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Credit management
Credit experience of Former Developing nation
importance of a prompt collection policy
1. Requires less working capital tied up in receivables.
2. Reduces the losses from bad debts.
3. Decreases the probability of expensive legal action.
4. Reduces costs of correspondence , book-keeping and collections.
5. Discourage poor risks from customer.
6. Reduces loss of sales which often occurs when a delinquent customer believes he will be refused further credit ad so buys elsewhere.
credit management association of the Philippines
credit Policy
Principles of a sound collection policy
Chapter 10

- A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date.
what is Credit?
what is credit management?
-A function performed within a company to improve and control credit policies that will lead to increased revenues and lower risk including increasing collections, reducing credit costs, extending more credit to creditworthy customers, and developing competitive credit terms. Also called
redit control.
- it was only during the 19th and 20th century that the big push in the economy made.The government financed much of the constructions. likewise, the government banks provided credit facilities to provide business enterprises.
The country was once a feudal and primitive society. Only 17% of the total surface area of japan can be farmed.
The objective of the government to equal the western power in terms of economic and military strength and so the industries were also developed through the leadership of the government.
Japan is the n0. 3 highly developed countries. It is now the leader of technology.
the world bank
-the primary goal of the World Bank is implied in its formal name, the International Bank and Development(IBRD), giving the primary responsibility for financing economic development.
is a United Nations international financial institution that provides loans
to developing countries for capital programs.
One important development in the field of credit is the establishment of an association of credit in the country.
In 1931 . . .
-when a group of individuals involved in credit work banded themselves together to form a credit association.
In 1970 . . .
-it became formally known as the Credit Management Association of the Philippines. This associations composed of about 200 member companies from the banking,trading,manufacturing,financing and insurance sectors.
Its overall philosophy revolves around the three main themes:
To inculcate credit consciousness in the public's mind
To place the credit man in his proper place as a professional
To infuse credit discipline to the greater mass of our people
Importance of Credit Management
It is important because it will insure the close collaboration between granting credit and collection. It helps minimize the risk of loss due to default of payment from the debtor
Important activities in your company is credit management. Credit management is the process to ensure that customers will pay for the products delivered or the services rendered.
Credit management is of vital importance to your cash flow: you can be profitable, but if you lack the cash to continue your business, you will either be bankrupt or taken-over by someone who knows how to deal with cash.
Advantages of Credit
1.) Credit facilitate exchange
2.) Credit increase the volume of
3.) Credit eliminates the risk involved in making
payments to distant places.
4.) Credit economizes the user of coins
and paper money
6.) Credit eliminates the danger of being robbed
of large amount of money.
5.) Credit makes possible the accumulation of small
saving and their employment for productive purpose.
Disadvantages of Credit
1.) Credit facilitates the over-expansion
of business activity which might lead
to recession.
2.) A too liberal credit encourages
3.) Credit Sometimes increase business risks.
4.) Easy borrowing by the government has
often led to the wasteful use of
public funds.
United State of America
- it was once a colony of England. The US was fortunate because it started its economic development with abundant natural resources and small population in relation to its wast land area.
Credit Risk
-is the risk associated with granting of credit. It is the nonpayment of loans of the borrower.
The significance of Credit Management
-is that they are done to avoid risk and loss on the part of the lender or creditor or any other business firms.
Credit Management Association of the Philippines
-is important because it inculcates credit
consciousness, in public's mind.

is a guidelines that spell out how to decide which customers are sold on open account, the exact
payment terms, the limits set on outstanding balances and how to deal with delinquent accounts.
External Factor which influence the credit policy:
The Business Cycle
Banking Policy
Monetary and Fiscal Polices
Local Economic Developments
Condition of the Creditor Firm
- which is the composite of the activity of thousands of independent business concerns, does not remain at the same level over a long period of time. It does not increase or decrease at a steady, consistent rate of change.It is also characterized by prosperity, recession,
depression and revival.
- its affect credit policy by its effect upon the financial condition of the creditor and the debtor.
factors that tend to influence trade credit policies:
1. size of credit lines
2. length of bank loan rates
3. level of interest rate
4.character of bank loans in respect to the use of funds
5. collateral requirements
- influence the money supply available to the economy as to minimize economic fluctuations caused by irregularities in flow of money and credit.
- is conceived and administered within the framework of economic conditions.
Fiscal Policies
-affect the expenditures of individuals and business through their effect on the expenditures through their effect on the expenditures of the government and on the collection of taxes.
- Development that influence the costs and sales volume of a firm affects the firm's financial condition and, consequently, its acceptability as a credit risk.
- The

Financial Condition

is a factor influence upon the credit decision and may tend to liberalize the acceptance of credit.
Competitive position of the creditor

is a second factor that influences credit policy

Nature of the Business
is the third creditor concern that influence credit policy.
Sources of Credit Information
-Interest in credit information concerning individuals as consumers of goods and services or as borrowers of money has been increasing.
-The need for credit information and the number and variety of uses to which it is being put are constantly growing.
Major resources of credit information are the following:
1.) Personal Interview
2.) Personal References
3.) Credit Reporting Agencies
4.) Credit Bureaus
5.) Banks
Collection of Policies and Practices
-somehow every business that extend credit has some collection problems. These problems may be very minor if the creditor's policy is only to extend to those individuals or firms with the highest credit rating.
- at the other extreme, is a creditor who accepts credit risks of a medium or lower credit rating, resulting into many slow paying accounts or even bad debts.
-The methods of collecting determines to some extents the percentage that will bee collected and also whether goodwill or ill-will is created in the process.
Cause of Delinquent Accounts
1. the debtor who misunderstands the Credit terms
2. the careless debtor
3. the debtor who is ignores small bits
4. the debtor who is good but temporarily out of funds
5. the chronic slow debtor
6. the unethical unfair debtor
7. the insolvent debtor
8. the dishonest debtor
Some of the advantages of prompt courteous collection policies are the following:
Although each collection problem has its particular characteristics, and different firms have their particular collection policies, the following principles may serve as bases when formulating collection policies:
1. The creditor should inform the debt or in precise, clear words, the terms of credit.
2. The creditor should enforce the credit terms.
3. When an account becomes overdue, the collection machinery should be started at once.
4. It is useless to undertake prompt collection action unless the follow up steps are just as prompt.
5.The regularity and timing of the successive steps in the collection procedure are as important as parts of an effective collection policy as promptness in following up the initial action.
Collection Method And Procedures
Regardless of the collection system employed, the principal collection instruments through which the creditor may effect collection include the following :
1. Statements
The first step in any collection system always consists of mailing a statement to all debtors as a reminder that their obligations are due and payment is expected.
2. collection letters
In practically all lines of trade, the collection of letters is the most commonly used method after the account has passed the "statement stage".
3. the personal call
Is probably the most common method of collecting overdue accounts.
4.the use of telephones
To a considerable extent, the advantages of a personal collector can be obtained, and the disadvantages overcome by the use of telephones.
5. the use of registered mall
If the collection letters sent to the debtor by regular mail are not answered, a registered letter may be used effectively.
6. attorneys and collection agencies
After a the means have been exhausted, and the creditor is ready to cut his business relations with the delinquent debtor, a letter is sent to the debtor threatening to place his account in the hands of an attorney or collection agency unless payment is made within a specified time.
The end!
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