Fundamentals of Credit 4) Straight Loans

• From the Latin word “creditum” which means a loan AS TO USES:

or thing entrusted to another and Italian word
“credito” which means belief or trust 1) Consumer Credit
2) Industrial Credit
WHAT IS CREDIT? 3) Trade Credit

• An agreement between a lender and a borrower PARTIES TO A CREDIT TRANSACTION

• Credit can also refer to the creditworthiness of an
• Creditor
individual or a business
• Debtor
• In accounting, a credit is a type of bookkeeping entry,
the opposite of which is a debit THE EVOLUTION OF CREDIT IN THE PHILIPPINES
• Transfer of resources giving rise to obligations that
must be discharged in the future • Credit is equal to DEBT during the early times
• Resources may be financial (loans) or they may • Having NO DEBT then is a status symbol as opposed
consist of goods or services (consumer credit) to those who are stigmatized when they avail of
• Extended by a creditor also known as lender, to a CREDIT
debtor, also known AS BORROWER • The Association of Credit Men (Phils.) Incorporated
was formed in 1932
• Credit transaction began to pick-up after World War II
• Business Rehabilitation saw the need for credit as
people simply do not have enough cash to buy things
• Stiff competition in credit sales saw the decline of
good credit risk customers availing of Credit
• Banks and other financing institutions started to
experience tremendous amount of receivables due to
legislatures that protect the debtor and neglected the
NATURE OF CREDIT and COLLECTION creditor
• Credit function was associated with sales
• Maximize PROFIT and Minimize BAD DEBTS LOSSES
through proper CREDIT EVALUATION of each FOUNDATION OF A SYSTEM OF CREDIT
APPLICATION and through CONSISTENT and
EFFICIENT COLLECTION 1) Creditor’s absolute confidence towards the debtor.
2) Existence of proper facilities for credit operations.
BASIC ELEMENTS OF CREDIT 3) Stable monetary standard.
4) Government assistance.
• Ability to Obtain a Thing of Value
• Promise to Pay CHARACTERISTICS OF CREDIT
• Definite Sum of Money
• FUTURITY OR TIME
• Payable on Demand or Future Time
• ELASTICITY
FUNCTIONS OF CREDIT • TRUST
• INSTRUMENTS
• ECONOMIC • LEGAL OBLIGATION
• SOCIAL • EXPOSURE TO RISK
• BUSINESS PROMOTION
• CLASSIFICATION OF CREDIT KINDS OF CREDIT

ITEMS PROVIDED BY THE LENDER 1) According to the TYPE of USER

2) According to OBJECTS of EXCHANGE
• GOODS 3) According to PURPOSE
• SERVICES 4) According to MATURITY
• FUNDS
• PROPERTIES
• RIGHTS

AS TO TYPE OF TRANSACTION

1) Charge Accounts
2) Secured Charge Account
3) Installment Accounts
SOURCES OF CREDIT

• INDIVIDUAL MONEY LENDERS

• RETAIL STORE
• PAWNSHOPS
• BANKS
• SAVINGS and LOAN ASSOCIATION
• FINANCE COMPANIES
• GOVERNMENT NON-BANK FINANCIAL INSTITUTIONS
• CREDIT UNIONS