KEY TAKEAWAYS
- Installment credit gives borrowers a lump sum, and fixed, scheduled
payments are made until the loan is paid in full.
- Revolving credit allows a borrower to spend the money they have borrowed,
repay it, and borrow again as needed.
- Credit cards and credit line are examples of revolving credit.
- Examples of installment loans include mortgages, auto loans, student loans,
and personal loans.
- REVOLVING CREDIT VS. INSTALLMENT CREDIT: AN OVERVIEW
- There are two fundamental types of credit repayments: revolving credit
and installment credit. Revolving credit allows borrowers to spend the
borrowed money, repay it, and spend it again.
- In contrast, borrowers repay installment credit loans with scheduled, periodic
payments.
- Installment credit - An additional credit application is required to borrow more
money.
Precautions for use of credit
- Overbuying
- Careless buying – comparison shopping
- Higher prices
- Overuse of credit
BENEFITS OF CENTRALIZATION
a. Economies of Scale. When separate divisions serve common customers, a
centralized credit office can mean a reduction in operating costs and more
efficient income stream, along with enhanced customer service.
Consistency and Control. Adherence to standardization of policies, procedures and protocols
is more manageable in a centralized environment. This has the advantage of providing
consistent credit decisions having undue influence
BENEFITS OF DECENTRALIZATION
Internal and External Relationships. Close proximity to customers can enhance credit
professional’s relationship with marginal customers
a. Involvement in Setting Strategic Priorities. Credit can integrate its objectives
with those of sales and marketing into divisional goals. Also, decisions made at a
local level can be implemented immediately without going through additional
levels of review.
MANAGEMENT RESPONSIBILITIES
1. PLANNING - Planning establishes common objectives so everyone is aware of
the values the department hopes to achieve.
2. ORGANIZING - There are certain essentials in developing an improved
organizational structure. Major functions should be combined into the overall
department structure. Every function and every position should be described
accurately, briefly and clearly.
STAFFING - The top – level credit executive must establish and maintain basic controls
governing the selection, compensation and development of department employees.
To succeed, there are three steps to consider:
- Establish the results expected for each position with a criteria for
measurement
- Determine what each has to do in order to produce desired results.
- Ascertain knowledge and skills to perform jobs related can be identified at
points needed and instructions clearly specifief
3. LEADERSHIP / DIRECTING - Leadership, motivation and follow-through by the
department head are important to identify opportunities for improvement and to
point out areas where interim results or trends should receive immediate
attention.
4. CONTROL - The department head should regularly review all operations to
ensure conformity with established goals and objectives.
BUSINESS ORGANIZATION
Business owners often begin to think seriously about credit management when
they find they have insufficient cash flow to fuel their growth. In most companies,
accounts receivable is the largest asset of the company.
CREDIT POLICY AND PROCEDURES
A credit policy is a guiding principle used to establish direction for the credit function in an organization
in order to achieve the objectives of minimizing risk and maximizing profitability, while maintaining a
competitive advantage in the marketplace. A credit procedure is a series of steps to be followed for
recurring credit situations to accomplish the goals outlined in the company’s strategic planning
framework and internal audit framework. Together, credit policy and credit procedures are used to
empower the people responsible for the credit process, by providing the direction and consistency they
need for successful execution
Job descriptions are an essential part of hiring and managing employees. These
written summaries ensure applicants and employees understand their roles and what
they need to do to be held accountable. Job descriptions also:
-Help attract the right job candidates.
-Describe the areas of an employee’s job or position.
-Serve as a basis for outlining performance expectations, job training, job
evaluation and career advancement.
- Provide a reference point for compensation decisions and unfair hiring
practices.
OVERVIEW
A job description should be practical, clear and accurate to effectively define the
company’s needs. Good job descriptions typically begin with a careful analysis of the
important facts about a job such as:
- Individual tasks involved.
- The methods used to complete the tasks.
- The purpose and responsibilities of the job.
- The relationship of the job to other jobs.
- Qualifications needed for the job.
COMMON EMPLOYEES NEEDED FOR A CREDIT DEPARTMENT
a. Collection officers – collect payments of clients
b. Marketing officers – solicit clients and improve the number of clients per loan
product
c. Credit investigators – evaluates the credit worthiness of the loan applicants
d. Auditor – checking for fraudulent accounts and makes sure that the policies are
being followed
e. Administrative staff / loan processors – process the documents needed for
releasing and also maintain clients’ records
f. General Manager / Credit manager – manages the overall operations of the
firm
WHAT IS A LENDING COMPANY?
A lending company allows someone else to borrow something. In terms of business and
finance, lending often occurs in the context of taking out a loan.
Republic Act No. 3765, otherwise known as the “Truth in Lending Act” and Republic Act
7394, otherwise known as the “Consumer Act of the Philippines”. As of August 19, 2013
there are no usury laws which limit the interest rate a lending investor my charge loan
recipients.
Commencement of Operations
A corporation/company that has been duly registered and granted a Certificate of Authority
to Operate as a Lending Company shall commence operations within one hundred twenty
(120) days from date of grant of such authority. Failure to commence operations within said
period shall be a ground for the suspension of its CA.
Usage of Funds
Lending Companies shall use at least 51% of their funds for direct lending purposes.
The total investment of a lending company in real estate and in shares of stock in a real
estate development corporation and other real estate based projects shall not at any time
exceed twenty-five (25%) percent of its net worth.
Maintenance of Books of Accounts and Records
(a) Every lending company shall maintain books of accounts and records as may be
required by the SEC and prescribed by the Bureau of Internal Revenue and
other government agencies. In case a lending company engages in other businesses, it
shall maintain separate books of accounts for these businesses.
(b) The Manual of Accounts prescribed by the BSP for lending investors shall continue to be
adopted by lending companies for uniform recording and reporting of their operations, until
a new Manual of Accounts shall have been prescribed by the SEC.
Reportorial Requirements
General Information Sheet (GIS) – Within thirty (30) days from annual meeting, as stated
in its SEC approved bylaws
Audited Financial Statements prepared by an external auditor accredited by the
SEC – Within One Hundred Twenty (120) days from end of fiscal year, as stated in its SEC
approved bylaws
Special Forms for Financial Statements in Electronic Format – Within thirty (30) days
from the last day of submission of the annual Audited Financial Statements
Interim semi-annual financial statements (using Special Form) including the following:
• Balance Sheet;
• Income and Expense statement;
• Cash flow
• Statement of Changes in Equity
• Schedule of Liabilities
• List of Directors and Officers
• Aging of Receivables
– Within forty-five (45) calendar days from the end of the interim semi-annual period
covered by the report.
Manual on Anti-Money Laundering
• If foreign participation in voting stocks is more than 40%; or
• If total assets is PHP10M or more
WHO REGULATES THE LENDING COMPANIES IN THE PHILIPPINES?
The SEC or the SECURITIES AND EXCHANGE COMMISSION regulates the lending
companies in the Philippines including all business which are categorized as partnerships and
corporations.
The Lending Company Regulation Act (RA No. 9474) mandates that the business of
lending activities can only be engaged / entered into by a stock corporation duly registered and
licensed by the Securities and Exchange Commission.
1.
CHAPTER 1 – COMPANY OBJECTIVES
- This part of the credit manual states the company’s short term and long term
goals and also the steps they should make in order to reach those goals.
Furthermore, it also states the personnel needed to accomplish those goals
and how they are being organized as a group. This part also states the
purpose of the whole credit manual and how it benefits the financial
institution.
The following are the parts of this chapter:
a. Vision of the Company
b. Mission of the Company
c. Objectives of the Company
d. Objectives of the Credit Manual
e. Organizational Chart of the Business
1. CHAPTER 2 – TARGET MARKET IDENTIFICATION, LOAN PRODUCTS AND
OTHER FINANCIAL SERVICES
This chapter presents the target market of the financial institution together with the appropriate
loan products to cater different markets listed.
The sub – parts of this chapter are as follows:
a. Target market – state the reason why they are considered as target market
b. Loan products and description – it includes the target market which the
loan product is applicable, the interest rate, charges and fees, minimum and
maximum amount of loan and minimum and maximum term of loan
c. Other financial services offered – it states the target market which the
service is being offered
1. CHAPTER 3 – CREDIT PROCEDURE AND PROCESS
This chapter states the credit procedure and the processing of accounts of the financial
institution.
The following are the sub – parts of this chapter:
1. Client profiling – It states the general guidelines to be followed in choosing
clients. It also states the characteristics of prospective clients.
2. Processing and Loan application – states the steps of loan processing
3. Posting entries to individual ledgers – it states the steps and guidelines for
proper recording of transactions
4. Loan documentation and requirements – it states the documents and
requirements needed for each loan product in order for it to be processed
5. . CHAPTER 4 – CREDIT INITITIATION AND RELATED PROCESSES
6. - This chapter presents the credit initiation and related processes, loan
purpose, guidelines on credit, considerations in structuring, credit approval /
medium and related documents and credit investigation.
The following sub – parts of this chapter are as follows:
a. Credit initiation
- Objectives of the credit initiation
- Related processes
- Flowchart of operations
- Customer / client solicitation
- Negotiation
- Presentation
- Credit approval
- Control and reporting requirements
- Customer / client advisory
b. Financial product purposes
c. Guidelines on credit
d. Considerations on restructuring
e. Credit approval mediums and related documents
f. Credit investigation procedures
g. Report preparation
h. Qualifications of a good credit investigator
i. CHAPTER 6 – PRODUCT AVAILMENT
This chapter discusses the general guidelines of the product availment process, the manner
of availment and the release of the collateralized loan products.
The following are the sub – parts of this chapter:
a. General guidelines
b. Manner of availment and release of appliances
c. After sale service and other concerns (for loan products which involves a
tangible item)
7. CHAPTER 7 – CREDIT ADMINISTRATION
- This chapter focuses on the general guidelines of credit administration, major
areas of credit administration, and collection system. Collection system will be
vital in terms of maintaining the financial institution liquid and attain maximum
profit.
The following are the sub – parts of this chapter:
a. Credit administration process diagram
b. The collection system per loan product
c. The Collection process diagram
8. CHAPTER 8 – PROBLEM RECOGNITION AND REMEDIAL MANAGEMENT
- This chapter discusses the problem recognition of accounts and also how to
mitigate those problems. In case of delinquent accounts, remedial
management will be implement in order to not attain significant losses.
The following are the sub – parts of this chapter:
a. Credit lapses
- Loan packaging
- Customer – related factors
- Lease – related factors
b. Symptoms of Weakened accounts
- Violation of loan agreement provisions
- Internal problems
- Financial Liquidity problems
- Non – financial indicators
c. Remedial management
- General guidelines
- Legal department duties and responsibilities per employee under this
department
9. CHAPTER 9 – REGULATORY ADMINISTRATION
- This chapter focuses on the regulatory administration and also the general
guidelines on delinquent account receivables which are deemed almost
uncollected.
The following are the sub – parts of this chapter:
a. Regulatory administration – consists of the documents needed for the
business to operate and also the regulating bodies such as:
- Social Security System
- Pag – Ibig Fund
- Philhealth Insurance
- Bureau of Internal Revenue
- Department of Labor and Employment
- Securities and Exchange Commission
- Bangko Sentral ng Pilipinas
- Bureau of Fire
- Local Government Units
b. Delinquent account receivables – states the procedures and treatment to
delinquent accounts which are considered uncollectible
10. CHAPTER 10 – CREDIT REVIEW PROCESS
- This chapter discussed the credit review process and the general guidelines,
scope of credit review, the rating system, credit review procedure, credit
review questionnaire and loan folder approval.
- A credit review refers to the periodic reviews conducted by creditors on their
clients with outstanding loans or credit lines. Extensions of credit by financial
institutions are monitored and reviewed periodically to make sure the original
credit facility was extended in accordance with proper procedure and to make
sure the credit worthiness of the borrower has not deteriorated.
The following sub – parts of this chapter includes:
a. Credit review process / audit of operations and employees
b. Scope of credit review
c. Frequency of reviews
d. Depth of reviews
e. Review of findings and follow – up
