Credit Policies and Collector Responsibilities

Credit Policies and Procedures

• The main goal of credit policies is to maximize profits and minimize bad debts.
• Increased staff turnover is not a benefit of written credit policies.
• Seller over-extension is a factor influencing restrictive credit policies.
• Credit risk is primarily assessed during the credit granting process.
• A credit manager's key task is handling special collection problems.
• Effective communication of credit policies ensures compliance and understanding.
• Good credit policy maximizes sales and reduces losses from bad debts.

Collector Responsibilities

• A collector's main responsibility is contacting delinquent customers.
• Pleasant personality is advantageous for a collector.
• Providing leniency and understanding is vital in dealing with financially distressed customers.
• Training courses can improve a collector's skill.
• Collectors play a critical role to maintain a smooth cash flow.
• Collectors require sufficient academic background for higher positions.
• Handling specific customer types (e.g., perennial discounters) requires firmness.

Credit Analysis & Evaluation

• Credit analysis evaluates key factors like assets, liabilities, and equity.
• Financial ratios measure company performance efficiency.
• "Capacity" to repay is the most important factor in credit evaluation.
• External environment & loan purpose influence credit decisions.
• Credit history is crucial in determining a borrower's likelihood of repayment.
• Five C's of Credit (Capacity, Conditions, Collateral, Character, Capital) evaluate a borrower's ability to repay.

Credit Policies & Collections

• Credit and collection policy documents steps for credit and collection management.
• A well-written credit and collection policy ensures consistent collections and communication.
• Updating credit information improves customer relations.
• Application and interview are initial credit procedure steps.
• Credit limits are based on customer's anticipated purchasing volume.
• Credit policies need routine updates to adapt to changing market conditions.
• Credit Information Corporation (CIC) collects and disseminates credit information.

Other Important Considerations

• Accessing and disputing credit information is a borrower's right.
• Threatening actions are prohibited debt collection methods.
• Debt collection can be outsourced to third parties who comply with regulations.
• Credit policies are not solely the credit manager's responsibility.
• Written policies are generally preferred over unwritten ones.
• Company internal situations affect credit policy reliability.
• Credit policies should be closely monitored and updated.

Additional Key Concepts

• Character in credit evaluations reflects the customer's general impression on the lender, including trustworthiness and business experience.
• Collateral is a secondary repayment source for loans in case of borrower default.
• Capital is the personal investment in a business by the borrower.
• Past payment history is an indicator of future payment performance.