Credit Management-lesson 1-Stud Pptx

7/26/2019 Credit Management-lesson 1-Stud Pptx

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R E S E A R C H E D A N D P R E P A R E D B Y :

R O N A L Y N V . C A B A L L E R O , M B A

P R O F E S S O R

Credit Management

General Prini!le"



E#$l%ti$n O& Credit

Time was when man contented himself with hand tomouth existence. What he needed he produce, andhe produced only what he needed.

He realized some needs could only be satisfied byother men’s produce. So he learned to exchange hisgoods with his neighbors goods. An uncomplicatedsystem was deeloped.



He li!ewise realized the inconenience of bringing bul!y products to exchange for another’s goods. "

#n the beginning, stones, then gold, or any aluable

item, and finally money.Hazards inoled in carrying large amounts of

money and other aluables in the pursuit of tradeproed to be disastrous, a system using a medium of

exchange based on trust$ was established.

E#$l%ti$n O& Credit '$ntin%ed(



Today we see credit being passed on to debtors in arious forms, they could be items bought throughcredit card% they could be items transacted through

existing credit line of a customer%#tems bought from the corner conenience store that

list items on account

E#$l%ti$n O& Credit



&ost business today thriing mostly on chargesales'purchases in arious forms

(ot of businessmen securing their capital from ban!

loans

E#$l%ti$n O& Credit



De&initi$n: CRED)*

)eried from the (atin word *credo+ meaning to beliee, to trust.



Credit: De&initi$n

&eans securing something of alue, whethertangible or intangible, in return for a promise to payat a some determined future time.



*+ree Se!arate "age $& Credit

. -redit transaction buying on credit, extendingcredit/

0. -redit standing$ character and reputation of the

borrower is on the line/1. -redit instrument" a document eidencing the

formal credit transaction/



Ot+er De&initi$n $& Credit

A purchasing power (Mill)

The essence of credit is confidence on the part of thecreditor in the debtor’s willingness and ability to pay

his debt. (Holdsworth) A sale on trust

2ersonal reputation a person has, in conse3uence of which he can buy money, or goods, or labor, by

giing in exchange for them, a promise to pay at afuture time (Mac Leod)



Categ$rie" $& Credit:

. Trade credit

0. 4an! credit

1. Agricultural credit

5. -haracter loan credit6. 7etail credit

8. 9actoring

:. #nestment credit;. <oernment credit

=. >xport credit



-. *rade Credit '*C(

Sometimes called mercantile credit

?sed to secure goods for resale in exchange for apromise to pay at some specified future time.



The prime elements of trade credit is that it is usedin an exchange for goods intended for resale, with or

without further processing by the buyer.

T- is the principal medium of exchange in theproduction and distribution of goods up to the timethey reach the retailer$.

-. *rade Credit '*C( '$ntd(



/. Ban0 Credit

Function of a Bank. The commercial ban! has twoprimary functions@

To receie deposit and

To adance funds on the basis of loans of discountingcommercial papers$



1. Agri%lt%ral Credit

Two types@

. (ong"term to finance the purchase of a farm landand improements.

0. Short"term to finance production and mar!etingcrops or liestoc!.



2. C+arater L$an

$Any personal loan extended to the client withoutany collateral$.



3. Retail Credit

. -harge accounts is often considered credit forconenience, usually through the use of creditcards$.

0. #nstallment credit allows for partial payments atscheduled interals or at a fixed date$.



4. Fat$ring

. The outright conersion of accounts receiable tocash at a substantial discount

0. The assumption of all boo!!eeping and collection

responsibility for the accounts receiablepurchased

1. The assumption of losses accruing to saidpurchased accounts.



The principal adantage of factoring is that itpermits the rapid turn oer of capital necessary forgrowth.

The factoring client the seller of accounts/ mayreinest his proceeds without waiting for thematurities of his receiables" usually at a 1, 8, or= day term.

4. Fat$ring '$ntd(



5. )n#e"tment Credit

The means by which businesses ac3uire fixed assets.

Bne resort to inestment credit when his funds areinsufficient to finance capital expenditures.



6. G$#ernment Credit

Also called, public credit

7efers to the credit of national state and localgoernments



7. E8!$rt Credit

Similar to trade credit except that the proceduresand documentations are different.

Arises because of foreign trade.

The ris! is greater than those of retail trade credit,the percentage of bad debt losses in export credit islower than domestic trade credit because it is moresecured in nature.



C$mm$n F$rm" $& Credit *ran"ati$n"

-. C+arge A$%nt C consists in the granting ofcredit on the mere signature of the customer'clientor authorized representatie$.

/. Se%red C+arge A$%nt C refers to theextension of credit payable usually also in thirty1/ daysC but this time, aside from the signatureof customer'client, additional collaterals are

re3uired in the form of bond from a bondingcompany or other aluable properties$.



1. )n"tallment A$%nt" C the account is payablein installments, usually monthly. #t is bro!en downin installments because the amount of creditextended is substantial$.

5. Straight loans C loans in the form of money ore3uialent usually granted by ban!s and otherfinancing institutions$.

C$mm$n F$rm" $& Credit *ran"ati$n"



F%nti$n $& Credit

-. E$n$mi &%nti$n credit seres as@

./ a medium of exchange% and

.0/ to ma!e capital aailable.



0. Social 9unction C a social function of credit is toeo!e for independence of thought and action. #tsuse obiates the necessity for hoarding on the partof those who desire to sae and leads them to placetheir funds in institutions where the principal ismore secure than are hoardings$.

F%nti$n $& Credit



1. 4usiness 2romotion

1./ business promotion

1.0/ to adDust his olume of capital to the arying

needs of his business

F%nti$n $& Credit



Ad#antage" $& Credit

. -redit in its nature, plays a ital and maDor part inany economy. #t speeds up the transfer of goods

from producers to consumers$.

0. -redit also ma!es capital more productie$.



1. -redit does not only benefit the consumer but theentire business industry as well$.

5. A great adantage of credit in business is

conenience.6. -redit may be secured to establish an enterprise

and finance its arious transactions, adding to itsgrowth

Ad#antage" $& Credit



Di"ad#antage" $& Credit

. &assie defaults across sectors trigger creditcontrols, ma!ing it harder to secure the neededli3uidity to continue business operations.

0. -redit encourages oer"zealous and aggressieentrepreneurs to oer expand unreasonably$.



1. -redit li!ewise contributes to the extraagance andcarelessness on the part of the borrowers$.

5. #n a mar!eting"oriented company, the desire to

push sales might lead to extension of creditunworthy or ris!y parties who might end up to be bad debtors after all who will cause the collapse ofthe company.

6. Berextension of credit could create imbalance inthe financial system$.

Di"ad#antage" $& Credit



Pr$9lem *i0ler

&r. A sells arious goods on installment basis. He buys saidgoods from &r. 4 on cash basis. #n selling his goods, he !eepsa list of his customers’ purchases and correspondingly entershis boo! the amount paid each time his customers pays the

installment due. He een ac!nowledges his customer’spayment by issuing an official receipt.

" Why does &r. A !eep a record of his transactionsE " #f hetrusts his customers, why does he has to put eerythingin writingE

" #s the term *selling on credit+ properly used in this caseE WhyE

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Credit Management-lesson 1-Stud Pptx