Podcast
Questions and Answers
What is the purpose of credit policies in a company?
What is the purpose of credit policies in a company?
- To guide the performance of credit functions and meet objectives (correct)
- To complicate credit transactions
- To discourage the granting of credit terms
- To hinder efficient customer service
At what levels do policies exist within a company according to the text?
At what levels do policies exist within a company according to the text?
- Company and strategic level
- Company and major division or department (correct)
- Department and division
- Company and minor division
What does the term 'dynamic' mean in the context of credit policies as per the text?
What does the term 'dynamic' mean in the context of credit policies as per the text?
- Inflexible and resistant to change
- Rigid and unresponsive to changing conditions
- Flexible and responsive to changing conditions (correct)
- Static and unchanging
What factors affect the strength of credit power and credit risk according to the text?
What factors affect the strength of credit power and credit risk according to the text?
Which of the following is NOT a part of credit policies?
Which of the following is NOT a part of credit policies?
Why are credit policies considered essential for efficient customer service?
Why are credit policies considered essential for efficient customer service?
What factors contribute to a firm enjoying a wider profit margin as per the text?
What factors contribute to a firm enjoying a wider profit margin as per the text?
How can changes in environmental issues affect profit margins according to the text?
How can changes in environmental issues affect profit margins according to the text?
What role do internal company objectives play in developing credit policies?
What role do internal company objectives play in developing credit policies?
Why should pending or probable regulations be considered in the business environment?
Why should pending or probable regulations be considered in the business environment?
What should credit policies be harmonious with according to the text?
What should credit policies be harmonious with according to the text?
What affects the amount of credit exposure a company can take according to the text?
What affects the amount of credit exposure a company can take according to the text?
What is essential to achieve maximum effectiveness of a policy?
What is essential to achieve maximum effectiveness of a policy?
Why should any exceptions to the credit policy be documented?
Why should any exceptions to the credit policy be documented?
What is the focus of target market identification in credit and collection procedures?
What is the focus of target market identification in credit and collection procedures?
What does account origination or prospecting involve in the context of credit initiation?
What does account origination or prospecting involve in the context of credit initiation?
Why should a written credit policy be flexible?
Why should a written credit policy be flexible?
What ensures that actual performance and practices can be evaluated against a credit policy?
What ensures that actual performance and practices can be evaluated against a credit policy?
What should the account officer do before any origination exercise is done?
What should the account officer do before any origination exercise is done?
What is the first activity in the Credit Department when it starts its functions?
What is the first activity in the Credit Department when it starts its functions?
Why is it important for a customer/client to fill out a credit application form?
Why is it important for a customer/client to fill out a credit application form?
What is the purpose of providing a listing of company requirements to a credit applicant?
What is the purpose of providing a listing of company requirements to a credit applicant?
Why must a credit extension not be approved without the customer/client filling out a credit application form?
Why must a credit extension not be approved without the customer/client filling out a credit application form?
What does the duly filled credit application form provide the Credit Department with?
What does the duly filled credit application form provide the Credit Department with?
Which document is NOT required for a Single Proprietorship applying for credit, based on the text?
Which document is NOT required for a Single Proprietorship applying for credit, based on the text?
What is a document required for both Single Proprietorship and Partnership/Corporation when applying for credit?
What is a document required for both Single Proprietorship and Partnership/Corporation when applying for credit?
Which entity type requires a 'Copy of Registration with the SEC' when applying for credit?
Which entity type requires a 'Copy of Registration with the SEC' when applying for credit?
Which item is NOT listed as part of the pre-screening process mentioned in the text?
Which item is NOT listed as part of the pre-screening process mentioned in the text?
What is a document specifically required for Partnership/Corporation applying for credit?
What is a document specifically required for Partnership/Corporation applying for credit?
Which statement accurately reflects the nature of credit application requirements according to the text?
Which statement accurately reflects the nature of credit application requirements according to the text?
Study Notes
Credit Process Initiation
- The account officer introduces products and services to the prospective client, securing relevant information on financial and related interests.
- Good staff work and preparation are required for a successful credit origination process.
Pre-Screening Process
- The credit application is the first activity in the credit department, with a credit application form for prospective customers.
- No credit extension should be approved without a completed credit application form.
- The credit application form provides:
- Initial credit information for decision-making
- Information for further interview with the applicant
- Leads for starting the credit investigation process
Required Documents
- Individual:
- Latest Income Tax Return
- Marriage Contract (if married)
- Photograph
- Single Proprietorship:
- Business Information Sheet
- Certificate of Business Name Registration with the DTI
- Income Tax Return
- Audited Financial Statements
- Statement of Assets and Liabilities
- Photograph of principal/owner
- Partnership/Corporation:
- Business Information Sheet
- Copy of Registration with the SEC
- Articles of Incorporation and By-Laws (for corporation)/Articles of Co-Partnership and Partner’s Resolution (for partnership)
- List of Officers and Directors certified by the Corporate Secretary
- Bio-data/Personal Information of Officers and Directors
- Alien Registration Certificate of foreign officers
- Audited financial statements
- Board Resolutions to borrow or enter into the requested facility
Credit Policy Formulation
- Credit policies are guides for the performance of credit functions.
- Credit policies are designed to:
- Meet credit objectives
- Guide credit transactions
- Establish minimum requirements under normal conditions
- Be flexible and responsive to changing conditions
- Factors influencing credit policy include:
- External factors (environmental, political, regulatory)
- Internal factors (company financial condition, overall company objectives, department policies)
- Credit policies should be harmonious with established policies of other departments.
Implementation and Review
- Implementation of credit policy involves:
- Assigning responsibilities and authorities
- Establishing procedures and controls
- Feedback and reports
- Periodic review of credit policy is necessary to:
- Insure its proper implementation
- Identify weak spots
- Evaluate actual performance and practices
Target Market Identification
- Target market identification involves identifying the client base and credit program facilities.
- This process considers:
- General policy, program thrusts, strategies, and targets of the company
- Business environment, market information, present portfolio mix, risk asset acceptance criteria, and resources of the lending unit.
Account Origination
- Account origination refers to the introductory and exploratory discussions between account officers and clients regarding credit initiation.
- The account officer should ask for additional requirements to better evaluate the proposed credit transactions.
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Description
Test your knowledge on the formulation, communication, and implementation of credit collection policies within a company. Explore different levels of policies and their significance in achieving company objectives.
