CREDIT AND COLLECTION  Refers to the activities related to collection of

accounts
 “DO NOT GIVE CREDIT TO ANYBODY YOU DO NOT
TRUST” SOURCES OF CREDIT
 “The power to obtain goods or services by giving a Financial Intermediaries
promise to pay money on demand or at a specified  Banks
date in the future” (Johnson)  Insurance Companies
 “A credit is the present right to a future payment”  Pre-need Companies
(Mac Leod)  Pension/retirement funds
 “Purchasing power”-Mill-  Investment Bank
 “Power time in return for some equivalent or  Financing Companies
services at a future date” (Bullock)  Credit Cooperative
 “Sale on trust”
Non- Financial Intermediaries
CREDIT MAY BE CLASSIFIED ACCORDING TO THE USE IT IS  Appliance Companies
AVAILED AS FOLLOWS:  Lending Investors
 CONSUMER CREDIT  Pawnshops
 INDUSTRIAL CREDIT  Employers
 TRADE CREDIT
THE CREDIT MANAGER
FUNCTION OF CREDIT  Credit Managers are responsible for overseeing the
 Economic Function - Serve as a medium of exchange credit granting process for a company. Their job is to
in the economy optimize company sales and reduce bad debt losses
 Social Function - Evoke for independence of thought by maintaining the credit policy. They do this by
and action assessing the creditworthiness of potential
 Business Function - It is a tool of business customers and conducting periodic reviews of
promotion, with which he may expand his business existing customers.
by selling to customers who want to buy
merchandize on credit THE CARDINAL C’S OF CREDIT
1. Competence and Capability
CREDIT AND COLLECTION DEPARTMENT IN A BUSINESS 2. Communication
ORGANIZATION 3. Constructiveness
4. Creativity
 In any firm engaged, whether primarily or 5. Conscientiousness
incidentally, in credit extensions in the form of loans, 6. Consistency
investments or installments, the creation of a Credit 7. Certitude and Celerity
and Collection unit becomes an important need, and 8. Contact
its expansion should be in proportion to increase 9. Const-Consciousness
activities which come the growth of the company’s 10. Character
credit sales volume or loan portfolio. 11. Confidence
 The primary role of credit and collection unit in a 12. Computer literate
business is to MAXIMIZE profits and minimize bad 13. Congeniality
debts losses through proper credit evaluation of 14. Considerateness
each application and through efficient and consistent 15. Common sense
collection follow-ups.
PRINCIPLES OF LENDING

1. The Person
THE CREDIT AND COLLECTION UNIT TYPE OF ORGANIZATION 2. Amount and purpose
TO ADOPT 3. Repayment
4. Viability
Credit and Collection are two entirely different activities: 5. Security
 Refers to the processing, evaluation an extension of 6. Remuneration
credit 7. Services
  Other personal information
 The structure approach until the 1970s, banks o relationship status
preferred to lend, primarily on a short-term basis, o dependants
for up to around three years, but competition and o employment
shrinking profit margins along with sophisticated risk o previous connections w/ organization
assessment techniques, have now changed that
position  The customer’s asset and liabilities
o Property
o Stocks and Shares
Reasons for differences in the rates of interest charged on o Government securities
borrowing, including: o Life policies
1. Market rates
o Bank/building society accounts
2. Supply and demand at the time the facility is
agreed/renewed
3. Duration of the borrowing Amount and purpose
4. Type of customer and type of business the customer several advantages to both you and the customer in taking
is in this approach:
5. Whether security is granted or not 1. You will be able to quickly ascertain that the
6. The amount of the borrowing customer is looking for the right amount
2. Bearing in mind that you will probably have been
Several reasons why organizations use personal lending faced with this type of request before, you will be
applications forms, including: able to determine if the estimate are reasonable for
1. It ensures that no important information is missed the work being proposed.
out of the lending assessment 3. If you have asked the customer to obtain more than
2. It ensures that all the relevant information is set out one estimate, you will be able to compare these.
in a standard format
3. As all the relevant information is recorded Repayment
4. As a number of people could be dealing with the flexibility is necessary and repayment arrangements should
customer over a period of time be based on fair reflections of profit/surplus income and/or
5. Having all the information summarized in one place liquid flows that the customer will have.
makes the job of a lending reviewer easier
6. The idea that the lender must record all this Other types of income that could be shown include:
information means that all the key factors in the • Child benefit
decision are being taken into account. • Rental income
• Dividends/interest income
The following sources could be used: • Bonus/commission
• Income from a second job
1. The customer’s account
2. Standing order and direct debit information Looking at regular monthly financial outgoings, typical items
3. Evidence of regular savings would include:
4. Use of other areas within the organization mortgage/rent, insurance, telephone/mobile phone,
5. Safe custody records electricity, travel expenses, car loan repayments, food,
6. Lending files clothing, hobbies, loan repayments, and credit card
7. Customer profiles
Viability
When coming to a decision about lending, we need to look factors including:
at the following broad areas: 1. Amount
 PERSON 2. Purpose
 3 C’s 3. Term
o Character 4. Customer’s stake
 honest, dependable, high 5. Repayment
integrity 6. Past record
o Capacity
 Age, Experience, Reputation
o Commitment/capital
Security
Attributes of good security:

1. Simplicity of title
2. Stability of value
• types of security to value
– cash deposits
– life policies
– real property
• more difficult to value
– specialized/commercial property
– unquoted shares
3. realizability

Reward
a financial serves organization is no different to any other
business.

Number of Sources:
1. The difference in the interest rates charged to
customers who borrow and the interest rates paid to
customers who deposit funds.
2. Arrangement fees in respect of lending facilities
3. Charges for services provided directly, such as safe
custody services
4. The commission and payments received from other
institutions for business.

Services
a financial serves organization is no different to any other
business.

Number of Sources:
1. The difference in the interest rates charged to
customers who borrow and the interest rates paid to
customers who deposit funds.
2. Arrangement fees in respect of lending facilities
3. Charges for services provided directly, such as safe
custody services
4. The commission and payments received from other
institutions for business.