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Credit & Collection > L5-8 > Flashcards

L5-8 Flashcards

1
Q

It refers to a document which evidence the existence of credit transaction to establish the rights and responsibilities of the parties to the transaction.

A

Credit Instrument

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2
Q

It described as an acknowledgement of a debt by the buyer, in favor of the seller for merchandise.

A

Trade Acceptance

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3
Q

It is executed by the maker who, as is logical to expect, is the debtor who promises that he will pay seller the amount owed at certain determinable time.

A

Promissory notes

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4
Q

It is an unconditional order in writing addressed by one person to whom it is addressed to pay the demand at a fixed future time a certain amount of money to specific person.

A

Bill of Exchange

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5
Q

a kind of bill of exchange that is legally defined as one wherein the drawer and the drawee reside in two different countries.

A

Foreign Bill

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6
Q

A kind of bill of exchange wherein the parties both reside in the same country.

A

Domestic Bill

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7
Q

It is also called as another form of credit instrument whereby through its use, holders thereof are able to purchase goods and services on credit against payment in the future.

A

Credit Card

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8
Q

It is a letter used by a bank authorizing a designated individual firm or corporation to draw on it up to the total amount for which the credit is established.

A

Letter of credit

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9
Q

A type of letter of credit that cannot be cancelled or revoked at any time after its issuance or better expiration.

A

Irrevocable letter of credit

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10
Q

It also known as “Book Credit”

A

Open Book Account

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11
Q

A type of letter of credit that could be revoked under such condition.

A

Revocable letter of credit

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12
Q

It is a written account of goods shipped by any person, signed by the agent of the owner of the vessel, or by its master, acknowledging receipts of the goods and promising to deliver them safe at the port directed, damages of the sea excepted.

A

Bill of Lading

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13
Q

Three important purposes are served by a bill of lading. (reading purposes)

A
  1. It conveys title to the merchandise.
  2. It is a receipt of acknowledgement of the goods signed by the carrier.
  3. It serves as a contract of transportation between the shipper and the carrier.
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14
Q

It is a document that is frequently used to protect the bank when it becomes necessary to release the goods in order that the borrower may utilize or dispose of them. Also defined as a “receipt given” by an importer who has loaned money upon importer’s goods.

A

Trust Receipts

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15
Q

It is a “written acknowledgement” by a warehouseman that holds certain goods, identified by the receipt, for the person to whom the writing is issued.

A

Warehouse Receipts

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16
Q

Obligation to Deliver (reading purposes)

A

A warehouseman, in the absence of some lawful excuse provided by the warehouse receipts law, is bound to deliver the goods upon a demand made either by the holder of a receipts for the goods or by the depositor, if such demand is accompanied with.

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17
Q

Liability for Misdelivery (reading purposes)

A

Where a warehouseman delivers the goods to one who is not in fact lawfully entitled to the possession of them.

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18
Q

It is the most commonly known legal instrument for secured borrowing in business either individual or corporate form.

A

Mortgage

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19
Q

Those are personal property that are movable.

A

Chattel Mortgage

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20
Q

Those are property like land, building, machinery and factories which are immovable.

A

Mortgage on Real Property

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21
Q

It refers to mortgage by a corporation used as collateral security for a loan of a fixed amount.

A

Close – end mortgage

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21
Q

This is type of mortgage, a corporation may issue bonds in whatever number it may deem proper under the circumstance.

A

Open – end mortgage

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22
Q

It is a “bailment of goods” by a debtor to his creditor to be kept till the debt is discharge.

A

Pledge

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23
Q

Object of Pledge (reading purposes)

A

All movable which are within the commerce of man may be pledged, provided they are susceptible of possession.

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24
Q

Essential requisites to Pledge and Mortgage (reading purposes)

A
  1. That they be constituted to secure the fulfilment of a principal obligation.
  2. That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged.
  3. That the person constituting the pledge or mortgage have the free disposal of their property.
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25
Q

The time element, which involves the determination as to when payment shall be made

A

Commonly known as bill on “terms”.

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26
Q

It measure the or specify the credit period when payment will be made.

A

Term

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27
Q

The nature of the commodity generally circumscribe the terms of sales such as: Cash Basis, Instalment basis, Deferred payment

A

Commodity as Factor

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28
Q

In a number of instances, the seller recognizes the distant location of the buyer and make concession in the matter of terms.

A

Geographic Consideration

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29
Q

Term will only effect after the said “R.O.G’ which means

A

“Receipt on Goods”

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30
Q

The “regular terms” of trade usually apply to shipments of order received for delivery at once. Receive an order in advance which are to be shipped at a certain date.

A

Seasonal Dating

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31
Q

It tender partial payment from time to time in accordance with the agreement between sellers and buyers.

A

Terms in Retail Trade

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32
Q

It refers to the customers having doubtful character or capacity to pay.

A

Standing of Customer

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33
Q

It refers to the goods delivered to the buyer only when the seller obtains receipts of funds corresponding to value of goods ordered.

A

Cash Terms

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34
Q

It applies to transaction in which the seller receives the cash payment as a condition to deliver goods.

A

Cash before Delivery (CBD)

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35
Q

It refers to the willingness of the seller to deliver goods to their valuable customers even in the absence of promise to pay

A

Cash on Delivery (COD)

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36
Q

Frequency of purchase or other circumstances may make necessary for certain special treatment of individual cases.

A

End of the Month (EOM)

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37
Q

It refers to the bonus offered to induce the earlier payment of the bill. And it reduces the credit risk of the seller and enables to have earlier possession of funds.

A

Discounts

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38
Q

It is the price paid for the early payment of funds. It arises where the terms allows the buyer to pay on certain date, net, or prior thereto less discounts.

A

Cash Discount

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39
Q

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 elements of price.

A

Trade Discount

40
Q

It is tasked and responsibility around the gathering of all credit information about the applicant and assembling them in such a way that they could be help in properly guiding in their assessment and analysis for the purpose of establishing credit rating.

A

Credit Department

41
Q

It is a man who occupies a very important position in the structure of credit economy and yet is little known and least talked about outside the world in which he lives.

A

Credit Manager

42
Q

Importance of Credit Management (reading purposes)

A

There is hardly any business concern today which is not engaged in the grant of credit of one type or another. However, briefly pointed out, granting credit is one thing and collection is another.

43
Q

This tasked is perform by the bank’s credit investigator who has, as his main objective, the verification as well as evaluation of the applicant’s character, credit standing, and integrity through the process of data gathering of all essential facts.

A

Credit Investigation

44
Q

Whether the investigation is routine matter or a special case and the purpose is general or specific.

A

Purposes and types of investigation

45
Q

Whether the policy is a conservative or liberal one, and whether it requires a comprehensive investigation of cases, or representative sampling would suffice.

A

Company Credit Policy

46
Q

Whether the client is new or an established one. A past–due account or valued one.

A

Client Classification

47
Q

Whether the amount is big or small.

A

Amount involved

48
Q

The scope depends on such factors since the report must be finished on the date it is needed by the requesting bank.

A

Time and resource constraints

49
Q

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.

A

Company’s background / History

50
Q

The investigator also takes into account the requirements common in the following types of business organization: (reading purposes)

A

a. Single Proprietorship – sees to it that the owner has the capacity to enter into a lawful contract.
b. Partnership – the first fact to be ascertained is whether it is general or limited partnership.
c. Corporation – it is the most complicated form of business organization and moreover classified into various types:
- Most common types of Corporation
o Public and Private Corporation
o Stock and Non Stock
o Domestic and Foreign

51
Q

Herein is represented in 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.

A

Financial Condition

52
Q

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.

A

Dealings with the Government Lending Agencies

53
Q

Has there been any previous relationship established in the past?

A

Bank’s experience with the subject

54
Q

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.

A

Court Cases

55
Q

Generally, the scope of credit investigation covers and includes the following: (reading purposes)

A

I. Company’s background / History
II. Financial Condition
III. Dealings with the Government Lending Agencies
IV. Bank’s experience with the subject
V. Court Cases

56
Q

It has been described as a “Decision in Advance”. It evolves from an unwritten set of standards, sometimes very nebulous, to more specific criteria covering the condition under which loans are made.

A

Credit Policy

57
Q

How Bank Loan Policy is formulated? (reading purposes)

A
  • As generally observed, common practice among banking institution, the actual preparation of policy statement usually carried out by the president or senior loan and credit officer.
  • It also includes to types of loans and basis upon which loan application may be considered.
  • Kinds of securities that are considered acceptable by the credit granting institution.
58
Q

Specific guidelines for particular types of categories of bank credit such as: (reading purposes)

A
  1. Agricultural Credit
  2. Commercial Loans
  3. Industrial Loans
  4. Real Estate loans
  5. Consumer Loan
  6. Term Loan
59
Q

It adopt a system of gathering and putting every information about customer and application into a folder which is filed in proper order.

A

Credit File

60
Q

After adopting a credit policy, the business enterprise must decide just what are its credit terms, credit periods and credit limits:

A

Scope of Credit Policy

61
Q

It is a condition under which credit is granted. it includes time when payment has made and discounts if any, that will be allowed for prompted payment.

A

Credit terms

62
Q

It is the length of time within which customer is expected to remit in partial or full.

A

Credit Period

63
Q

It is used as the maxima of credit or the value that a customer can obtain from the firm.

A

Credit Limit

64
Q

Advantages of Credit Limits (reading purposes)

A
  • It is their general use in the nature of danger signals of granting credit.
  • By and Large, the principal purpose and advantage of credit limits is to serve as a guide to credit management and control.
  • It serve as a check against reckless buying spree.
65
Q

It is the maximum amount of credit which may be permitted to remain outstanding on account.

A

Quantitative Credit limit

66
Q

It impose certain requirement which a borrower or prospective debtor must comply before he could grant credit.

A

Temporal Credit limit

67
Q

It is a complex process known as credit checking or credit granting. It involves a thorough study and understanding of financial facts recorded in the balance sheet, income statement, trial balance and separate schedules.

A

Financial analysis

68
Q

It is the basis of the credit decision.

A

Credit Analysis

69
Q

It is the gathering of available information about the applicant.

A

Credit Information

70
Q

Principal Sources of Information
A. Internal Sources (reading purposes)

A
  1. Debtor’s previous record with the business firm
  2. Credit man’s personal knowledge of debtor’s character and reputation.
  3. Personal Contacts with debtor.
  4. Analysis of debtor’s financial statement
  5. Audits or surveys of the business.
71
Q

Principal Sources of Information
B. External Sources (reading purposes)

A
  1. Mercantile Agencies
  2. Trade References
  3. Banks
  4. Newspaper clippings
  5. Court cases
  6. Report from competitors of the borrower.
72
Q

It is initially started when a prospective borrower applies for a loan.

A

Personal Interviews

73
Q

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.

A

Ocular Inspection

74
Q

It may be described as any representation of financial data from accounting records.

A

Financial Statement

75
Q

Three fundamental of Financial Statement (reading purposes)

A
  1. Balance Sheet – which depicts the financial condition of the business firm at the end of a specified period.
  2. Income Statement (Profit – Loss) – statement which summarizes the financial operation over a period of time.
  3. Reconciliation of the capital accounts and summary changes. (Statement of Changes in Owner’s Equity)
76
Q

It is in favored position, if properly instructed, too collect an immense wealth of information about the applicant which perhaps is scarcely available elsewhere.

A

Salesman as Sources of Credit

77
Q

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.

A

Market Sales Department

78
Q

It may be described simply as that company which gathers and distributes information about the credit position of individuals, firm, and corporation.

A

Credit Agencies

79
Q

Types of Credit rating Agencies (reading purposes)

A

a. Agencies that provide credit information with regard to businessmen and companies.
b. Agencies that provide credit information with regard to individual purchaser.

80
Q

It is composed of more than 200 member – companies from the banking and trade, manufacturing, financing and insurance communities.

A

Credit Management Association of the Philippines (CMAP)

81
Q

Three Main Themes of CMAP (reading purposes)

A
  1. To inculcate credit consciousness.
  2. To place the credit men as a professional.
  3. To infuse credit discipline
82
Q

Services offered by CMAP (reading purposes)

A
  • 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
83
Q

The foundation upon which the system of credit rests has been indicated earlier. The bases of credit which are intertwined with credit analysis and evaluation.

A

Bases of Credit

84
Q

willingness to discharge financial obligation

A

Character

85
Q

ability to conduct business efficiency, effectively and profitably.

A

Capacity

86
Q

refers to capital goods that are used in the further production of more goods.

A

Capital

87
Q

refers to compensating consideration purposely intended to shield the interest from bad debts.

A

Collateral

88
Q

it is the stability of the country which pertains to the risk of exchange must also be taken into account.

A

Currency

89
Q

which is by far is the principal C of credit represents a good moral risk

A

Confidence

90
Q

it is also another bases of credit, relationship between the credit and the debtor

A

Connection

91
Q

It emphasizes a firm’s financial performance and its asset position as a specified dated. The main trust of this approach is on capacity.

A

Inward Approach

92
Q

It emphasize on industry conditions, plans, forecast, and general outlook.

A

Outward Approach

93
Q

Sound credit management principles revolve around the three E’s such as:

A
  1. Estimation
  2. Enforcement
  3. Evaluation
94
Q

All available resources of credit information must be tapped and utilized so that a proper estimation of the credit risk can be obtained.

A

Estimation

95
Q

Collection records must be kept and maintained and should indicate when notices were sent;

A

Enforcement

96
Q

Sound credit management principles dictate the result must be evaluated against company policies and procedures.

A

Evaluation

97
Q

It refers to dishonest firms and individuals are known by various names and employ various tricks. A big-time syndicate, who victimize business firms involving large sums of money.

A

Credit Fraud

Credit & Collection (1 decks)

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