* Credit and Collection
Management
Chapter 1 CREDIT FUNDAMENTALS
*CREDIT is defined as a transaction involving the transfer of
goods, services, funds, property or rights, thereby creating
an obligation on the part of those who receive them, that
must be complied with in the future.
* From the point of view of the lender:
* Credit connotes the trust on the borrowers capacity and
willingness to pay.
* From the point of view of the borrower:
* It is the ability to obtain goods or services in exchange for a
promise to pay.
*Its Meaning and
Importance
* Parties involved in Credit:
* Creditor provides the goods, services, funds, property or a right .
* Debtor the one who receives them and has the obligation to
comply with the obligation to pay in cash or in kind or to return the
thing borrowed.
* Other terms:
Lender (Creditor) ; Borrower (debtor)
* 5 items that are provided by lender or Creditor:
* Goods Groceries, appliances, medicines, hardware
* Services Car repair, beauty parlor services, electrical current
* Funds Cash loan from a pawnshop, bank or a friend.
* Property A hammer for temporary use by a neighbor, a car for
use in an errand(personal properties), a beach house for use for a
weekend (real property)
* Rights Possession or use of a commercial store space, bonds,
stocks, commercial paper, loan on receivables
ITEMS
RELATIONSHIP CREATED
Civil Code Coverage
Goods
Creditor-debtor
Art. 1458-1637
Services
Creditor-debtor
Art. 1689-1754
Funds
Lender-borrower
Art. 1953-1961
Property
Bailor-Bailee
Art. 1935-1952
Rights
Lessor-lessee
Art. 1624-1635
It is useful for both creditors-lenders and debtors-borrowers
To be well-informed of the relevant and primary legal
Provisions in the Civil Code with regard to above items.
*Related legal provisions..
* Credit may mean any contract, undertaking, transaction when
not paid on the agreed time, for any reason whatever, is a
credit transaction.
* Any contract, transaction, or undertaking not initially involve
payment in some determinate future but, later by some force
of circumstances, whether agreed to or not, result I credit
granting.
* COD not paid on time
* Construction contract
* Lease contract
*When transactions is consummated and all parties are
satisfied, there is no reason to be concerned. But since
transaction could turn sour, or pose a problem, or even
create legal dispute, like:
*Goods delivered are spoiled or substandard
*Services provided such as car repair are inadequate
or technically defective; or
*When the prices, for either goods or services, were
not clearly understood by both parties( when price is
not considered certain in money or its equivalent,
there is no sale, and the transaction is void there
being no mutual consent)
*Why do we need to
know them?
* SYSTEMS APPROACH.
The focus is on the WHOLE Credit System
and processes. BAND AID APPROACH Reactive solutions to
problems.
* Possible problems that may arise resulting from transaction
errors:
1.
2.
3.
4.
5.
6.
High costs of litigation: Lawyers fees, court filing fees
Permanent loss of customer or business
Cash flow problems due to non-collection or payment delays
Tension to the employee who caused the problem.
Time and mental disposition of manager are disrupted
Defective documents could result in rejected loan application by
the company
It would be best to avoid problems by handling transactions properly,
from the very beginning with the use of appropriate documents free
from defects.
An ounce of prevention is better than a pound of cure
* In systems approach, problems are looked at not on a single
incident basis, but in relation to the total system.
* Example of using a Systems Approach:
* Evaluation of credit criteria ( low sales due to strict credit
reqts.)
* The Applicance Store Industry
* Installment plan for appliances using disposable income
method.
* Before 2:1; not its 1:1.
* Resulted to bad debts and repossessed items.
* They restructured the Installment system. Instead on
making profit on the appliance unit itselt by means of
retail sales or trading profit, now the bulk of their income
comes from interest charges on installment financing. finance charges. Low downpayment, ZERO DOWNPAYT, etc
* This resulted to phenomenal growth of appliance industry
eventually creating employment growth for Credit
Investigators, collectors, store clerks and C & C Managers.
Mr. A went to the XYZ hardware store, ordered 300 bags of cement
worth P45,000 on credit. A charge invoice: SOLD TO MR. A was issued
and signed by both parties. Mr. A promised to pay XYZ hardware in
30 days, which was indicated in the invoice. Mr. A requested XYZ
hardware to have the cement brought to his house, only 15 blocks
away, in XYZs delivery truck. Being a large sale and Mr. A. being a
valued customer, XYZ hardware agreed.
While in transit, XYZs truck collided with a 10-wheeler, causing the
cement bags to burst and spill in the sidewalk; because it was raining
heavily, all the cement hardened, making them unusable.
Who will pay for the P45,000 in 30 days? In the charged sales invoice
(a document for a sale transaction on credit). Mr. A signed or
acknowledged having received the merchandise and at the bottom of
the invoice, he signed a promissory note for P45,000 for 30 days.
Caselet: The Case of a Delivery Truck
*Art 1458-1637 of the Civil [Link] loss
of the thing sold passes to the owner,
even though the thing has not been
delivered to him.
*Art 1147: the buyer assumes the risk of
loss caused by a fortuitous event, without
the fault of the seller.
*Decision accdg. to the
legal provision
