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Joshua V.

Aguirre BSBA-FM II
Credit & Collection August 24 17

Types of Credit Transactions


Classifications
1. Personal Credit (Consumer Credit) The power of an individual to obtain money, goods, or
services to satisfy his personal needs.
Personal consumption of the debtor.
Nonproductive debt will be repaid from the persons salary or wage.
2. Retail Credit The power of a retailer to obtain goods and services for the purpose of
resale.
Improve business of retailer.
Self-liquidating The retailers repays the loan out of the proceeds of resale
Retailer also makes a profit for himself.
3. Commercial or Mercantile Credit When one merchant extends credit to another in the
form of goods. Transactions occur between producers, manufacturers, wholesalers, and
retailers.
Facilitate the production and movement of goods.
Focuses on goods rather than money.
4. Investment Credit When money is borrowed for the purpose of utilizing the same in
long-term capital needs.
Evidence of investment credit comes in the form of bonds, long-term promissory
note, mortgages, or any promise to pay of long durations.
5. Bank Credit The power of a commercial bank to obtain deposits and its ability to give
loans from such deposits. There are two main functions which are (1) steady flow of credit
and (2) demand of borrowed money.
Always in the form of money
Short-term commitments
Used to cope with shortage of working capital requirements

Other Types of Credits


1. Agricultural in the form of goods or money and may either be short or long term to
finance agricultural production.
2. Export Used by exporters and importers. Facilitates movement of goods from its origin
to its destination.
3. Government The government borrows money to finance its activities. Evident in
floatation of bonds and issuance of treasury bills, or direct loans from domestic or
international sources.
4. Factoring Purchase of accounts receivable by institutions and undertaking in the
collection of the accounts.
5. Open Market When institutions engages in the use of commercial papers to finance
momentary lack of working capital.
Other Classifications
1. Form either in goods and services or of money.
2. Term or Maturity
o Short-Term maturity of one year
o Long-Term maturity of five or more years.
o Intermediate more than one but not exceeding five (5) years.
3. Security
o Secured when specific properties or collaterals guarantee repayment of loan.
o Unsecured When a loan is given simply on the strength of a promissory note.
4. Method of Release when the credit is in small amounts, the whole is given at one time.
Also referred to as lump sum. While substantial amounts are in a form of staggered
payments.
5. Repayment
o Non-self-liquidating credits that are personal in nature. Payment comes from the
personal income of the borrower.
o Self-liquidating credits that involve those which finance business needs.
Employment of funds is productive, therefore, repayment will come from proceeds
of resale or income derived from the use of capital goods.
6. Source
o Private
o Public
o Banks
o Commercial Enterprises
o Financial Institutions
7. Evidence transactions completed verbally or orally are unevidenced credit. When there
is a presence of promissory notes or other written form of evidence is present, then it is
called evidenced credit.