Credit and Collection (Finals) Flashcards
2 Methods in appraising Chattels
Market Value Approach
Cost Approach
It is composed of more than 200 member – companies from the banking and trade, manufacturing, financing and insurance communities.
Credit Management Association of the Philippines (CMAP)
Frequency of purchase or other circumstances may make it necessary for certain special treatment of individual cases.
- Usually utility bills such as electricity, water, internet
End of the Month (EOM)
which is automatically considered tha appraised value and 50% will be the loan value
Secondhand Value
3 Types of Business Organization
Single Proprietorship
Partnership
Corporation
property assigned to the third party can also be offered as collateral.
Deed of Assignment
2 Other Cash Terms
End of the Month (EOM)
Discounts
Type of debtor does not pay on
time because he finds it difficult to part with his money
Uncooperative and Indifferent Debtor
2 Types of Discounts
Cash Discount
Trade Discount
these are the stock whose prices are quoted and transacted through electronic market such as PSE.
Listed Stock
these are properties consist of fixed or immovable properties
under the generic name term “Land”
Real Estate
it is initially started when a prospective borrower
applies for a loan.
Personal Interview
this entails the gathering of current sale price or market values of the chattel being appraised.
Market Value Approach
it is the gathering of available information about the
applicant.
Credit Information
Collection records must be kept and maintained and should indicate when notices were sent
Enforcement
It is a kind of letter which is formal and unusual, when a delinquent debtor receives letter on his account, he may be facing serious immediate attention and action
Registered Letter
Whether the investigation is a routine matter or a special case and the purpose is general or specific.
Purposes and Types of Investigation
Sound credit management principles dictate the result must
be evaluated against company policies and procedures.
Evaluation
It is a complex process known as credit checking or credit granting.
Financial Analysis
this groups consists of individuals and business entities that are conscious of their financial obligation which they discharge
promptly without the need of being reminded about them
Prompt Payer
Which is by far is the principal C of credit represents a good
moral risk
Confidence
2 Alternative Approaches to Credit Rating
Inward Approach
Outward Approach
2 Types of Valuation
Firsthand Value
Secondhand Value
It is to ascertain the actual existence of the property used to
determine its exact location and to look into its actual condition
Inspection
It is not merely poor prospect for business, no prospect at all.
He will shun the creditor, if only from a sense of personal embarrassment
Delinquent Debtor
It is used to inform delinquent debtor of the consequence that will befall upon him when the case is brought to court.
Demand Letter
It is the stability of the country which pertains to the risk of
exchange must also be taken into account
Currency
The nature of the commodity generally circumscribes the terms of sales such as: Cash Basis, Installment Basis, and Deferred Payment
Commodity as Factor
It is situated along the busiest section in town, district, or cities.
Commercial Land
4 Qualities of a Good Bill Collector
Industry
Persistence
Tact
Resourcefulness
8 Qualities of a Good Collection Letter
- short and direct
- use dated action
- written from the customer’s viewpoint
- not provide any cause oor occasion to arouse the anger and bitterness of the customer
- revised periodically
- humanistic approach
- follow a definite pattern
- written in such a way as to make it appear as if it were the last to be sent to the debtor
3 Main Themes of CMAP
- To inculcate credit consciousness
- To place the credit men as a professional
- To infuse credit discipline
A big-time syndicate, who victimize business firms involving large sums of money
Credit Fraud
It measures or specify the credit period when payment will be made. It measures a credit period.
Term
(Statement of Changes in Owner’s Equity)
Reconciliation of the capital accounts and summary changes.
It evolves from an unwritten set of standards, sometimes very
nebulous, to more specific criteria covering the condition under which loans are made.
Credit Policy
which depicts the financial condition of the business firm
at the end of a specified period.
Balance Sheet
came from an old French ”Capitalae” meaning movable property
Chattel
willingness to discharge financial obligation
Character
It is an effective medium in collecting debts, it gives the opportunity to talk personally.
Telephone Calls
3 Most Common Types of Corporation
Public and Private
Stock and Non-Stock
Domestic and Foreign
summary form a breakdown of the financial statement of the
company, reflecting its latest financial condition and the result of operation for the past three or five years.
Financial Condition
Refers to compensating consideration purposely intended to shield the interest from bad debts
Collateral
It is the maximum amount of credit which may be permitted to remain outstanding on account
Quantitative Credit Limit
It covers the complete business records such as the date of
incorporation, type of business organization, record of registration with the proper authorities, the names of incorporators and the summary of operating records.
Company’s Background / History
2 Types of Credit Rating Agencies
a. Agencies that provide credit information with regard to businessmen and companies.
b. Agencies that provide credit information with regard to individual purchaser.
This type of debtor always exhibits an air of defiance.
Pugnacious Debtor
statement which summarizes the
financial operation over a period of time.
Income Statement
3 Scope of Credit Policy
Credit Terms
Credit Period
Credit Limit
Internal Sources of Information (5)
- Debtor’s previous record with the business firm.
- Credit man’s personal knowledge of debtor’s character and reputation.
- Personal Contacts with debtor.
- Analysis of debtor’s financial statement.
- Audits or surveys of the business.
It adopts a system of gathering and putting every information about customer and application into a folder which is filed in proper order.
Credit File
5 Benefits from Collection Effort
- Reduction in the volume of account receivable.
- Freeing capital for business operations.
- Increasing profts through decreasing expenses.
- Shortening of credit period.
- Establishing a line of customer who are financially sound.
From the Credit Management Association of the Philippines (CMAP)data on court cases could be gathered information about the subject’s involvement in, not only collection and other civil cases, but also criminal cases as well.
Court Cases
refers to the bonus offered to induce the earlier payment of
the bill.
Discounts
The scope depends on such factors since the report must be finished on the date it is needed by the requesting bank.
Time and Resource Constraints
5 Classifications of Land
Commercial Land
Residential Land
Industrial Land
Agricultural Land
Raw Land
3 Different Types of Delinquent Debtor
I. Fair Credit
- Careless Borrower
- Complainer
- Unforseen Problems
II. Slow Credit
- Poor Manager
- Marital Problems
- Coward
III. No Good Credit
- Live beyond his income
- Gypsy
- Crook
It includes time when payment has been made and discounts if any, that will be allowed for prompted payment.
Credit Terms
Are those companies which have stable operation, good
management, and usually yield handsome dividend very regularly
Prime Stock
the appraiser should not only determine the actual condition but its use.
Usage
Enumerate Factors in Fixing Term: (6)
- Commodity as Factor
- Geographic Consideration
- Seasonal Dating
- Terms on Retail Trade
- Standing of Customer
- Cash Terms
It is also another bases of credit, relationship between the credit
and the debtor.
Connection
It is tasked and responsible with the responsibility of gathering all credit information about the applicant and assembling them in such a way that they could be helped in properly guiding in their assessment and analysis for the purpose of establishing credit rating.
Credit Department
Type of debtor does not deny the existence of his obligation which arouse from previous transaction neither shun away from the presence of bill collector.
Politician Type
This is due to the observation that research men engaged in the collection of needed information enjoy a certain latitude of freedom from any bias or prejudice.
Market Sales Department
refers to the willingness of the seller to deliver goods to their valuable customers even in the absence of promise to pay.
Cash on Delivery (COD)
2 Types of Stock according to stock value
Listed Stock
Prime Stock
It has been described as a “Decision in Advance”.
Credit Policy
Ability to conduct business efficiency, effectively and profitably.
Capacity
Term will only effect after the said ‘R.O.G” which means Receipt on Goods.
Geographic Consideration
This may be considered as synonymous with need for
achievement or nACH for short
Resourcefulness
7 Bases of Credit
Character
Capacity
Capital
Collateral
Currency
Confidence
Connection
It is in favored position, if properly instructed, to collect an immense wealth of information about the applicant which perhaps is scarcely available elsewhere.
Salesman as sources of credit
3 Types of Properties
Real Estate
Chattel
Share of Stocks
it is the price paid for the early payment of funds.
- It arises where the terms allow the buyer to pay on a certain date,
net, or prior thereto less discounts.
Cash Discount
Factor of terms which the seller recognizes the distant location of the buyer and make concession in the matter of terms.
Geographic Consideration
Refers to capital goods that are used in the further production of
more goods.
Capital
Meaning of Sine Qua Non
absolute essential
whose main task revolve around inspection of property and its evaluation where credit is requested by a prospective borrower from the bank.
Appraiser
one who possibly avoid offending the delinquent debtor while
making collection for the company.
Tact
it is a stock which entitles the holder to an equal pro –
rate division of profits.
common stock
It involves a thorough study and understanding of financial facts recorded in the balance sheet, income statement, trial balance and separate schedules.
Financial Analysis
5 Reasons of Bad Debts
- The debtor - customer has become declared insolvent.
- Customer is stubborn to settle obligation.
- The inability to locate the whereabouts of the debtor
- The business has ceased opeation for several years.
- The untimely demise of the customer leaving obligation behind which the heir refused to honor and settle.
2 Types of Cash Terms
Cash Before Delivery (CBD)
Cash On Delivery (COD)
Whether the amount is big or small
Amount Involved
refers to the customers having doubtful character or capacity to pay.
Standing of Customer
This letter usually initiates an offer to the debtor to help him in his predicament by explaining it together not to misunderstood some consequences.
Discussion Letter
the “regular terms” of trade usually apply to shipments of order received for delivery at once.
Seasonal Dating
Whether the client is new or an established one. A past-due account or valued one.
Client Classification
It emphasizes on industry conditions, plans, forecast, and general outlook.
Outward Approach
Has there been any previous relationship established in the past
Bank’s Experience with the Subject
A debtor who is not hesitate himself to settle his
financial obligation.
Cooperative Debtor
This is beyond question and most difficult part is to write. Failure on the part of the writer to prevent offending the customer causes
more harm than good.
Collection Letter
A creditor is forced to bring to the attention of a debtor about his existing obligation to the company.
Reminder Letter
It imposes certain requirements which a borrower or prospective debtor must comply with before he could grant credit
Temporal Credit Limit
2 Other Information
Personal Interviews
Ocular Inspection
An interview with the seeker of credit may be followed by conducting an actual observation or visitation to plant, equipment and other asset which are offered as collateral security.
Ocular Inspection
Type of debtor who feel they are on top of the world even when world is crumbling to pieces. Psychologist call them as the
”Paranoid.”
Paranoiac
A written communication which refers to an indebtedness, much care must be taken to avoid liability under the law against libel and blackmail.
Telegrams
it may be described as any representation of financial data
from accounting records.
Financial Statement
it brings commensurate rewards
Industry
are those who pay their obligation promptly and religiously
Good Payer
It is to evaluate the property subject to inspection and appraisement to arrive at
its fair market value based on the existing condition.
Objective of Inspection or Appraisal
it refers to the performance of the property when put into use.
Condition
It may be described simply as that company which gathers and distributes information about the credit position of individuals, firm, and corporation.
Credit Agencies
The time element, which involves the determination as to when payment shall be made commonly known as _______/
Bill on terms
2 Types of Credit Limit
Quantitative Credit Limit
Temporal Credit Limit
2 Classifications of Stocks
Common Stocks
Preferred Stock
The discount may be an allowance offered at the end of the given period for the purchase in excess of its stipulated amounts.
- It is distinctly an element of price.
Trade Discount
It is situated in areas that are exclusively reserved and used for factories, plants, and mill which are heavily concentrated in such places.
Industrial Land
It refers to dishonest firms and individuals are known by various
names and employ various trick
Credit Fraud
tender partial payment from time to time in accordance with the agreement between sellers and buyers.
Terms in Retail Trade
3 Examples of Chattels
Machinery and Equipment
Motor Vehicles
Inventories
5 Purposes of Credit Investigation
- Purposes and Types of Investigation
- Company Credit Policy
- Client Classification
- Amount Involved
- Time and Resource Constraints
It is a letter at certain fundamental characteristic of human nature, his soft spot such as making him conscious of the impact of his delinquency on his integrity and reputation.
Appeal Letter
it is a twin brother of industry, it will never tired and afraid
of making repeat calls until amount due to the company is settled.
Persistence
are conducted by the bank through its credit investigators
Inspection
another important phase of credit which is to get money due to the company
Collection Policies
6 Services offered by CMAP
Quarterly survey of credit and collection bureau
Listing of Overdue Account
Listing of Court Cases
Listing of Return Checks
Listing of Corporation and Partnership
Ledger Interchange
7 Elements of Collection Effort
- Collection
- Timing
- Be selective in your clientele
- Employ well
- Maintain a continuity of human relationship once established
- Tell the story of your bank to your community at every opportunity.
- To admit that you have a collection problem in your hands.
7 Types of Collection Letter
Reminder Letter
Discussion Letter
Appeal Letter
Demand Letter
Registered Letter
Telephone Calls
Telegram
It applies to transactions in which the seller receives the cash payment as a condition to deliver goods
Cash Before Delivery (CBD)
another way of classifying debtor is according to their paying habits.
Paying Habits
6 Important Documents that an appraiser should be able to look into and verify:
Sales Invoice
Letter of Credit
Deed of Assignment
Condition
Usage
Valuation
It is the length of time within which a customer is expected to
remit in partial or full.
Credit Period
It appears in its natural state which remains idle and
undeveloped.
Raw Land
It is used for the nearest the objective rule.
Cost Approach
These are planted crops and intended for agricultural
production.
Agricultural Land
3 Sound Credit Management
Estimation
Enforcement
Evaluation
through this document the appraiser will be able to check
who is the legal owner of the property and from whom it was bought.
Sales Invoice
it is a stock which entitles the holder to some preference over some other class of stockholder.
Preferred Stock
refers to the goods delivered to the buyer only when the seller obtains receipts of funds corresponding to value of goods ordered.
Cash Terms
3 Fundamental of Financial Statement
Balance Sheet
Income Statement
Reconciliation of the Capital accounts and summary changes
The credit investigator concentrates on the size and degree of fluctuation on borrowings as well as the nature of the security
pledged to secure the loan.
Dealings with the Government Lending Agencies
are those who take time to pay, or more, are those who try to avoid meeting their obligation.
Slow Payer
It is used as the maxima of credit or the value that a customer
can obtain from the firm
Credit Limit
It is a man who occupies a very important position in the structure of the credit economy and yet is little known and least talked about outside the world in which he lives
Credit Manager
It can provide a basis for the computation of the value
based on its landed costs.
Letter of Credit
it is situated purely or exclusive section of town, district, or city.
Residential Land
2 Classification of Debtor
Good Payer
Slow Payer
9 Types of Debtors
Cooperative Debtor
Chronic Complainer
Politician Type
Uncooperative and Indifferent Debtor
Paranoiac
Pugnacious Debtor
Elusive Debtor
Prompt Payer
Delinquent Debtor
This task is performed by the bank’s credit investigator who
has, as his main objective, the verification as well as evaluation of the applicant’s
character, etc.
Credit Investigation
after deducting depreciation will be the appraised value and 50% of such depreciation will be the loan value.
Firsthand Value
the basis of the credit decision.
Credit Analysis
All available resources of credit information must be tapped
and utilized so that a proper estimation of the credit risk can be obtained.
Estimation
Receive an order in advance which is to be shipped at a certain date.
Seasonal Dating
Whether the policy is a conservative or liberal one,
and whether it requires a comprehensive investigation of cases, or representative sampling would suffic
Company Credit Policy
– those who are generally the product of their fertile
imagination.
Chronic Complainer
It emphasizes a firm’s financial performance and its asset position as a specified dated. The main trust of this approach is on capacity.
Inward Approach
Type of debtor who are as elusive as an eel, thay are different to find.
Elusive Debtor
External Sources of Infomation (6)
- Mercantile Agencies
- Trade References
- Banks
- Newspaper clippings
- Court Cases
- Report from competitors of the borrowers.
