CHAPTER 7

To

provide profits in the field of business activity which lies between the area of safe risks and those definitely poor

There is a need for a system which will insure close collaboration between the grant of credit and its collection.
The customers willingness to pay and its ability to pay on the basis of their past records would doubtlessly reduce the incidence of risks, nevertheless, such policy will evidently result in a reduction in sales volume and ultimately work adversely against the interest of the firm.

 His

job is consisted mainly of keeping records of the financial transactions of the firms customers. He makes recommendations based upon investigations, studies and analyses, whether credit should be granted or denied.

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2.

3.

A student of trade and business equipped with a thorough understanding of the prevailing economic conditions and their implications He must have keen foresight into future conditions that affect business in one way or the other Has within his power to drive old customers away just as he could likewise help educate the stubborn customers as he could earn their everlasting goodwill

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4.

Its tasks and responsibility revolve around the gathering of all credit information about the applicant Assembling them in such a way they could be of help in properly guiding loan officer in their assessment Analysis for purposes of establishing correct credit rating Evaluate the paying capacity of present and potential customers on the basis of information gathered and analyzed

Its main work consist of Investigating Assembling Analyzing Record credit information for the guidance of the loan officers of the bank

Consisting of systematic and judicious collection of data respecting the financial responsibility Character Antecedents Business qualifications and abilities of the banks customers The qualification of the data on each customer to chronological order Their systematic preservation for future reference and comparison

Is a man who occupies a very important position in the structure in the credit economy and yet is a little known at least talk about outside the world in which he lives His decision rests and success our failure of the credit granting organization. In small concerns, he is the credit investigator, credit appraiser, credit super visor and credit manager (if not a loaning officer at the same time) all rolled into one
A good credit manager is progressive in his ideas in thinking.

 Performed

by the banks credit investigator who has, as his main objective the verification as well as evaluation of the applicants character, credit standing and integrity though process of data gathering of all essential facts

Credit Investigation Report (CIS) may come for any officers/departments of the bank for any of the following purpose: a. On client seeking loan accommodations or credit line with the Loans Administration Department through Marketing Management Department; b. On clients applying with the International Banking Department to secure availment in the form of Letters of Credit, Import/Export Bills, Trust Receipts and other forms of accommodations; c. On clients opening current/savings accounts with the Cash Administration for the first time (which, of course, is no longer common nowadays in view of the competitive nature of the banking business); d. On clients transferring business with the Treasury Department through the money desk; e. On co-makers and guarantors for credit; f. On old clients for updating client information; g. On insurance companies requesting accreditation or offering to act as surety; h. On beneficiaries named in the Letter of Credit; i. On prospective buyers of assets acquired by the bank; j. On prospective suppliers of office equipment and supplies and contractors of service; and k. Others, subject of special cases.

1. Purpose and types of investigation -is a routine or a special case and the or purpose is general or specific. 2. Company credit policy -is a conservative or liberal one, and whether it requires a comprehensive would investigation of cases, or a representative sampling would suffice. 3. Client classification -whether the client is new or an establishment one; a past-due or a valued one. 4. Amount involved -amount involved is big or small. - if it is small one, chances are limited type of investigation will suffice. -if t is large sum, investigation may be rigid and through relative to the risks involved 5.Time and resource constraint -scope depends on such factors since the report must e finished on the date it is needed by the requesting officer/department of the bank, and also, on the availability of the credit investigator who will conduct the investigation.

Credit investigation cover and includes the following: 1. Companys background a) Single proprietorship - he sees to it that the owner has the capacity to enter a lawful contract.
b) Partnership - can be a general or limited partnership. -they are liable to the whole extent of their separate properties, either subsidiary and pro rata or solitarily. -in limited partnership one or more members aside from the general partners, are limited partners who as such shall not be bound by the obligations of the partnership.

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There must be a contract The partners must have legal capacity to enter to the contract There must be mutual contribution of money, property and industry for a common fund The purposes for which the partnership must be lawful The purpose must be to obtain pecuniary profits and to share the same Moreover, the articles of co-partnership must be kept secret

 Artificial

being bound by the operation of law Having the rights of succession and the powers \ Attributes and property expressly authorized by law or incident to its existence

Name of the corporation Its purposes, objectives, nature and powers The location or place of business The terms of duration of corporate existence The names and the residences of the incorporators Name of incorporating officers The capital stock and the no. of shares into which it is divided The name and citizenship of the stockholders

By having an establishment loan policy, a program is made possible against which actual performance or practices can be evaluated for purposes of determining variations, if any, and the necessary application of remedial action. A loan policy should be made flexible to provide for alternative courses of action and thus enjoy the advantage of the policy serving as a guideline rather than as a strait jacket.

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Agricultural credits Commercial loans Industrial loans Real estate loans Consumer or personal loans Term loans

 To

ascertain the effectiveness of such a policy, it is essential that a review of its effect upon the organization be made as well as its impact upon the banks customers in the light of existing business conditions.

system of gathering and putting every information about customers and applicants into a folder which is filed in proper order.

Distinct Advantages:
A card record could be examined quickly without taking the time to go through the papers in the folder. In the event that some records are found missing from the folder for whatever reasons.

1.

Used for statements

The latest financial statement of the company is found with the banks comparative statement form.

Compilation of reports
It is conducted by the loaning officer of the bank and his staff. Correspondence matters with bank and business firms Up to date file record of borrowers as well as prospective ones.

 One

firm maybe primarily interested in increasing the volume of sales It grants credit applicant and runs the risk of some losses It takes ordinary precaution in granting credit that could reduce their sales volume.

 By

credit terms-it includes the time when the payment must be made and the discount, if any, that will be allowed from prompt payment By credit period-the length of time within which the customer to remit in part or in full. By credit limit- credit-granting companies imposed a limit with respect to the amount or value that a customer can obtain from the firm.

 There

general use is in the nature of danger signals The principal purposes of credit limits is to serve as guides to credit management and control Aid in reducing the cost, of credit management in enhancing its efficiency.

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Thorough investigation New customer should be acquainted with terms and conditions It is necessary that the first reminder be sent immediately Continued use of the privilege should be suspended in respect to slow paying customers Decisions and actions should be characterized by firmness but short of being rude and arrogant. Absolutely necessary, the services of collection agencies must be sought or legal services enlisted as the case may be.

 Some

are use credit to increase profitable

sales Others incur losses due to unwise credit extension The longer the credit period is, the greater is the incidence of delinquencies

 Relate

to the size of the order Identity of the applicant for credit and his references Customers rating appears in the register of some mercantile agencies

 Wholesale

customers usually buy for resale to

others Retail customers buy their own consumptions

 Maximizing

sales Controlling the amount of receivables Controlling cost of credit and collections