MYTHS
 Character + Capacity + reasonable risk + no-nonsense credit &
 Character generally does guarantee good credit
performance of debtors.
 Capital adequacy assures ability to weather NPLs
& NPAs.
 More credit applicants the better.
 Debtors are to blame for credit delinquency bad
debts & poor collection.
 Centralized credit information bureau as well
as credit & collection association of BAP, CMAP,
ASCAP, etc will prevent, avoid bad debts.
 Rank & file of the credit & collection operations of
business must be educated & perform well.
 Generally there is no need to provide, continuing
professional development for the rank & file of
credit & collection/sales operation.
FACTS
collection operation generally assures good effective credit &
collection performance
 No amount of capital adequacy can ever insulate a
lender/creditor from NPLs/NPAs
 Discement, discretion is the control valve for inordinate
imprudent credit collection operation.
 No-nonsense credit & collection rank & file in business are
needed & the force to prevent , avoid or mitigate NPLs &
NPAs to acceptable level.
 Historical credit performance of the BAP, CMAP, ASCAP,
attest to the continuing burgeoning of deliquency and bad
debts of banks, businesses.
 Education alone w/o tested proven experience skills & arts
of no-nonsense credit & collection performance generally
assures good credit & collection performance
 To have a good & effective, efficient sales. A sale or loan is
never a sale unless collected.
Weak financial Controls
 Delayed submission or frequent adjustment in the financial reports
 Cash disbursement are not disbursed by one who does not maintain the
financial records.
 The audit and compensation committees are not composed of qualied
members.
 Generally accepted accounting/auditing standards/practices are
frequently bent or not followed.
 Shortage of disposable free cash.
o Operations
o Borrowings
o Credit Stretching
o Other unconventional sources
 Artificial low inventory
 Extra-ordinary or non-recurring asset
disposal
 Susceptibility to extraneous factors
 Insufficient checks and balances
 Poor organizational structure
 Cash in-Flows from Operation.
 Cash Flows from Investments
 Cash from Financing Activities
 The prevailing social, economic, political and business conditions in the
locality where the debtor/company operates.
 The perspective of the account.
 To which industry does the debtor belong?
1.) Sunrise industries
2.) Plateau industries
3.) Sunset industries
 Liquidity prospect of the debtor
 Accurate reporting of cost
 Hedges
 Productivity
 Assets
 The quality and reputation of the company’s management
 Connections
 Borrowing too much in relation with actual
capital requirements
 Hasty expansion
 Lack of professionalism, nepotism and cronyism
 Lack of adequate controls
 Over confidence in connections
 Lack of integrity
 Being in wrong industry at the wrong time
 Change in the nature of business
 Poor financial planning
 Other causes of distressed accounts
 Payment in kind or “ex-deals”
 Payment of a debt by real/personal property or “Dacion en
pago”
 Conversion of credit claims into equity for the creditors
accompanied;
 Seats for the creditor in the debtor’s board of directors
 Marked and substantial reduction of claim for one lump
sum payment
 Assignment of credit
 Pari-passu
 Extension or renegotiation of contract
 Keeping or recovering goods in transit
 Immediate extra-judicial foreclose or replevin of
encumbered property.