Credit Policy and Collection Final Exam Reviewer

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Questions and Answers

What is the main focus of the Stages of Collection in credit management?

Collecting debt from customers

Sending reminders to customers (correct)

Sending monthly statements

Developing correct credit practices and procedures

What does the Preliminary stage of the Collection process in credit management usually involve?

sending monthly statements

The Credit Review process aims to validate the effectiveness of credit monitoring and supervision.

True

What is a Policy Loan?

A loan issued using insurance policy cash value as collateral Signup and view all the answers

Cash Before Delivery (CBD) and Cash in Advance (CIA) are synonymous terms.

True Signup and view all the answers

What is the maximum loan eligibility for Loan Against Property (LAP) primarily determined by?

the value of the property and income Signup and view all the answers

What is the purpose of Loan Disbursement?

to pay the agreed-upon amount into the borrower's account Signup and view all the answers

Match the documents required for Income Verification with their respective numbers:

Proof of Identity = 1 Proof of Residence = 2 Income Tax Return for the Past Three Years = 3 Past 6 Months’ Bank statements and copies of pay slips where income added = 4 Profit and Loss account of three years if the person has their own business = 5 Show proof of any other type of income = 6 Proof of continuity of business = 7 Signup and view all the answers

What is the core component of a company's collections policy?

Collection Procedure Signup and view all the answers

Term loans typically have a variable interest rate.

False Signup and view all the answers

Debt consolidation can help protect your _ ______ rating and _ get out of debt faster.

Signup and view all the answers

What are the rules that apply to the granting of credit?

Credit Procedure Signup and view all the answers

What is the definition of a loan?

A sum of money that is borrowed and is expected to be paid back with interest Signup and view all the answers

Secured loans rely on an asset as collateral for the loan.

True Signup and view all the answers

Open-ended loans allow you to borrow money __________.

over and over Signup and view all the answers

Match the following loan types with their descriptions:

Term Loans = A loan provided for business purposes with a fixed interest rate and repayment schedule. Vehicle Loan = A loan used when buying a new or used car that serves as collateral. Education or Student Loan = A loan offered to students to pay for education-related expenses like tuition. Pay Day Loan = Short-term, high-interest loans designed to bridge the gap between paychecks. Signup and view all the answers

Study Notes

Credit Procedure

The rules that apply to the granting of credit
Evaluates credit applications based on:
- General business entity
- Credit applicant's supplier payment history
- Financial information on credit applicants
- Ability to pay bills
- Reasonable time frame
- Automatic credit approval

Classification of Loans

Secured Loans: rely on an asset as collateral, e.g., a car or property
Unsecured Loans: don't have assets for collateral, rely on credit history and income
Open-ended Loans: can be borrowed multiple times, e.g., credit cards and lines of credit
Close-ended Loans: cannot be borrowed once repaid, e.g., mortgage loans, auto loans, and student loans

Credit Process in Philippine Financial Institutions

Initiation Stage: beginning of the loan process
Documentation and Closing: preparation and completion of loan documents
Portfolio Management: managing the loan portfolio

Collection Procedure

A set of procedures for the collections team to follow
Should be practiced consistently and flexibly when necessary
Targeted at all customers, considering demographics, behaviors, and life events

Types of Loans

Term Loans: for business purposes, with a fixed interest rate and repayment schedule
Home Loan: for buying a house or condominium
Personal Loan: for various purposes, can be secured or unsecured
Pay Day Loan: short-term, high-interest loan for bridging financial gaps
Consolidated Loans: combine multiple debts, loans, or payments
Construction Equipment Loan: for purchasing new or used construction equipment
Business Loan: for startup or expansion expenses
Education or Student Loan: for education-related expenses
Vehicle Loan: for buying a new or used car
Loan Against Property (LAP): uses the property as collateral
Policy Loan: uses the cash value of a life insurance policy as collateral

Loan Approval and Administration

Loan Approval: formal authorization to get a loan
Credit Approval Process: evaluates creditworthiness, examines credit history, and reveals potential negative information
Loan Administration: part of the loan operations team, supports loan administration processes
Loan Administrator: provides administrative and clerical support, obtains loan documents, and ensures compliance with loan requirements### Collection Management
Objectives of collection management: reduce bad debt losses, control collection costs, and reduce company's investment in accounts receivable
Strategies, organization, and procedures for recovery of receivables

Forces of Collection

Salesmen, House Collectors, Attorneys (Legal Counsel), Collection Agency, and Government

Collection Department

Responsible for monitoring and following up on receivables
Identifies reasons for overdue and delinquent accounts and initiates measures to prevent bad debt losses

Unfair Collection Practices

Use or threat of violence or criminal means to harm person physically, reputation, or property
Disclosing names of persons who refuse to pay for past due accounts
Use of profane language, insult, or obscenities to intimidate or shame
Informing family, friends, or colleagues about debt
Contacting person during unreasonable hours (before 6am and after 10pm) except when account is past due for more than 60 days or by prior agreement

Remedial Measures

Loan Restructuring: changes loan terms and conditions to help borrower comply with payment plan
Assumption of Mortgage: third party assumes borrower's obligation
Remedial Account Management: nurses substandard or doubtful account back to health, regularizes credit and documents deficiencies, locates missing customers, and anticipates debtor's defenses

Credit Review

Essential part of total system for managing credit portfolio
Helps develop correct credit practices and procedures to minimize credit risks

Stages of Collection

Preliminary stage: sends monthly statements
Follow-up stage: sends reminders several days after due date
Drastic stage: resorts to collection agency or attorney if company is ready to lose customer

Credit Policy and Collection

Credit Review Process: assesses credit administration and documents, credit monitoring and supervision
Organization and Staffing: evaluates staff adequacy, work experience, and training programs
Loan Recovery: evaluates remedial management and normal management of problem accounts