PART I

Credit
Derived from Latin word credo (to believe, to trust) It means securing something of value, whether tangible or intangible, in return for a promise to pay at some determined future date. Trust is the fundamental element of credit.

Fundamental Principle of Credit

Do not give credit to anybody you do not trust.

Other definitions of credit:

Purchasing power. (Mill) Sale on trust. The exchange of an actual reality against a future probability. (Le Vasseur) Sale on trust. The personal reputation a person has, in consequence of which he can buy money/goods/labor, by giving in exchange for them, a promise to pay at a future time. (Mac Leod)

Most Common Forms of Credit

Charge Account Secured Charge Account Installment Accounts Straight Loans Classification according to use:

Consumer Credit

Industrial Credit
Trade Credit

The Nature of Credit

Credit means many things to many people.

Functions of Credit
Economic

Function

Medium of Exchange
Make Capital Available

Social

Function Business Promotion

Chapter 1

Consensus among our credit men is that the true and full concept of credit consciousness has not yet found its mark on our people.

Before WWII: credit = debt 1932 Association of Credit Men, Inc. (Metropolitan Areas) After WWII there was a big market, but people had no cash to buy. Good credit risk customers started to show up. Philosophy developed:

if others can get away with it, why not me? To make matters worse, Legislature passed laws after laws all favoring the debtors neglecting the creditors.

Philippine Legislation Affecting Credit

Usury Law (CA No. 2655) Two Installments Default Rule Under Civil Law (Art. 1484, R.A. 386) No Deficiency Judgment Rule in Foreclosure of Chattel Mortgages Laws on Bouncing Checks Court Procedures in Replevin Cases Very Slow Justice System

An Ateneo study has observed that in the Philippines, the responsibility to collect exceeds the responsibility to pay. This means that in the ordinary course of things, a local businessman cannot expect to receive a centavo from his debtors of their own accord. He must go out and chase after that peso; corner it, pin it down and bring it back, just like the hunters do of wild animals in Africa. It is a dog-eat-dog society where a creditor has to fight tooth

Chapter 2

Purpose of the Credit and Collection Department

To

insulate the company from being victimized , consciously or unconsciously, by bad credit risk customers.

Primary Role of Credit and Collection Unit

To

maximize profits and minimize bad debts losses through proper credit evaluation of each applicant and through efficient and consistent collection follow-ups.

Functions of Credit and Collection

Maximize profits Maximize sales Cooperation with other departments Other areas:

Support to sales effort Customer counselling Contributions to finance Task force assignments