module 3 Flashcards
is the process of granting
credit, setting the terms it’s granted on,
recovering this credit when it’s due, and
ensuring compliance with company credit
policy, among other credit related functions.
The goal within a bank or company in
controlling credit is to improve revenues and
profit by facilitating sales and reducing
financial risks.
credit management
is a person employed by an
organization to manage the credit department and make decisions concerning credit limits, acceptable levels of risk, terms of payment and enforcement actions with their customers. This function is often combined with Accounts Receivable and Collections into one department of a company.
credit manager
The Principal Objectives of Credit Management
- maximizing sales
- controlling the amount of receivables
- controlling costs of credit and collection
help increase the volume of sales while minimizing losses. Increased sales and profits are the by – products of a better understanding
and skillful handling of all credit functions.
maximizing sales
Purpose of control: To assure performance in accordance with plans.
controlling the amount of receivables
the ability to review and appraise the
operations of his department and the performance of his staff in terms of DESIRED
RESULTS.
qualification of a credit manager
Expenses incurred in the extension of credit and in the collection of A/R.
It does not necessarily mean minimizing expenses but decreasing cost per
unit.
controlling costs of credit and collection
Principles of a
Sound Credit Management
Estimation
Enforcement
Evaluation
a. All available sources of credit information must be utilized for proper estimation
of credit risk
b. For individual who buy for consumption, character and their ability serve as
important bases of credit; for business concerns, it is the net worth and
condition of the business as well as the reputation for paying their bills.
c. All credit information gathered and received must be kept strict confidence.
Only those authorized must have access to it.
Estimation
a. Collection of accounts should start from the moment they become due. There is no room for vacillation insofar as collection is
concerned.
b. Get the money due without offending the
customers.
c. Collection records must be kept and
maintained and should indicate when notices were sent.
Enforcement
a. Results must be evaluated against company policies and procedures.
b. If a situation should arise in the future which preclude/prevent good-paying
customers to discharge their obligations on time, policies and procedures may
be modified without losing sight of the company goals and objectives.
c. Records must be periodically reviewed or kept up to date.
Evaluation
are terms that indicate when payment is due for sales that are made on credit, possible discounts, and any applicable interest or late payment fees. For example, the credit terms for credit sales may be 2/10, net 30. This means that the amount is due in 30 days (net 30).
credit terms
is a calculation used by a company to estimate the size of their outstanding accounts receivable. It measures this size not in units of currency, but in average sales days.
days sales outstanding (also called DSO and days receivables
occasionally called Uncollectible accounts expense is a monetary amount owed to a creditor that is unlikely to be paid and, or which the creditor is not willing to take action to collect for various reasons, often due to the debtor not having the money to pay, for example due to a company going into liquidation or insolvency.[1]
bad debts
is also used to describe the collection of financial instruments held by an
investor or the loans advanced by a bank.
portfolio
t is a financial professional who assesses the creditworthiness of securities, individuals, or companies. They are typically employed by commercial and investment banks, credit card issuing institutions, credit rating agencies, and investment companies.
Credit analyst
is effectively a blacklist of clients who are no longer to be supplied in lieu of missed, late or incomplete payments. It is crucial that a stop list is shared effectively with everyone in the organization, so everyone knows who is on the list and to ensure they do not provide any further goods or services whilst payment remains outstanding
stop list
means adjusting your books to represent the real amounts of your current accounts. To write off bad debt, you need to remove it from the amount in your accounts receivable. Your business balance sheet will be affected by bad debt.
writing it off
refers to the maximum amount of credit a financial institution extends to a client. .
credit limit
is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government), predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting. This represents
an evaluation of a credit rating agency of the qualitative and quantitative information for the prospective debtor, including information provided by the prospective debtor and other
credit rating
also referred to as judicial relief or a judicial remedy, is the means with which a court of law, usually in the exercise of civil law jurisdiction, enforces a right, imposes a penalty, or makes another court order to impose its will in order to compensate
for the harm of a wrongful act inflicted upon an individual
legal remedy
PPSA
PERSONAL PROPERTY SAFETY ACT
aims to strengthen the secured transactions legal framework in the Philippines, which shall provide for the creation, perfection, determination of priority, establishment of a centralized notice registry, and enforcement of security interests in personal property and for other purposes.
PPSA
is a promise from a lending institution that ensures the bank will step up if a debtor can’t cover a debt. Letters of credit are also financial promises on
behalf of one party in a transaction and are especially significant in international trade. These are often used in real estate contracts and infrastructure projects, while
letters of credit are primarily used in global transactions
bank guarantee
