FIM04 CREDIT AND COLLECTIONS

00- CREDIT POLICIES / CODE OF

CREDIT INFORMATION
J. VILLENA, CPA
CREDIT POLICY
Guidelines that spell out how to decide which customers are sold on open account, the
exact payment terms, the limits set on outstanding balances and how to deal with
delinquent accounts.
PRINCIPLES AND PRACTICES TO ABIDE BY BUSINESSES
1. Credit is earned; and a privilege and not a right:
2. The financial security, sustainability of the creditor is the principal consideration
rather than the attainment of sales or credit objectives:
3. Credit must be granted to person possessing traits and attributes of
trustworthiness, integrity, capability and capacity to earn.
4. Debtors must not be given credit much more than they can reasonably, effectively
and efficiently to pay.
5. Credit must not be extended to one who is a habitual delinquent.
6. Dont cry over spilled milk. Take a loss, write-off bad account and learn from your
negligence.
AIMS
1.
2.
3.
4.
5.

OF ESTABLISHING CREDIT POLICIES

To maximize sales/revenue
To minimize costs and bad debts losses
To attain profit objectives
For control purposes
For sustainability and growth

FACTORS TO CONSIDER IN FORMULATING CREDIT AND COLLECTION POLICIES

1. Capital
2. Competition
3. Product or services
4. Customers/Target Market
CREDIT AND COLLECTION POLICY

A liberal credit policy means your company extends favorable terms to buyers
who make purchases on accounts or through short-term financing. Offering
discounts for early payments or allowing lengthy repayment periods with no
penalty are examples of liberal credit terms.

A strict credit policy means enforcing tight limits on the amount of time a buyer
can pay a debt.

FACTORS DICTATING FOR LIBERAL CREDIT POLICY

1. High overhead cost necessitates high volume to prevent losses
2. High advertising and promotion expenses
3. Demand for product/service is temporary due to the fad/nature of your
product/service
4. When opening a new accounts
5. Developing a market for new product/service
6. Competitive market
7. High inventory losses
8. Selling season of your product/service

FACTORS DICTATING FOR RESTRICTIVE CREDIT POLICY

1. Having extended or leveraged financial condition
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2.
3.
4.
5.

FIM04 CREDIT AND COLLECTIONS

00- CREDIT POLICIES / CODE OF
CREDIT INFORMATION
J. VILLENA, CPA
There is more demand for your product/service than your ability to meet the
demand
The inventory is low
The general economic condition is unfavourable
Manufacturing product according to customers specification which they cannot
sell to others.
Credit policies you devised must be flexible.
Sales and Credit and collection records SHOWING relationships between total sales
and credit sales must be the starting point to amend your credit policies to adjust
to the prevailing conditions.

THE CODE OF CREDIT INFORMATION EXCHANGE

1. Confidentiality of the information
2. Should not disclosed the name of the inquirer without permission
3. All letters, including form letters should bear the manual signature of the inquirer
to establish responsibility
4. In answering inquiries, it is advisable to disclose all material facts bearing on the
credit standing of the subject including the basis upon which credit were
extended.

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