CREDIT AND

COLLECTION
Financial management 402
 CONCEPTS OF CREDIT

Credit – is simply defined as the power or ability to

obtain money, goods, services at the present time in
exchange for a promise to pay with money upon
demand or at a future determinable time.
 DIFFERENT VIEW POINTS
ON CREDIT
A. Borrower’s Viewpoint
represents the borrower’s ability to obtain goods,
services at the present time in exchange for a
promise to pay with money upon demand or at a
future determinable time.

B. Lender’s Viewpoint
credit is the trust and confidence of the lender
on the borrower’s ability and willingness to pay.
 DIFFERENT VIEWPOINTS
ON CREDIT
C. Economist’s Viewpoint
credit is the exchange of actual reality
Against the future probability.

D. Legalistic Viewpoint
credit creates a legal right in favor of
the creditor against debtor who is under
obligation to pay.
 FUNCTIONS OF CREDIT
 medium of exchange
 facilitates the production &consumption
of goods and usually results in the growth
of the economy
 Tendency to elevate the moral
standards of the people
 Induces people to save
 FUNCTIONS OF CREDIT
 Enables businessmen & corporations to
Gather large amounts of capital to
undertake large-scale production
 Allows wealth to be fully utilized
 Helps in the expansion of money
supply.
 CHARACTERISTICS OF
CREDIT
1. Bi-partite contract
2. Pecuniary contract
3. Fiduciary contract
4. Risks
5. Futurity
 C’S OF CREDIT
1. Character
2. Capacity
3. Capital
4. Collateral
5. Condition
 OTHER C’S OF CREDIT
6. Currency
7. Country
 CLASSIFICATION/KINDS
OF CREDIT
A. Personal Credit – are those credit
obtained for one’s use.
3 Types of Personal Credit
A.1 – Service Credit –
(Lawyers/CPA’s/Doctors etc.) these
professionals usually bill their clients for
services rendered.
 CLASSIFICATION/KINDS
OF CREDIT
A.2 – Retail Credit – goods obtained
mostly on retail.
3 Categories of Retail Credit
a.2.1 – Regular Charge Account – you are
charged the goods you obtained on credit.
Usually paid within 15 to 20 days after
you are billed.
 CLASSIFICATION/KINDS
OF CREDIT
a.2.2 – Revolving Charge – the credit is
not paid in full within this period but it is
Divided into amount which are to be paid
in longer period.
a.2.3 – Installment Plan – almost the same
as revolving charge where in debt is paid
off over a certain period of time.
 CLASSIFICATION/KINDS
OF CREDIT
 the difference is that, the creditor
usually requires most of the time, a
down payment. (i.e. 12 mos.to 26 mos.)
 Only durable goods are sold in
installment, usually has a carrying
charge or shipping costs, usually
evidenced with written contract. (i.e.
cars/appliances/real estate/furnitures)
 CLASSIFICATION/KINDS
OF CREDIT
A.3 – Personal Loan Credit – differ from
retail or consumer credit. The cash or
money is given as credit instead of
goods/services. (i.e.
banks/pawnshop/credit union/sss/pag
ibig/GSIS
 CRITERIA FOR GRANTING
PERSONAL CREDIT

1. Employment/Occupation – best criteria

2. Personal Resources
3. Wealth & Accumulated Resources
4. Income from Investments
5. Successful Business Ratings
6. Operating Expenses
7. Additional Sources of Income of the Fam
 CRITERIA FOR GRANTING
PERSONAL CREDIT

8. Size of the family

9. Paying habits of the borrower
 CLASSIFICATION/KINDS
OF CREDIT
B. Commercial or Mercantile Credit –
are credit extended by one
businessman to another.

C. Bank Credit or Bank Loans – granted

by bank to businessmen to finance their
short term credit needs.
 CLASSIFICATION/KINDS
OF CREDIT
D. Export/Import Credit
 export credit – is obtained to finance
the selling of goods outside the
country.
 Import credit – is obtained to finance
the buying of goods from other
countries.
 CLASSIFICATION/KINDS
OF CREDIT
E. Investment Credit – purely for
investment use
F. Agricultural Credit – given to farmers
for the
development/improvement/cultivation of
their lands.
 FOUR FORMS OF
AGRICULTURAL CREDIT
f.1 Crop Loan – for the purpose of
financing the production of a particular
crop.
f.2 Livestock Loan – is obtained to
finance the raising of pigs, ducks, cows,
chicken, goats and other animals for
breeding purposes. Collateral is a
requirement to avail loan.
 FOUR FORMS OF AGRICULTURAL
CREDIT

f.3 Agricultural Time Loan – used to

finance the development/improvement of
farm land.

f.4 Commodity Loan – obtained to

finance the acquisition of equipments /
machineries to finance the construction