 Credit-the power or ability to obtain goods or services in exchange for a promise to

pay for them later.

 From the latin word “creditum” means TRUST.
 ”man’s confidence in man”
 John stuart Mill define it as “permission to use another’s capital.
ELEMENTS OF A CREDIT

 TRUST- Implies that the creditor or banker has faith in the ability and willingness of
the debtor to fulfill his obligation, be it an individual, corporation or government.
 TIME OF PAYMENT- the borrower has an obligation to pay his debt in a definite
time or date. a certain fixed date is agreed upon for him to pay as promised.
 RISK- life is full of risks and this includes a payment of loans. the ability of the
borrower to fulfill his promise to pay may be reduced by circumstances beyond his
control, such as natural calamities and personal misfortunes.
CREDIT DISTINGUISH FROM DEBT

 Debt represents the unpaid portion, or the outstanding balance, of past business
done on credit
CREDIT MANAGEMENT

 Management of funds going in to and out of these accounts, choice of alternative

methods of financing sales and purchases or loans and borrowings.
PHILOSOPHY OF CREDIT

 Aristotle – money cannot beget another money

 - money as a medium of exchange
 Renaissance period – other uses of money were recognize
 Disadvantag
ADVANTAGES es

 Convenient  It is a loan
 Immediate
 Interest rate
 Additional fees
 No need for cash
 Easy to
 Zero liability on fraud overspend
 Helps on reservations  Can promote
impulse
 Bonuses, points
purchases
 Risk of identity
theft
As the business grows , it requires more
funds to support its operations . Thus, the
necessity to borrow funds from external
sources such as banks and investors. The
Finance Manager must balance the cost of
borrowing and the income derived from said
funds.
Why should businesses, or a businessmen or banks and other
creditors lend funds to the business?

1. It increases customer loyalty.

2. It increases sales and thus your Bottom Line (that is Net Income)
3. It allows you to expand customer base.
4. Customers want convenience, they want to issue commercial check and
pay later.
5. Customers may not have the money at the moment but will pay on a
later date.
6. Borrowers or customers feel “special” , “ valued” or official
CLASSIFICATIONS AND SOURCES OF CREDIT

1. Agricultural Credit
a) Time Loan – time bound or fixed term
b) Crop Loan – coincides with the cropping season
c) Commodity or Quedan Loans – deposit of farm outputs to a
warehouse
2. Commercial Credit
3. Industrial Credit – for infrastructure and machinery
4. Consumer Credit – appliances, credit cards
5. Commodity Loans -
SOURCES OF CREDIT : FINANCIAL INTERMEDIARIES

No Intermediary
The Lender

The Borrower
SOURCES OF CREDIT : FINANCIAL INTERMEDIARIES

With Intermediary
Financial Intermediary
Borrower Depositor

From:
For:
1. Housing Loan
Philippine Standard Bank 1. Savings Deposit
2. Time Deposit
2. Consumer Loan
3. Business Loan Guaranteed by: PDIC
Php 500K
(WHO) ARE THE FINANCIAL INTERMEDIARIES ?

Financial
Intermediaries
FINANCIAL INTERMEDIARIES
Banks : As Financial Intermediary.

• “Buy and Sell” business

• Authorized by the Bangko Sentral ng Pilipnas
• Lend the money to borrowers
• Low deposit interest ; High interest rate
Banks: “Buy and Sell”
Banks could be :
Insurance Companies: As Financial Intermediary

• PhilAm Life, SunLife, PruLife, Manulife . . .

• Cash accumulation from policy owners
• Promises future payment in case of death, retirement
• Collects premiums and invest pooled funds to stock
Pre-Need Companies: As Financial Intermediary

• College Educational Plan or Old Age Pension Plan

• Cash accumulation from policy owners
• Promises future payment in case of death, retirement
• Collects premiums and invest pooled funds to stock
Financing Companies | Credit Cooperative: As Financial
Intermediary

• Extend credit facilities to

 consumers
 Industrial
 commercial
 agricultural enterprises
Financing Companies | Credit Cooperative: As Financial
Intermediary

• By means of:
 Factoring or discounting of A/R
 Buying and selling chattel mortgages
 Leasing of motor vehicles , heavy equipment and
industrial machinery, business and office machines or
appliances
SOURCES OF CREDIT : NON- FINANCIAL INTERMEDIARIES
Example: PROMISSORY NOTE that will be used as collateral:
Selling Price of LED TV P10,000.00
Downpayment 2,000.00
Balance (the amount to be financed) P 8,000.00

24-months term at 3% interest per month

Computation:
Balance to be financed P 8,000.00
Interest for 24-months (3%x24=72%) P 5,760.00
Sub-total P13,760.00

Add:
Service Charges at P 100.00 per month P 2,400.00
Total Amount Due from Customer P16,160.00
Example: PROMISSORY NOTE that will be used as collateral:

I PROMISE TO PAY Cebu Appliance Corporation

the sum of Sixteen Thousand One Hundred
Seventy Six Pesos (P 16,176.00) payable in 24
monthly installments of Six Hundred Seventy Four
Pesos (P 674.00) each , beginning on January 1,
2017.
Refer to your USC Professor in Law: Obligations and Contracts on the appropriate wording of a
Promissory Note. Listen well, learn and don’t forget….
Cash Differential or Term Differential (CTD)

Credit Term Price P 16,160.00

Add: Down Payment 2,000.00
Total Amount P 18,176.00
Less:
TV Cash Price 10,000.00 Collection expenses

Cash or Term Differential P 8,176.00

Profit
Lending Investors: As Financial Intermediary

• Governed under RA No. 337

• Purpose:
1. Encourage loan sharks or 5-6 and other to stop their
unregistered and underground operations to go public, so
that their operations will be monitored and subject to tax
2. To protect the public from exorbitant lending rates
3. To allow market forces (supply and demand)
Republic Act No. 11057
“Act strengthening the secured transactions legal
framework in the Philippines, which shall provide the
creation, perfection and determination of priority,
establishment and centralized notice registry and
enforcement of security interests in the personal property.”

broaden the utilization of ‘movable assets,’ like bank

accounts, accounts receivable, inventory, equipment,
vehicles, agricultural products, and even intellectual
property rights,” to provide better access to loans.
Activity No. 1: Commercial Bank Loan Products (choose: ChinaBank, MetroBank, BPI,
UCPB, ChinaTrust, MayBank, Standard Charter, Robinsons Bank, RCBC)

To Do:
1. Set an appointment with a commercial bank manager , any branch, and conduct a 10
minutes interview using the following questions:
a. What are the bank loan products you offer to your clientele
b. What is the interest rate per annum you charge to borrowers?
c. What are the processing or service fees in applying for a commercial loan
d. What are the criteria in evaluating the creditworthiness of the applicant?
e. What are the common reasons why a borrower would apply for a loan?
f. What is the lead time from application to loan release ?

2. Submit your Report in a short size bond paper ( 1 page only) detailing the above.
3. Deadline: October 13, 2018
CREDIT POLICY
CREDIT POLICY:

Clear and written guidelines that:

1. Set the terms and conditions for selling merchandise or rendering
of a service on credit .
2. Criteria in selecting who (customers) should be given credit
3. Action steps in making collections
4. Steps to be taken during defaults.
A GOOD CREDIT POLICY :

Should have:
1. Provide timely notifications to customers in case regarding past
due amounts.
2. Outline procedures when customers cannot pay in full.
3. Provide a procedure on when and what to do with small customer
balances
4. Provide a procedure that will enable the company to adequately
provide reasonable credit limits for customers with revolving
credit limit.
5. Provide guidelines that legally collect money due to bad checks.
PROTECT YOUR CASH FLOW:

By:
1. Having a sound credit policy and adhering to it
2. Checking references
3. Getting signed credit application
4. Pulling Credit Report
5. Setting reasonable credit limit
6. Monitoring your customers account balances through Aging of
Receivables.
AGING OF RECEIVABLES:

Age in Days Amount in Peso

0 to 30 days 132,000.00
31 to 60 days 450,000.00
61 to 90 days 542,000.00
91 to 120 days 673,000.00
AGING OF RECEIVABLES:

Age in Days Amount in Peso

0 to 30 days 234,000.00
31 to 60 days 146,000.00
61 to 90 days 92,000.00
91 to 120 days 15,000.00
SAMPLE: APPROVED CREDIT LETTER

01 December 2016

Mr. Sam Pressman

Dear Mr. Pressman:

Thank you for applying credit with ABC Corporation. We are happy to inform you that your account has
been approved and your credit limit is Php 900,000.00.

Please refer to the back of this notice for our terms and conditions for payment.

Sincerely,
Larry Cole
VP for Sales & Marketing, ABC Corporation
 SAMPLE: APPLICANT DENIAL LETTER
01 December 2016

Mr. Sam Pressman

Dear Mr. Pressman:

Your application for credit with ABC Corporation has unfortunately been denied . One or more reasons for the
denial of your application may be found in:
 Information contained in a consumer credit report obtained from Credit Mgt. Association of the Phils.
 Information was received from a person or company other than a consumer reporting agency or character
reference.

Thank you for your application. I wish you the best in your future endeavors.

Sincerely,
Larry Cole
VP for Sales & Marketing, ABC Corporation
MONITORING ACCOUNTS RECEIVABLE
MINIMIZING BAD DEBTS
• Aging of Accounts Receivables

0 to 30 days 10,000.00 01.89 %

31 to 60 days 70,000.00 13.28 %
61 to 90 days 217,000.00 41.17 %
91 to 120 days 230,000.00 43.64 %

TOTAL as of Nov. 26, 2016 527,000.00 100%

• Aging of Accounts Receivables

0 to 30 days 10,000.00 01.89 %

31 to 60 days 70,000.00 13.28 %
61 to 90 days 217,000.00 41.17 %
91 to 120 days 230,000.00 43.64 %

TOTAL as of Nov. 26, 2016 527,000.00 100%

• Aging of Accounts Receivables

Borrower’s 0 to 30 31 to 60 61 to 90 91 to 120
Name days days days days
Mr. Balat 70,000.00
Mrs. Tian 93,000.00
Mrs. Jimenez 230,000.00
Atty. Balasubas 10,000.00 124,000.00
The customer’s current
state of condition that
could affect ability to pay

How able the

customer can pay
the amortization
How much money was
personally invested. We
like to see your
commitment

Assets that are used as

security for the repayment
of the loan

The customer’s integrity

and trustworthiness.
• Character.

Refer to the applicant’s record of meeting past obligations

 Investigate: unpaid housing and car loans , negative
database (NDB)
 Repossessed motorcycles and appliances
 Coop’s existing default record
 SSS and PAGIBIG loans payable
 Feedbacks from neighbors, co-employees, relatives,
and barangay officials
• Capacity.

Refers to the applicant’s ability to pay

 Investigate: personal finance on the sources of
income and net worth
 Visit residence and cross-match net income versus
home appliances
 Check: any other sources of income aside from
salary (income from land or sari-sari store)
 Request and verify HR : copies of pay slips
• Capacity.

 Pay slips from employment.

 Call Human Resources and Accounting to verify
veracity and truthfulness.
 Request and verify other income sources
 Verify applicant’s other short-term and long-term
liability (Personal Loans, SSS Loan, PAGIBIG Loan)
• Capacity.
 Is the wife working and earning? Or just a plain PNB
?
 Check lifestyle: is the applicant wearing expensive
watches, iPhone and branded gadgets? What are the
applicants preferences?
 Check facebook where he frequents.
 Ask for his credit card , if any. And latest Card Billing
Statement.
• Condition.

Refers to the applicant’s economic condition

 Investigate: going concern of cash inflow, will the
applicant lose his job within the credit term versus
the economic backdrop (end of contractualization)
 Check potential loss or decrease of income
 Check: health status for future medical expenditure
 Who else is earning income for the family?