Credit Procedure Final Exam Review

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