Week 11

CREDIT &
COLLECTION
CREDIT INSTRUMENTS
CREDIT INSTRUMENTS
ARE DOCUMENTS EVIDENCING THE EXISTENCE OF A
CREDIT OBLIGATION WHICH DEFINES THE
RESPONSIBILITY OF THE DEBTOR TOWARDS HIS
CREDITOR AND THE RIGHT OF THE CREDITOR TO
COLLECT FROM THE DEBTOR ON THE DATE DESIGNATED.
CREDIT INSTRUMENTS
Credit instruments are items that are utilized in the place
of currency.

Almost all individuals and businesses make use of some

type of credit instrument on a daily basis.
CREDIT INSTRUMENTS
The ability to use such an instrument instead of
currency rests in the fact that debtor and the
recipient agree upon the use of the instrument
and there is a reasonable expectation that the
alternate form of payment will be honored.
 Classification of
CREDIT INSTRUMENTS
 Classification of
CREDIT INSTRUMENTS

Credit Instruments

with General with Limited

Acceptability Acceptability

Bank Notes Investment

Treasury Certificates Commercial

 Classification of
CREDIT INSTRUMENTS

With General Acceptability

CREDIT instruments widely acceptable without questioning

the integrity of the person offering it

CREDIT MONEY
1) Bank Notes/ Paper Money – Issued by the BSP

2) Treasury Certificates – a short-term obligation of the

treasury, usually maturing in one year,
CREDIT MONEY

1) Bank Notes/ Paper Money – Issued by the BSP

 Classification of
CREDIT INSTRUMENTS

With Limited Acceptability

Credit instruments that are accepted only by a few

people and may be subdivided into 2 types:

1. Credit instrument for Investment Purposes

2. Credit instrument for Commercial Purposes
 Classification of
CREDIT INSTRUMENTS

1. CREDIT INSTRUMENTS WITH GENERAL ACCEPTABILITY

• ARE INSTRUMENTS THAT ARE WIDELY

ACCEPTABLE WITHOUT QUESTIONING THE
INTEGRITY OF THE PERSON OFFERING IT.
 Classification of
CREDIT INSTRUMENTS

1. CREDIT INSTRUMENTS WITH GENERAL ACCEPTABILITY

• THE ONLY CREDIT INSTRUMENT THAT MEETS

THE QUALIFICATION OF GENERAL
ACCEPTABILITY IS CREDIT MONEY.
 Classification of
CREDIT INSTRUMENTS

CREDIT MONEY

1) Bank Notes/ Paper Money – Issued by the BSP

2) Treasury Certificates – a short-term obligation of

the treasury, usually maturing in one year
 Classification of
CREDIT INSTRUMENTS

2. CREDIT INSTRUMENTS WITH LIMITED ACCEPTABILITY

• ARE THOSE CREDIT INSTRUMENTS THAT ARE

ACCEPTED ONLY BY FEW PEOPLE AND MAY BE
SUBDIVIDED INTO 2 TYPES:
• CREDIT INSTRUMENT FOR INVESTMENT PURPOSES
• CREDIT INSTRUMENT FOR COMMERCIAL PURPOSES
 CREDIT INSTRUMENTS
FOR INVESTMENT PURPOSES
 CREDIT INSTRUMENTS
FOR INVESTMENT PURPOSES

A) STOCK CERTIFICATES
ARE EVIDENCES OF OWNERSHIP IN A CORPORATION

B) BOND CERTIFICATES
• ARE EVIDENCES OF INDEBTEDNESS OF A
CORPORATION TO BONDHOLDERS
• CORPORATION RAISES HUGE AMOUNTS OF FUNDS
THIS WAY
 CREDIT INSTRUMENTS
FOR COMMERCIAL PURPOSES
 CREDIT INSTRUMENTS
FOR COMMERCIAL PURPOSES
• These documents are used during business transaction to
replace cash.

• These instruments are the promissory notes, checks, bank

draft, bill exchange and bank deposits.
 Promissory Note
A promissory note is a written promise by a person, called
the maker, to another party, the payee to pay a definite sum
of money at a certain future time.
 Promissory Note
• A note can be single-named or two-named instrument.

• In a single-name note , the maker makes a sole promise to pay,

while in the two-name note, another party is presented known as
the co-maker.
 Promissory Note
• The co-maker serve as the guarantor and thereby assumes a joint
liability with the maker.

• The payee is the party to whom payment is due or promise to pay

is given.

• The maker is the issuer of the note, party making the promise to
pay.
 Promissory Note
• The payee is the party to whom payment is due or promise to pay
is given.

• The maker is the issuer of the note, party making the promise to
pay.
Promissory Note
Promissory Note
Promissory Note
 Promissory Note
1) Title of the document.

2) The statement “For value received”, to indicate the maker has

received the amount borrowed.

3) The name of the maker. The maker is the person promising or

signing the promissory note. You may include a statement that
the maker is of legal age, the civil status, citizenship, and
residence address.
 Promissory Note

4) The statement of an unconditional promise to pay.

5) The name of the payee. The payee is the person with whom the
maker has promised to pay.
6) The amount to be paid.
 Promissory Note

7. Date when the said amount has to be paid, either on-demand or

at some future time.
8. Other conditions, if any. For example, paying at a particular
location or with a certain interest.
9. Name and signature of the maker.
 Promissory Note

10.Name and signature of witness/es (optional).

11.Acknowledgment – is the act of the person signing the
document in going before a Notary Public and declaring it to be
his or her act or deed (optional).
 Promise to Pay & Order to pay

A promise to pay involves two parties, generally, with one party

promising to pay the other a specified sum of money at a specified
time.

An order to pay, on the other hand, involves three parties with the
issuer of the order, the drawer, ordering a second party, the
drawee, to pay a third party, the payee.
 Pay to the Order of

is where you write the name of the person

or company you want to pay.
 Reminders when Writing
A Promissory Note

1. Print copies
2. Go to the notary if you choose to notarize the document.

Notarization is NOT mandatory.

But has a great effect in court cases.
A private document becomes a public document, and is
admissible in court without further proof of authenticity.
Reminders when Writing
A Promissory Note
Notary Public
A notary public is a public official appointed by
a state government to help deter fraud.

Notary publics witness the signing of important

documents and verify the identity of the
signer(s), their willingness to sign the
documents, and their awareness of the
contents of the document or transaction.
HOW CREDIT INSTRUMENTS
ARE NEGOTIATED
HOW CREDIT INSTRUMENTS
ARE NEGOTIATED
THE NEGOTIABLE INSTRUMENT LAW STATES THAT
AN INSTRUMENT IS NEGOTIATED WHEN IT IS
TRANSFERRED FROM ONE PERSON TO ANOTHER
IN SUCH MANNER AS TO CONSTITUTE THE TRANSFEREE
AS THE HOLDER THEREOF.
The TRANSFEREE becomes holder thereof.
Transferor Transferee
REQUISITES FOR
NEGOTIABILITY
DEFINE NEGOTIABILITY
the process of discussing something
with someone in order to reach an
agreement with them, or the
discussions themselves
Requisites for NEGOTIABILITY
1) IT MUST BE IN WRITING SIGNED BY THE MAKER
OR THE DRAWER.

2) IT MUST BE PAYABLE ON DEMAND OR AT A

FUTURE DETERMINABLE TIME.
Requisites for NEGOTIABILITY
3) IT MUST BE PAYABLE TO ORDER OR TO BEARER

4) IT MUST CONTAIN NO CONDITIONS

Requisites for NEGOTIABILITY
5) IF IT ADDRESSED TO A DRAWEE, THE NAME OF
THE DRAWEE MUST BE INDICATED WITH
CERTAINTY.

6) ENDORSEMENT MUST BE IN THE NAME

APPEARING ON THE INSTRUMENT.
Requisites for NEGOTIABILITY
7) IF HOWEVER, THE NAME OF THE PAYEE IS
MISSPELLED OR IS ERRONEOUSLY WRITTEN, THE
ENDORSER MAY ENDORSE IT IN THE SAME
MANNER AS IT WAS WRITTEN BUT MUST INDICATE
BELOW THE ENDORSEMENT HIS REAL NAME WITH
THE WORD –BY.