:

A

Personal Factor
Performance Factor
Economic Factor
Risks Factor
Security Factor

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23
Q

is the principal problem of selling on terms.

A

Credit Risk

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24
Q

Credit risk is composed of:

A

Performance risk:
Liquidity risk
Policy and systems risk

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25
Q

This involves the judicious, timely and prudent checking of the five basis of credit, character, capacity,
capital, condition collateral in applicable cases.

A

Credit Risk Management Process

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26
Q

Causes of Credit Risks

A

Adverse macro-economics, business cycle, product cycle, health, financial condition of debtor;

Capacity to absorb disturbances caused by aberrations in cash flow, leverage, capital, management experience;

Competition and industry trends;

Integrity and reputation problems;

Law and regulatory developments;

Credit performance.

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27
Q
A
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28
Q

Creditors, must in earnest develop evaluation and assessment yardsticks to profile or categorize their
debtors as to the following:

A

Probability of default in performing or paying credit obligation;
Use of financial capacity or performance to arrive at a credit score rating; rather than substantially
character.
Quantitative financial modeling vis-a-vis, default models in a developing economy such as the
Philippines;
Credit risk measure adjustable to meet exigencies by using qualitative credit risk criteria.

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29
Q

Debtors may be assigned risk ratings for:

A

Credit allocation;
Credit pricing;
Credit approval level;
Credit covenant or conditionalities:
Average, credit loss standards for estimating cost of credit or bad, debt write-offs.

30
Q

Without a _____ guide, financial or credit turbulence may wreck
havoc on their credit operation.

A

credit diversification

31
Q

refers to the length of time within which the debtor (with the agreement of the
creditor) must pay the credit, whether this credit be in money, goods or services.

A

PERIOD OR TERM OF PAYMENT

32
Q

For the credit transaction to have meaning and attain its purpose, there must be a positive _____ temporal and/or moral; otherwise, the purpose of the credit granted will be meaningless. -doomed for
collection.

A

EXCHANGE OF VALUE

33
Q

BASIS OF CREDIT

A

CHARACTER
CAPITAL
CAPACITY
CONDITION
COLLATERAL
CONNECTION

34
Q

credit applicant comprises his inherent integrity and personal character.

A

CHARACTER

35
Q

is the property the credit applicant own in his name whether movable or immovable (cars, jewelry,
land, shares of stock, property rights and the like).

A

CAPITAL

36
Q

is the ability of the credit applicant to earn enough to repay credit obtained

A

CAPACITY

37
Q

is a very intangible basis for extending credit.

refers to the debtor’s existing physical,
economic, financial and political situation in his place of residence/business

A

CONDITION

38
Q

are the other
properties whether personally owned or owned by another person that the credit applicant is able to give as
security for the credit obtained.

A

COLLATERAL (SECURITY)

39
Q

You can sum up the meaning of this in a simple Filipino phrase: “Sino’ng kilala mo?”

This is
unscientific basis for granting credit which is based due on our traditional “hiya” and “tang na loob” practices.

A

CONNECTION

40
Q

FINANCIAL FACTORS TO CHECK ON CREDIT APPLICANT

A
  1. Liquidity Ratios
  2. Leverage Ratios
  3. Profitability Ratios
  4. Efficiency Ratios
41
Q

Measures the firm’s ability to meet its maturing short-term obligations.

A

Liquidity Ratios

42
Q

Measures the extent to which credit applicant has been financed by debt

A

Leverage Ratios

43
Q

Measures management’s effectiveness as shown in returns generated from sales and investments.

A

Profitability Ratios

44
Q

Measures how efficient and effective is the credit applicant in using its resources

A

Efficiency Ratios

45
Q

NON-FINANCIAL FACTORS OF CREDIT EVALUATION

A

Payment Performance

General Experience /Background

Age of Business and Evidence of. Sound Growth
Potential

Impression of the Applicant and its Management

Adequacy of Resources/ Availability of Financing

Trend

46
Q

is generally derived from financial statements which must be reliable and credible

A

Credit Evaluation

47
Q

SCORING

A

perfect credit risk score = 120 points.
A marginal risk will score
= 60 points.

deemed bad risk = 30

48
Q

Bonus Non-Financial Factors to Check

A

Security/Collateral
Confirmed Payment Arrangement
Performance of Related Companies/ Joint Several
Obligor
Form of Business Organization

49
Q

Non-Financial Penalty Factors to Check

A

Recent Litigation
Recent Distressful Condition/Illiquidity
Age of Credit Applicant/Owner
Distributive Weakness

50
Q

FORMULA

A

TOTAL BASIC FACTORS
DEDUCT TOTAL PENALTIES
ADD BONUS FACTORS
GRAND TOTAL

51
Q

is a credit rating system used to assess, evaluate individual credit applicants for
ordinary short or medium-term credit application

A

credit scorecard

52
Q

Why Use a Credit Scorecard?

A

1.) You must decide why you want credit scorecard system;
2.) Decide whether or not the scorecard is just for one or more purposes;
3.) Availability of the credit and collection information or date;

53
Q

If the credit scorecard is to be used as a checklist during the credit interview with the credit applicant,
you may want to use a ____ to avoid the impersonal disconcerting impression given out by a
computer.

A

manual system

54
Q

However, the credit and collection data obtained during the credit interview maybe fed into the
____ after it has been weighed, assessed and evaluated for decision or recommendation, which may be
coded.

A

computer

55
Q

A sample of the credit analysis questionnaires may be on the following aspects:

A

Credit applicant’s personal background or circumstances;
 Credit, legal records, cases for or against the credit applicant;
 Sales, credit performance, projections;
 Risk factors on the person, business and community;
 Term or period of past financial obligations with creditors;
 Security or collateral package in applicable cases:
 Exchange or trade-off of temporal and/or moral values for the credit applied for;
 Other relevant, pertinent questions to buttress the favorable possession of the various good attributes
of the elements and basis of credit by the credit applicant.

56
Q

is the process of assigning a numerical point or score to each question or information obtained
from the credit applicant

A

scoring

57
Q

Collecting of random samples of customers’ classes that the scorecard will distinguish i.e.;

A

a) Good Risks
b) Medium Risks
c) Fair Risks
d) Bad Risks

58
Q

Advantages of Credit Scorecard

A
  1. Credit policies maybe revised more objectively to meet sales marketing, credit and collection
    situations.
  2. It may provide a better guideline to less experienced creditman in arriving at a credit decision;
  3. It may mitigate costs of credit investigation.
  4. May provide good monitoring and control over the risks of new accounts;
59
Q

is a sort of mathematical evaluation of credit risk based upon the law of averages.

A

Credit scorecard

60
Q

Samples of Credit Scorecard for Individual with Capacity Bias

A

A. Credit applicants personal circumstances, background
B. Personal credit records, performances either creditors
C. Capabilities
D. Financial performance, projections
E. Risks Factors

61
Q

Sample of Credit Scorecard for Individual with Character Attribute Bias

A

a.) Credit applicant personal circumstances, character background
b.) Personal credit records performance with creditors
c.) Financial Performance projections
d.) Risks Factors
e.) Payments or Term Mechanics
f.) Security Package

62
Q

DICTATE YUNG C’S WITH THEIR RISKS

A

1.) Character + Capacity + Insufficient Capital = Fair Risk
2.) Character +Capital + Insufficient Capacity = Fair Risk
3.) Capacity + Capital + Impaired Character = Doubtful Risk
4.) Character + Capacity - Capital = Limited Risk
5.) Capacity + Capital- Character = Dangerous Risk
6.) Character + Capital- Capacity = Marginal Risk
7.) Capital - Character - Capacity = Poor Risk
8.) Character- Capacity - Capital = Very Bad Risk
9.) Capacity - Character- Capital = Fraudulent Risk

63
Q

A debtor is deemed a ___ when he cannot be found at the addresses) he has given or should be

A

SKIP

64
Q

Tactics of Whereabout/ Skip Tracing

A

Artful Deception
Gimmickry and Gags

65
Q

one of the tactics of whereabout or skip tracing

generally resorted to in tracking down a wily, cunning -“crocodile” like debtor-“the
credit criminal”.

A

“Artful Deception”

66
Q

Successful skip tracing requires experience, more than knowledge of the ____ to be used to
obtain information

A

Gimmickry and Gags

67
Q

can make improbable circumstances
convincing

A

ADTROIT SKIP TRACER

68
Q

Usually the sources of whereabouts information are from any of the following:

A

Place of Employment
2. Previous Employers
3. Trade and Personal References
4. Neighbors
5. Landlord
6. Credit Bureau
7. Wife, legal and common law ones
8. Children
9. Relatives in laws
10. Neighborhood business/ association
11. Janitors/ Messengers
12. Telephone books
13. Town and Barangay Captains
14. Former occupant in a rented dwelling or apartment
15. Armed Forces, Police Records
16. Land Transportation Office for Vehicle Owning Skips
17. Assessor’s Office
18. Register of Deeds
19. Utility companies (i.e. power, water, telephone, home cable)
20. Occupation Register -Civil Service Commission Roles of Professionals
21. Registered mail records
22. Social Professional, Civic Industry and Commercial Association
23. Sports Clubs
24. Newspapers magazine articles and the like
25. Wanted Section in Newspapers

69
Q

due to absence or lack of a good property checking owned
by them against which the pecuniary decision can be enforced against.

A

empty victories

70
Q

sources or records of properties by persons are;

A

Assessor’s office
Register of Deeds, Land Registration Authority, Bureau of Lands
3. Land Transportation Offices
4. Intellectual Property Rights Office
5. Patents Office
6. Stockbrokers
7. Sports or Leisure Club
8. Classified Advertisements
9. Real Estate Brokers
10. National Library for Copyrights
11. Barangay Records for Copyrights
12. Intellectual Property Office

chapt2 C&&C (10 decks)

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