module 3

Question 1

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.

Answer 1

credit management

Question 2

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.

Answer 2

credit manager

Question 3

The Principal Objectives of Credit Management

Answer 3

1. maximizing sales
2. controlling the amount of receivables
3. controlling costs of credit and collection

Question 4

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.

Answer 4

maximizing sales

Question 5

Purpose of control: To assure performance in accordance with plans.

Answer 5

controlling the amount of receivables

Question 6

the ability to review and appraise the
operations of his department and the performance of his staff in terms of DESIRED
RESULTS.

Answer 6

qualification of a credit manager

Question 7

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.

Answer 7

controlling costs of credit and collection

Question 8

Principles of a
Sound Credit Management

Answer 8

Estimation
Enforcement
Evaluation

Question 9

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.

Answer 9

Estimation

Question 10

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.

Answer 10

Enforcement

Question 11

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.

Answer 11

Evaluation

Question 12

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).

Answer 12

credit terms

Question 13

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.

Answer 13

days sales outstanding (also called DSO and days receivables

Question 14

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]

Answer 14

bad debts

Question 15

is also used to describe the collection of financial instruments held by an
investor or the loans advanced by a bank.

Answer 15

portfolio

Question 16

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.

Answer 16

Credit analyst

Question 17

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

Answer 17

stop list

Question 18

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.

Answer 18

writing it off

Question 19

refers to the maximum amount of credit a financial institution extends to a client. .

Answer 19

credit limit

Question 20

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

Answer 20

credit rating

Question 21

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

Answer 21

legal remedy

Question 22

PPSA

Answer 22

PERSONAL PROPERTY SAFETY ACT

Question 23

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.

Answer 23

PPSA

Question 24

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

Answer 24

bank guarantee

Question 25

is when a loan—such as a credit card balance—continues to go unpaid,
and a creditor hires a third party, known as a collection service, to focus on collecting the
money.

Answer 25

debt recovery

Question 26

Functions of the Credit Department

Answer 26

1. Gathering, collating and sorting credit information
2. Investigation, analysis, evaluating, appraisal and recommendation
3. Collection and follow ups

Question 27

work in conjunction with the sales
department to make sure that the sales extended on credit are going to credit worthy customers who will pay in a timely manner.

Answer 27

credit departments

Question 28

are entirely based in
the company’s main headquarters

Answer 28

centralized credit departments

Question 29

are not housed in the headquarters, but report to the headquarters from a remote office or offices.

Answer 29

decentralized credit departments

Question 30

The benefits of a centralized credit department include:

Answer 30

– Economies of scale
– Consistency and control

Question 31

The benefits of a decentralized credit department include:

Answer 31

– Internal and external relationships
– Involvement in setting strategic priorities

Question 32

is a structured loan in which money is lent with fixed terms, monthly payments and interest. With most types of installment credit, you make fixed payments until the loan is fully paid off.

Answer 32

installment credit

Question 33

are a popular type of installment loan. These are commonly are commonly issued over 15- or 30-year periods, and the interest rate typically climbs the longer the loan term. Another popular installment loan for mortgages is the 5-year adjustable-rate mortgage (ARM), in which the interest rate can change after 5 years.

Answer 33

mortgages

Question 34

ARM

Answer 34

adjustable-rate mortgage

Question 35

are installment loans that can be issued federally or privately. Typically, students have 10 years (sometimes longer) to pay back federal student loans. If the installment loan is acquired privately, interest rates and loan terms can vary greatly.

Answer 35

student loans

Question 36

loans are, on average, much shorter than mortgages or student loans. Installments are usually paid anywhere from 12 to 96 months. And like a mortgage, the interest is usually higher if your loan term is longer. A longer loan works out to a lower monthly payment, but when your account for total interest paid, you end up paying more money for your vehicle.

Answer 36

auto loans

Question 37

also fall into the installment loan category. Depending on the borrower and the terms of repayment, personal loans can have higher interest rates than mortgages or auto loans. Online loans available to those that need money urgently have become increasingly popular, but they come with a hefty price tag and an assortment of hidden fees.

Answer 37

personal loans

Question 38

Advantages of installment credit

Answer 38

predictability
lower interest rates
quick approvals

Question 39

Disadvantages of installment credit

Answer 39

qualifying
prepayment consequences
increasing interest