FIMA 205 Credit & Collection Final Exam Reviewer PDF

Credit And Collection – Final Exam Reviewer Dr. Allan A. Calderon Polytechnic University of the Philippines CREDIT PROCEDURE  This procedure describes the rules that apply to the granting of credit in recognition of prior learning, how to apply for credit, and the bases on which credit ap...

Credit And Collection – Final Exam Reviewer Dr. Allan A. Calderon Polytechnic University of the Philippines CREDIT PROCEDURE  This procedure describes the rules that apply to the granting of credit in recognition of prior learning, how to apply for credit, and the bases on which credit applications are assessed. Credit procedure The following questions could be included in Credit Procedures for Evaluating Credit: 1. Does the company consider the following data concerning the general business entity when evaluating credit applicants. 2. Does the company evaluate the following factors concerning the credit applicant‘s supplier payment history 3. Does the company evaluate the following factors concerning the credit applicant‘s banking relationship: 4. Is the reliability of financial information on credit applicants considered, including the extent of outside CPA involvement, if any (i.e., audited/reviewed/compiled/etc.)? 5. Is the credit applicant‘s financial information evaluated and historically trended, using techniques? 6. Are the results of the financial analysis clearly documented? 7. Are credit decisions and the support for those decisions documented for future reference? 8. Do certain accounts get automatic credit approval (based on peso limits under a certain amount)? 9. What credit scoring techniques are used to evaluate creditworthiness? (Expert Opinion, Statistical or Hybrid) 10. Has the customer demonstrated the ability to pay bills in a prompt manner? 11. Is there a special process for riskier accounts? 12. How does the prospective customer compare to other companies in its peer group? 13. Are credit decisions made within a reasonable time frame, as outlined by the organization‘s guidelines? The following could be included in Credit Procedures for Credit Approval and Administration:  TERMS OF SALE  TERMS CODES  CREDIT INSTRUCTIONS  CREDIT RECOMMENDATIONS  CREDIT FILES Credit Process in Philippine Financial Institutions INITIATION STAGE DOCUMENTATION PORTFOLIO AND CLOSING MANAGEMENT COLLECTION PROCEDURE  The set of procedures you define for your collections team to follow will be the core component of your company‘s collections policy. They should be practiced consistently and should aim to apply to all customers – but should also be flexible when necessary. The following could be included in Credit Procedures for Collections:  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  A target market is defined by similar characteristics such as demographics and behaviors. You can start broad with gender, education level, and mortgage holders, and then increasingly refine them. The trick is to be as specific as possible.  Define as much as you can about target customers, such as where they shop, what brands they like, what newspapers they read or websites they visit, and what life events – such as getting married or retiring – are they experiencing. PRE-SCREENING OF LOAN APPLICANTS  Prescreening is a highly effective marketing process used by savvy marketers in the lending and banking industry every day.  It involves making unsolicited offers of credit or insurance to consumers who might be in the market. Loans, Loan Packaging and Loan Approval 16 RECAP: Loan in simplest terms can be explained as a thing that is borrowed, especially a sum of money that is expected to be paid back with Interest. The act of giving money, property or other material goods to another party in exchange for future repayment of the principal amount along with interest or other finance charges is called loan. A loan may be for a specific, one-time amount or can be available as open-ended credit up to a specified ceiling amount. 17 18 A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral. Secured loans are loans that rely on an asset as collateral for the loan. In the event of loan default, the lender can take possession of the asset and use it to cover the loan. Interests rates for secured loans may be lower than those for unsecured loans. The asset may need to be appraised before you can borrow a secured loan. 19 Unsecured loans don’t have asset for collateral. These loans may be more difficult to get and have higher interest rates. Unsecured loans rely solely on your credit history and your income to qualify you for the loan. In case of default, the lender has to exhaust collection options including debt collectors and lawsuit to recover the loan. For example-  credit card debt  personal loans  bank overdrafts  credit facilities or lines of credit 20 Open-ended loans are loans that you can borrow over and over. Credit cards and lines of credit are the most common types of open-ended loans. With both of these loans, you have a credit limit that you can purchase against. Each time you make a purchase, your available credit decreases. As you make payments, your available increases allowing you to use the same credit over and over. 21 Closed-ended loans cannot be borrowed once they’ve been repaid. As you make payments on closed-ended loans, the balance of the loan goes down. However, you don’t have any available credit you can use on closed-ended loans. Instead, if you need to borrow more money, you’d have to apply for another loan. Common types of closed-ended loans include mortgage loans, auto loans, and student loans. 22 Consolidated Pay Day Loan Loan Business Term Loan Loan Education Personal Loan Loan Gold Loan Vehicle Home Loan Loan Property Loan Policy Construction Loan Equipment Loan 23 TERM LOANS A term loan is simply a loan provided for business purposes that needs to be paid back within a specified time frame. It typically carries a fixed interest rate, monthly or quarterly repayment schedule - and includes a set maturity date. It is secure type of loan. A secured term loan will usually have a lower interest rate than an unsecured one. 24 Included in F. E Term Classification Short Term Medium Term Long Term (1 year) (1-5 years) (