Credit Procedure Final Exam Review
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Questions and Answers

Does the company consider the following data concerning the general business entity when evaluating credit applicants?

  • Depends on the situation
  • Yes (correct)
  • Sometimes
  • No
  • Does the company evaluate the following factors concerning the credit applicant's supplier payment history?

  • Yes (correct)
  • Rarely
  • No
  • Only for specific cases
  • Is the reliability of financial information on credit applicants considered, including the extent of outside CPA involvement?

  • No
  • Yes (correct)
  • Sometimes
  • Not sure
  • What credit scoring techniques are used to evaluate creditworthiness?

    <p>Expert Opinion, Statistical or Hybrid</p> Signup and view all the answers

    Open-ended loans allow borrowers to borrow repeatedly against a credit limit.

    <p>True</p> Signup and view all the answers

    Study Notes

    Credit Procedure

    • Describes the rules for granting credit in recognition of prior learning, how to apply for credit, and the bases for assessing credit applications.
    • Evaluates credit applicants based on various factors, including:
      • General business entity
      • Supplier payment history
      • Banking relationship
      • Reliability of financial information
      • Financial information evaluation and trending
      • Credit scoring techniques (Expert Opinion, Statistical, or Hybrid)
      • Ability to pay bills promptly
      • Comparison to peer group companies
      • Special process for riskier accounts
      • Time frame for credit decisions

    Credit Approval and Administration

    • Includes:
      • Terms of sale
      • Terms codes
      • Credit instructions
      • Credit recommendations
      • Credit files

    Credit Process in Philippine Financial Institutions

    • Involves three stages:
      • Initiation stage
      • Documentation and closing
      • Portfolio management

    Collection Procedure

    • Defines the set of procedures for the collections team to follow, aiming to apply to all customers consistently and flexibly when necessary.
    • Includes:
      • Normal procedures
      • Collection schedule
      • Lockbox system
      • Advance payments
      • Customer deductions
      • Note arrangements
      • Account referral
      • Creditor's extension agreements
      • Bankruptcy proceedings
      • Allowance for uncollectibles and write-offs

    Target Market Identification

    • Defines a target market by similar characteristics, such as demographics and behaviors.
    • Refines target customers through factors like:
      • Where they shop
      • What brands they like
      • What newspapers they read or websites they visit
      • What life events they are experiencing

    Pre-Screening of Loan Applicants

    • Involves making unsolicited offers of credit or insurance to consumers who might be in the market.

    Loans

    • A loan is a thing that is borrowed, especially a sum of money that is expected to be paid back with interest.
    • Types of loans:
      • Secured loans: rely on an asset as collateral, with lower interest rates.
        • Examples: car loans, property loans
      • Unsecured loans: rely on credit history and income, with higher interest rates.
        • Examples: credit card debt, personal loans, bank overdrafts
      • Open-ended loans: can be borrowed over and over, with a credit limit.
        • Examples: credit cards, lines of credit
      • Closed-ended loans: cannot be borrowed once repaid, with a fixed balance.
        • Examples: mortgage loans, auto loans, student loans
      • Term loans: for business purposes, with a fixed interest rate, repayment schedule, and set maturity date.
        • Examples: short-term, medium-term, long-term loans

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    Description

    This quiz reviews the rules and process of granting credit in recognition of prior learning, including how to apply for credit and assessment bases.

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