Understanding Credit Terms and Policies

The primary purpose of credit policies is to maximize profits while minimizing financial losses caused by unpaid debts.

A comprehensive set of rules and guidelines that outline how a company extends credit to its customers and manages overdue payments.

Credit policies should reflect an appropriate balance between extending credit liberally to attract customers and restricting credit to minimize risk.

An important role of credit personnel involves reviewing customer orders to ensure their creditworthiness.

The process of assessing the likelihood of a customer defaulting on their payments.

Handling complex situations concerning overdue accounts and working to resolve them efficiently.

Effective communication is crucial for ensuring everyone understands and follows company credit policies.

Collectors must be skilled in communication and conflict resolution to effectively engage with customers who owe money.

A collector must be understanding and lenient, especially when dealing with customers facing financial difficulties.

When a customer consistently asks for discounts, the collector needs to be determined to ensure they pay a fair price and avoid potential financial losses for the company.

A collector's role is crucial for maintaining a steady cash flow, which ensures the smooth operation of the business.

To improve skills, collectors should participate in external training programs. These can provide new techniques and strategies for effective collection practices.

Credit analysis involves evaluating a company's finances, including assets, liabilities, and equity. This helps assess the company's financial health and their ability to repay.

Financial ratios, used in credit analysis, provide insights into a company's performance efficiency. They help measure things like profitability and liquidity.

The borrower's capacity to pay, meaning their ability to generate cash inflows and repay the loan, is considered the most important element of credit evaluation.

Conditions, influencing credit decisions, examine the external environment and the purpose of the loan. They assess factors such as the overall economy and the loan's intended use.

The "Five C's" of Credit are a framework used to assess a borrower's creditworthiness, evaluating their capacity, capital, collateral, conditions, and character.

Capacity refers to a borrower's ability to repay a loan based on their income and expenses. A borrower with a stable job and consistent income is more likely to be approved.

Collateral is an asset a borrower pledges to a lender as security for a loan. If the borrower defaults, the lender can seize the collateral to recover their losses.

Character refers to a borrower's trustworthiness and their history of repaying debts. A strong credit history demonstrates reliability.

A credit and collection policy outlines the process for managing customer credit and how to handle overdue payments. It ensures consistency and efficiency.

Credit limits are set by the lender, considering various factors like the customer's purchasing volume, financial stability, and credit history.

Updating credit information is crucial because it allows lenders to make informed decisions, improve their risk assessment, and personalize their offerings.

The credit application and interview is the first step in the credit granting process where a borrower provides information about themselves and their financial situation for assessment.

The borrower's personal investment in their business, demonstrating their commitment.

A secondary repayment source if the borrower can't pay back the loan.

How the borrower's past credit behavior predicts their future ability to repay.

The overall impression the borrower gives, reflecting their trustworthiness and business experience.

The ideal credit policy can differ significantly depending on the specific industry.

The Credit Information Corporation (CIC) mainly collects and shares credit information of individuals and businesses.

Borrowers have the right to review their credit reports and challenge any inaccuracies in the information.

Authorized entities, such as banks and lenders, can access credit information for specific purposes, like loan applications, under RA 9510.

Threatening actions, such as harassment or intimidation, are illegal and prohibited during debt collection.

Publishing personal information about a borrower's debt is only allowed if the borrower provides written consent.

Lending companies can outsource debt collection to third-party agencies, but only if the agencies comply with legal regulations.

Severe violations of debt collection rules may result in the company losing their license to operate.

It is important to have written credit policies to clearly define guidelines, ensure transparency, and promote consistency in decision-making.