UNIT 6

CREDIT
POLICIES
WHAT IS CREDIT POLICY?
 CREDIT POLICY - is a set of guidlines
that sets credit and payment terms for
customers and establishes a clear
course of action for late payments. Set
the payment terms for parties to whom
credit is extended. Define the limits to
be set on outstanding credits accounts.
What are the elements of a credit
policy?

a. Credit Period
b. Discounts
c. Credit Standards
d. Collection Policy
What are the two steps involved in
establishing a credit policy?

1. Establish credit standards - In this step, the firm

must decide how much credit risk it is willing to
accept.

2. Establish credit terms - here, the firm decides

on the length of time before payment must be
made and whether or not it will offer a discount.
 What is Consumer Credit ?

A consumer credit sytem allows customers

to borrow money or incur debt, and to defer
repayment of that money over time. Having
credit enables consumers to buy goods or
assets without having to pay for them in
cash at the time of purchase.
What are the components of
policy?
Policy documents ussually contains
certain standards components: A
purpose statement, outlining why
the organization is issuing the policy,
and what its desired effect or
outcome of the policy should be.
What are the types of Credit?

The three main types of credit are

1. Revolving Credit
2. Installment , and
3. Open Credit
KEY POINTS !

Credit enables people to purchase

goods or services using borrowed
money. The lenders expects to receive
the payment back with extra money
(called Interest) after a certain amount
of time.
 Revolving Credit
A line of credit is one type of credit that comes
with a capped limit and can be used up until you
reach the predetermined threshold. It may
include minimum payments, but ussually , there
is a fixed reypayment schedule. An example
would be a credit credit card as there is a capped
limit (the credit card limit), and you can keep
using it until you reach such a limit.
 Open Credit

Open credit is a type that requires full

payment for each period, such as per
month. You can borrow up to a maximum
amount, similar to credit limit, but you are
required to pay the funds borrowed in full
at the end of each period. An example of of
this would be a cellphone bill.
 Installment Credit

Installment loans are another type of credit

that includes a fixed payment schedule for a
specified duration. An examples of an
installment loan would be a car loan - you are
required to pay set amount of money at a
recurring interval (ex. P15,000.00 per month)
until the loan is is paid off in full.