Credit Policies and Collector Responsibilities

Study Notes

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.

Description

This quiz covers the essentials of credit policies and the responsibilities of collectors. Understand how effective credit management maximizes profits while minimizing risks and learn about the traits and skills necessary for successful debt collection. Enhance your knowledge of credit policies and collection strategies to ensure compliance and improve cash flow.