Credit and Collection PDF

CREDIT AND COLLECTION MR. ROGER R. MAGALLANES, MBA  What is Credit? Middle French, from Old Italian credito, from Latin creditum something entrusted to another, loan, from neuter of creditus, past participle of credere to believe, entrust — more at creed. 2 ...

CREDIT AND COLLECTION MR. ROGER R. MAGALLANES, MBA  What is Credit? Middle French, from Old Italian credito, from Latin creditum something entrusted to another, loan, from neuter of creditus, past participle of credere to believe, entrust — more at creed. 2  Definition of Credit ⬩ Purchasing power ⬩ Swapping present reality for ⬩ Creditor's confidence in future possibility. debtor's payment ability. ⬩ Trading time for future goods or ⬩ Short sale of money services. ⬩ Obtaining goods or services ⬩ Sale on trust with a promise to pay later. ⬩ Personal reputation enabling ⬩ Current entitlement to future future payment promises. payment. 3 Classification of Credit Charge account Secure charge account Installment Account Straight Loan Credit according to use: Consumer credit Industrial credit Trade credit 5  Functions of Credit Economic function Social function Business promotion 6  Usury law (CA No. 2655) Loan interest regulations set limits. Caps aim to curb excessive loan interest. With CB Circular 905, interest rates are negotiable, but unfair terms are unacceptable. The Court of Appeals erred by upholding unfair stipulations, favoring a more reasonable rate set by the trial court. Rather, they agree with the trial court that, under the circumstances, interest at 12% per annum and an additional 1% a month penalty charge as liquidated damages may be more reasonable.” 7 Two installment default rule under civil law In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: 8  Art. 1484, RA 386 Full payment is required; failure leads to options: a. Cancel sale after missed payments. b. Foreclose chattel mortgage for multiple missed payments; no further recovery allowed from purchaser. c. Void agreements contrary to this rule. 9  No deficiency Judgment Rule in foreclosure of Chattel Mortgage ⬩ Once a property is sold in installments, the mortgagee loses the right to pursue the purchaser for any remaining unpaid balance. Any agreement stating otherwise is invalid (Civil Code, Art. 1484). 10 Bouncing Check Law 1. A check returned by a bank due to insufficient funds is known as a bounced check. 2. An act penalizes issuing a check without enough funds or credit, among other purposes. 11  Replevin case 1. A replevin case is a legal action to recover personal property wrongfully taken or detained. 2. The plaintiff seeks a court order, called a writ of replevin, for the property's return. 3. They must prove ownership and wrongful possession by the defendant. 4. Replevin cases commonly arise in landlord-tenant disputes, repossession of leased items, or personal property disputes. 12 Republic Act No. 3765, "Truth in Lending Act ⬩ This law aims to protect consumers by requiring lenders to disclose the true cost of credit, including interest rates and other charges, clearly and understandably before a loan agreement is made. 13  Republic Act No. 7394, "Consumer Act of the Philippines ⬩ This comprehensive law covers various consumer rights and protections, including provisions related to fair debt collection practices. It prohibits abusive, deceptive, and unfair debt collection practices. 14 Republic Act No. 9510, "Credit Information System Act ⬩ This law creates a centralized credit information system overseen by the Credit Information Corporation (CIC). ⬩ Its goal is to facilitate access to credit, improve transparency, and mitigate credit risks by furnishing lenders with detailed credit data on borrowers. 15 Republic Act No. 10642, "Philippine Credit Card Industry Regulation Law ⬩ This law governs credit card issuers and sets standards for issuing, disclosing, and using credit cards. ⬩ It includes protections against unfair practices and excessive fees aimed at safeguarding consumers. 16 Republic Act No. 10870, "Philippine Competition Act ⬩ This law promotes fair competition and prohibits anti-competitive practices that could impact credit markets. Its goal is to maintain a level playing field and shield consumers from monopolistic behavior, though it's not specifically tailored to credit and collection. 17 Republic Act No. 8484, "Access Devices Regulation Act of 1998" ⬩ This law, also called the "Access Devices Law," governs the issuance and use of access devices like credit and debit cards. It covers liability for unauthorized transactions and mandates disclosure of terms and conditions. 18 The slow justice system  Credit Policy ⬩ These guidelines determine credit extension, payment terms, credit limits, and procedures for handling delinquent accounts. Advantages of Credit Trade 21 Disadvantages of Credit Trade Risk of default or non-payment. Elevated administrative costs. Potential for overspending beyond means. Increased requirement for working capital. Risk of financial insolvency. Potential loss of peace of mind. 22  Forms of Credit ⬩ Suppliers credit: ⬩ Credit cards ⬩ Cash credit ⬩ Credit on ⬩ Contractor's ⬩ Cpf credits ordinary open credit ⬩ Exchange of account ⬩ Factoring of product ⬩ Installment sales debtors ⬩ Bills of exchange 23 Factors which influence Credit Conditions ⬩ Length of ⬩ Conditions at ⬩ Nature of the production process financial institutions business's activities ⬩ Competition and ⬩ Discount for early competitors' credit payment ⬩ Financial position conditions ⬩ Debtor's type of ⬩ Product durability ⬩ Country's economic business and position financial position 24  Overdue Accounts ❑ Attach a notice ❑Send a second of overdue or third letter if account to the first is statement. Place your screenshot here ineffectual. ❑ Send a letter ❑Threaten legal asking for action. settlement of debt. 25  Effective Credit Control Increase the Builds Builds Increase Increases Increases Reduces customer confidence of customer company sales profits bad debts capitalization relation financial loyalty industry ship 26 Sources of Information on Creditworthiness Business references Employers Bank references Credit application forms Credit agencies Chambers of commerce 27  Duties of the Credit Department ⬩ Legal action ⬩ Setting credit limits ⬩ Keeping records of all ⬩ Taking necessary ⬩ Ensuring that amounts owing steps to ensure statements of ⬩ Ensuring that debts are settlement of account are sent out settled promptly account ⬩ Ensuring that ⬩ Timely reporting to the ⬩ Knowing the credit thorough checks are upper level of policy and carried out on credit management for better procedures for credit customers management. control 28  C’s of Credit Character Capacity Capital Collateral Condition Country Currency 29  BORROWER’S CREDIT QUALITIES EQUITY INCOME REFERENCE IN AND PURCHASE RESIDENCE REPUTATION EMPLOYMENT COLLATERAL RESERVE MARITAL ASSETS STATUS PAYMENT RECORD AGE 30 31 32  THANK YOU Mr. Roger R. Magallanes, MBA 33