FM6:

CREDIT
AND
COLLECTION

Prepared By:
Eden M. Mariano
(Instructor)
 CREDIT AND COLLECTION

Credit collection likely ranks among your least favorite activities as a business owner. Getting paid
is excellent, but the process of collecting that money can feel overwhelming. That is especially
the case regarding delinquent payments and challenging customers. However, successfully
managing the process can reduce delinquency and ensure a continued, positive cash flow.

What is Credit?
Credit is the ability of the consumer to acquire goods or services prior to payment with the faith
that the payment will be made in the future. In most cases, there is a charge for borrowing, and
these come in the form of fees and/or interest.

What Is Credit Collection?

It describes the process of collecting payments from debtors. Companies achieve this through
several methods, depending on the delinquency level. It’s important to remember that collection
itself does not necessarily imply late payments. It refers only to the process of collecting the
money owed.

What is Credit Management?

Credit management is the process of overseeing credit-related decisions to ensure financial
stability and mitigate risks. The process begins with assessing the creditworthiness of customers
by evaluating their financial health, credit history, and reliability to set the credit limits and terms.

What is Collection Management?

Collection management involves the process of overseeing and managing the collection of
outstanding debts or receivables. The core goal of the efficient collection is to ensure proactive
and timely payments from customers while delivering a superior customer experience.

Key Aspects in Credit and Collections Operations

To achieve seamless financial operations and robust cash flow, understanding and managing the
key aspects of credit and collections is essential. These operations encompass several critical
functional areas that directly impact your company’s financial health and customer relationships.
These operations largely include the below-given key functional areas:

• Creditworthiness Assessment and Monitoring

Before extending credit to a business, it is crucial to assess its creditworthiness. This involves
evaluating the financial health, payment history, and credit references of the potential
customer. Conducting thorough credit checks, obtaining financial statements, and analyzing
industry data can help assess the risk involved in new customer onboarding.
Furthermore, ongoing monitoring of the customer’s creditworthiness is important to identify
any changes in their financial situation or payment behavior that may impact their ability to
meet payment obligations.
 • Enterprise-wide Implementation of Standard Credit Policies

Establishing clear credit policies is essential for B2B collections. These policies should outline
the terms and conditions of credit, including payment due dates, late payment penalties, and
credit limits.
It is crucial to communicate these policies to customers before extending credit and have them
acknowledge and agree to the terms. Clear policies provide a basis for collections efforts and
help manage customer expectations regarding payment obligations.

• Customer Account Prioritization

It is a common fact that every customer will not have the same amount of debt owed, nor will
they have the same level of risk associated with the businesses. Thus, categorizing and
managing customer accounts based on their importance, risk level, and payment behavior
becomes important for businesses.
As a result, the collection team will know which customers to reach out to on priority. By
focusing on the most critical accounts, organizations can better manage risk, accelerate
collections, and make more informed business decisions.

• Collections Outreach and Relationship Management

Proactive collections involve regular and systematic follow-up with customers to ensure timely
payment. Maintaining regular communication before and after extending credit is crucial
in B2B collections. It is essential to establish strong relationships with customers and
understand their payment cycles and preferences.
Early intervention, such as sending payment reminders, making courtesy calls, and offering
payment plans, can help prevent overdue payments from becoming problematic. Additionally,
maintaining open lines of communication and addressing any payment issues promptly can
help preserve the customer relationship and increase the likelihood of successful collections.

Understanding Credit and Collections Policies and Procedures

Before we delve into the value a credit and collection policy can bring to your business, let’s first
define what it entails.
A credit and collections policy is a comprehensive document that delineates the guidelines and
procedures for managing accounts receivable, extending credit to customers, and collecting
payments.
It typically covers areas such as credit evaluation processes, collection strategies, roles and
responsibilities, compliance, and training. This policy serves as a structured framework for credit
and collections activities within an organization, ensuring consistency, efficiency, risk
management, and compliance.
Why Does Every Business Need a Credit and Collection Policy?
Having a credit and collection policy is vital for effectively managing accounts receivable and
securing the financial stability of a business. It establishes a structured framework for decision-
making, risk mitigation, and regulatory compliance, while also fostering consistency, efficiency,
and staff training. Let’s explore these aspects thoroughly:
➢ Consistency
A credit and collection policy provides clear guidelines for employees to follow when extending
credit and collecting payments. This ensures consistency in decision-making and treatment of
customers.
➢ Risk management
A well-designed policy can help mitigate credit risks by establishing criteria for customer
qualification and credit limits. It can also outline procedures for monitoring customer payments
and identifying potential delinquencies.
➢ Efficiency
A policy can streamline the credit and collection process by providing a structured approach to
managing accounts receivable. This can improve cash flow and reduce the time and resources
required to collect payments.
➢ Compliance
A policy can help ensure compliance with legal and regulatory requirements, such as the Fair
Debt Collection Practices Act (FDCPA) and the Equal Credit Opportunity Act (ECOA).
➢ Training
The policy can be used as a training tool for new employees and a reference guide for existing
staff. By fostering consistency in procedure and execution, it plays a vital role in aligning the credit
department, sales team, and management. This not only streamlines operations but also
enhances overall efficiency and effectiveness.

What Should Your Credit and Collection Policy Include?

A credit and collections policy should include clear, written guidelines that set the terms and
conditions for supplying goods on credit, customer qualification criteria, procedures for making
collections, and steps to be taken in case of customer delinquency.
Let’s delve deeper into each component to ensure comprehensive coverage of your policy:
• Clear Guidelines: Define terms and conditions for supplying goods on credit and
customer qualification criteria.
• Collection Procedures: Outline steps for making collections and actions to take in case
of customer delinquency.
• Reporting and Documentation: Specify reporting requirements for credit and collection
activities and necessary documentation.
 • Managing Delinquent Accounts: Detail procedures for managing delinquent accounts,
including contacting customers, resolving disputes, and placing accounts on credit hold.

• Assessing Credit Risk: Establish processes for assessing credit risk, setting credit limits,
and monitoring changes in customer risk levels.
• Roles and Responsibilities: Define roles and responsibilities of credit and collections
staff, including job descriptions and reporting channels.
• Legal Compliance: Ensure compliance with legal and regulatory requirements such as
the Fair Debt Collection Practices Act (FDCPA) and the Equal Credit Opportunity Act
(ECOA).
• Training Tool: Serve as a training tool for new employees and ensure consistency in
procedure and execution across departments.

Credit Control
Credit control, also called credit policy, is the strategy used by a business to accelerate sales of
products or services through the extension of credit to potential customers or clients. Generally,
businesses prefer to extend credit to those with “good” credit and limit credit to riskier borrowers
who may have a history of delinquency. Credit control might also be called credit management,
depending on the scenario.
Key Takeaways
• Credit control is a business strategy that promotes the selling of goods or services by
extending credit to customers.
• Most businesses try to extend credit to customers with a good credit history to ensure
payment of the goods or services.
• Companies draft credit control policies that are either restrictive, moderate, or liberal.
• Credit control focuses on: credit period, cash discounts, credit standards, and collection
policy.

How Credit Control Works

When a business uses credit control, it means they are taking steps to protect their business from
risky borrowers as they issue credit.1
A business's success or failure primarily depends on the demand for products or services. As a
rule of thumb, higher sales lead to bigger profits, which in turn leads to higher stock prices. Sales,
a clear metric in generating business success, in turn, depend on several factors. Part of a
company's efforts to boost its sales can include credit control.
In general, credit control seeks to extend credit to a customer to make it easier for them to
purchase a good or service from the business. This strategy delays payment for the customer,
making the purchase more attractive, or it breaks the purchase price into installments, also
making it easier for a customer to justify the purchase, though interest charges will increase the
overall cost.

The benefit of credit control for the business is potentially higher sales. The important aspect of a
credit control policy, however, is determining who to extend credit to. Extending credit to
individuals with a poor credit history can result in not being paid for the good or service.
Depending on the business and the amount of bad credit extended, this can adversely impact a
business in a serious way. Businesses must determine what kind of credit control policy they are
willing and able to implement.

Types of Credit Control

A company can decide on the type of policy it wishes to implement when drafting its credit control
policy. The options typically include three levels: restrictive, moderate, and liberal. A restrictive
policy is a low-risk strategy, limiting credit only to customers with a strong credit history, a
moderate policy is a middle-of-the-road risk strategy that takes on more risk, while a liberal credit
control policy is a high-risk strategy where the company extends credit to most customers.
Businesses that aim to gain higher levels of market share or that have high-profit margins are
typically comfortable with liberal credit control policies.
Companies that have a monopoly in their industry may be include to adopt a liberal control policy
so that they can hold onto their monopoly. However, if the monopoly is unthreatened by other
competitors, the company may adopt a restrictive policy.

Credit Control Factors

Credit policy or credit control primarily focus on the four following factors:
• Credit period: Which is the length of time a customer has to pay
• Cash discounts: Some businesses offer a percentage reduction of discount from the
sales price if the purchaser pays in cash before the end of the discount period. Cash
discounts present purchasers an incentive to pay in cash more quickly.
• Credit standards: Includes the required financial strength a customer must possess to
qualify for credit. Lower credit standards boost sales but also increase bad debts. Many
consumer credit applications use a FICO score as a barometer of creditworthiness.
• Collection policy: Measures the aggressiveness in attempting to collect slow or late
paying accounts. A tougher policy may speed up collections, but could also anger a
customer and drive them to take their business to a competitor.
A credit manager or credit committee for certain businesses are usually responsible for
administering credit policies. Often accounting, finance, operations, and sales managers come
together to balance the above credit controls, in hopes of stimulating business with sales on credit,
but without hurting future results with the need for bad debt write-offs.
Key Terminologies in Credit and Collection
❖ What Is Market Share?
Market share is the percentage of total sales in an industry generated by a particular company.
Market share is calculated by dividing the company's sales over a certain period by the industry's
total sales during the same period. This metric is used to give a general idea of the size of a
company in relation to its market and competitors. The market leader in an industry is the
company with the largest market share.
❖ What Is Profit Margin?
Profit margin is a common measure of the degree to which a company or a particular business
activity makes money. Expressed as a percentage, it represents the portion of a company’s
sales revenue that it gets to keep as a profit, after subtracting all of its costs.
For example, if a company reports that it achieved a 35% profit margin during the last quarter, it
means that it netted $0.35 from each dollar of sales generated.
❖ What Is a FICO Score?
A FICO score ranges from 300 to 850 and is used by lenders to assess borrowers'
creditworthiness. Created by the Fair Isaac Corporation (FICO), the score uses details on
borrowers’ credit reports to assess credit risk and determine whether to extend credit.
FICO scores consider data in five areas: payment history, the current level of indebtedness, types
of credit used, length of credit history, and new credit accounts.
FICO Score Ranges
The overall FICO score range is between 300 and 850. In general, scores in the 670 to
739 range indicate a “good” credit history and most lenders will consider this score
favorable. In contrast, borrowers in the 580 to 669 range may find it difficult to get financing
at attractive rates.
❖ What Is Creditworthiness?
Creditworthiness is a measure of how likely you will default on your debt obligations according to
a lender’s assessment, or how worthy you are to receive new credit. Your creditworthiness is what
creditors consider before they approve any new credit.
Understanding Creditworthiness
Your creditworthiness tells a creditor just how suitable you are for the loan or credit card
application that you filled out. The decision that the lender makes is based on how you’ve
dealt with credit in the past. Lenders periodically review different factors: your
overall credit report, credit score, and payment history.
Your credit report outlines how much debt you carry, the high balances, the credit limits,
and the current balance of each account. It will also flag any important information for the
potential lender, including whether you’ve had any past-due amounts, defaults,
bankruptcies, or collection items.
 ❖ What Is a Credit Rating?
A credit rating is an independent assessment of the ability of a corporation or a government to
repay a debt, either in general terms or regarding a specific financial obligation.
Credit scores are assigned to individuals based on their personal history of acquiring and repaying
debt. They are checked by lenders considering loaning money to a consumer.

❖ What Is a Credit Score?

A credit score is a three-digit number that rates your creditworthiness. FICO scores range from
300 to 850. The higher the score, the more likely you are to get approved for loans and for better
rates.1
A credit score is based on your credit history, which includes information like the number accounts,
total levels of debt, repayment history, and other factors. Lenders use credit scores to evaluate
your credit worthiness, or the likelihood that you will repay loans in a timely manner.
How Credit Scores Work
A credit score can significantly affect your financial life. It plays a key role in a lender’s
decision to offer you credit. Lenders are more likely to approve you for loans when you
have a higher credit score, and are more likely to decline your loan applications when you
have lower scores. You can also get better interest rates when you have a higher credit
score, which can save you money in the long-term.

❖ What Is a Write-Off?
A write-off is a business accounting expense that accounts for unreceived payments or losses. A
write-off reduces taxable income on a company's income statement.

❖ What is Asset-based Lending?

Asset-based lending refers to a loan that is secured by an asset. In other words, in asset-based
lending, the loan granted by the lender is collateralized with an asset (or assets) of the borrower.

❖ What is Credit Risk?

Credit risk is when a lender lends money to a borrower but may not be paid back.
Loans are extended to borrowers based on the business or the individual’s ability to service future
payment obligations (of principal and interest).
Lenders go to great lengths to understand a borrower’s financial health and to quantify the risk
that the borrower may trigger an event of default in the future.

❖ What is Credit Risk Analysis?

Credit risk analysis extends beyond credit analysis and is the process that achieves a lender’s
goals by weighing the costs and benefits of taking on credit risk.
By balancing the costs and benefits of granting credit, lenders measure, analyze and manage
risks their business is willing to accept.

The creditworthiness of the borrower, derived from the credit analysis process, is not the only risk
lenders face. When granting credit, lenders also consider potential losses from non-performance,
such as missed payments and potential bad debt. With such risks come costs, so lenders weigh
them against anticipated benefits such as risk-adjusted return on capital (RAROC).

❖ What Is Trade Credit?

Trade credit is a business-to-business (B2B) agreement in which a customer can purchase goods
without paying cash upfront, and paying the supplier at a later scheduled date. Usually,
businesses that operate with trade credits will give buyers 30, 60, or 90 days to pay, with the
transaction recorded through an invoice.
Trade credit can be thought of as a type of 0% financing, increasing a company’s assets while
deferring payment for a specified value of goods or services to sometime in the future and
requiring no interest to be paid in relation to the repayment period.
Key Takeaways
• Trade credit is a type of commercial financing in which a customer is allowed to purchase
goods or services and pay the supplier at a later scheduled date.

• Trade credit can be a good way for businesses to free up cash flow and finance short-term
growth.
• Trade credit can create complexity for financial accounting depending on the accounting
method used.
• Trade credit financing is usually encouraged globally by regulators and can create
opportunities for new financial technology (fintech) solutions.
• Suppliers are usually at a disadvantage with a trade credit, as they have sold goods but
not received payment.

The 5 Cs of Credit: What They Are, How to Build Them

The five Cs of credit (character, cash flow, capital, conditions and collateral) affect your business
financing options.
The five C’s, or characteristics, of credit — character, capacity, capital, conditions and collateral
— are a framework used by many lenders to evaluate potential small-business borrowers.
Each of the five C’s plays into what small-business loans you can qualify for. But different lenders
may place more value on one characteristic than another. Because there are no strict guidelines,
it can be helpful to understand your business's relative strengths and weaknesses — especially
since factors like rising business loan interest rates are out of your control.
Here are the five Cs of credit and some tips for putting your best foot forward with each.
The 5 Cs of Credit
• Character.
• Capacity/Cash flow.
• Capital.
• Conditions.
• Collateral.

1.Character
What it is: A lender’s opinion of a borrower’s general creditworthiness.
Why it matters: Lenders want to see a history of on-time and full debt repayment.
How it’s assessed: From factors like your credit history, credentials, references and interaction
with lenders.
How to strengthen it: Know what lenders will see with your personal credit, which will likely be
the most important part of this C. Your personal credit offers a quick look at your history of
borrowing and repaying money. Lenders want this information because most will require you to
personally guarantee the debt — meaning you have to repay it if your business can’t.
• If you’re unsure about your personal credit, you can review your reports for free once a
year at AnnualCreditReport.com. You can also get a free score online from multiple places,
including NerdWallet. If you need to build your personal credit, strategies to do so include
getting a secured credit card or credit-builder loan and keeping your credit utilization
relatively low.
• Growing your business credit score can help with character, too (a straightforward first
step might be to get a business credit card). Business credit is based on your company's
history with debt repayment, not your personal history. It can give lenders an additional
piece of information that supports your company’s creditworthiness, even if they don’t
know your personal reputation.
• You can help a lender understand that reputation by establishing a relationship with them
over time. Typically, this is easiest to do if you use a small-business bank, in particular
one with a local or community presence. Bankers who know your business’s history —
and your personal reputation — may be more willing to work with you even if your other
Cs are less strong.
• How to work around it: Online lenders tend to place a higher premium on your business
finances and may have more wiggle room around personal characteristics like credit score.

2. Capacity/Cash Flow

What it is: Your ability to repay the loan.

Why it matters: Lenders want to be assured that your business generates enough cash flow to
repay the loan in full.
How it’s assessed: From financial metrics and benchmarks (debt and liquidity ratios, cash flow
statements), credit score, borrowing and repayment history.
How to strengthen it: If you’re focusing on bank business loans, pay down debt before you apply
to free up more cash flow.
If your cash flow is strong but your other C’s are lacking, consider cash flow loans, which prioritize
this factor when reviewing your application. Cash flow lenders may want to review documents like
your bank statements and merchant accounts, but give less weight to your credit history or time
in business. These loans are most commonly available from online and alternative lenders and
tend to have higher interest rates than business term loans.
How to work around it: Is your cash flow uneven? A business line of credit or business credit
card might be a good next step. These financing products let you borrow a little money at a time,
pay it off and pay interest only on what you’ve borrowed. And repayment may be easier to manage
than the fixed payments most term loans require.

3. Capital

What it is: The amount of money invested in a business by its owner or management team.
Why it matters: Lenders are more willing to offer financing to owners who have invested some
of their own money into the venture. It shows you have some skin in the game, so to speak.
How it’s assessed: From the amount of money the borrower or management team has invested
in the business.
How to strengthen it: Nearly 70% of small-business owners use personal savings to start their
business, according to a 2023 survey from the U.S. Chamber of Commerce.
[1]

Make sure you categorize any personal investments in your business accurately in your
accounting software, so you can keep track of them later.
How to work around it: You don’t need to immediately funnel your life savings into your business.
Startup business credit cards can be a useful tool for building your business early on — though
you will likely be personally on the hook to pay off any balance your business can’t. Once you
have six months to a year in business, you’ll start to qualify for additional startup business loan
options.

4. Conditions

What it is: The condition of your business — whether it is growing or faltering — as well as what
you’ll use the funds for. It also considers the state of the economy, industry trends and how these
factors might affect your ability to repay the loan.
Why it matters: Operating under favorable conditions can help ensure businesses repay their
loans. Lenders aim to identify risks and protect themselves accordingly.
How it’s assessed: From a review of the competitive landscape, supplier and customer
relationships, and macroeconomic and industry-specific issues.
How to strengthen it: You can’t control the economy, but you can try to plan ahead. Although it
might seem counterintuitive, apply for a business line of credit before you need it, when your
business is strong. That will give you access to flexible financing down the road if your business’s
conditions change.
How to work around it: It’s understandable to feel stressed when your business hits a rough
patch, and you might want financing fast as a result. But when this C is a weakness, it’s especially
important to take your time and shop around because you’ll have fewer financing options and
they may be more expensive.

5. Collateral

What it is: Assets that are used to guarantee or secure a loan.

Why it matters: Collateral is a backup source if the borrower cannot repay a loan.
How it’s assessed: From hard assets, such as real estate and equipment; working capital, such
as accounts receivable and inventory; and a borrower’s home, which also can be counted as
collateral.
How to strengthen it: Understand what options you have to collateralize. While real estate is
common, you can also secure a loan with equipment, inventory, accounts receivable, vehicles or
other business assets.
Many lenders also file a UCC lien, which gives them the right to seize a borrower’s assets if they
default on their loan. Picking the right business structure can help protect your personal assets
from a lender that is trying to collect.
How to work around it: SBA loans and business bank loans generally require collateral. If you
don’t have collateral, unsecured business loans don’t require it — though they do usually require
a personal guarantee and place UCC liens on borrowers. And unsecured financing can be more
expensive since it’s riskier for lenders.

What Is a Credit Agreement?

A credit agreement is a legally binding contract between a borrower and a lender that documents
all of the terms of a loan. Credits agreements are created for both individual and business loans .

Key Takeaways
• A credit agreement is a legally binding contract documenting the terms of a loan, made
between a borrower and a lender.
• A credit agreement is used with many types of credit, including home mortgages, credit
cards, and auto loans.
• Credit agreements can sometimes be renegotiated under certain circumstances.

Credit Collection Procedure

Implementing an effective debt collection procedure is essential for any company, whatever its
size or sector of activity. Indeed, debt collection is directly linked to customer risk management,
and therefore to cash flow management. There are various collection procedures, both amicable
and legal. In all cases, companies need to follow a number of steps to optimize their internal or
external debt collection procedures. In this comprehensive guide to debt collection procedures,
we outline the steps you need to take to ensure successful debt recovery.

Step 1: Initial assessment of the collection file

The first thing to do when faced with an unpaid invoice is to carry out an assessment of the
collection file.
This preliminary step in the collection procedure enables us to determine our collection objectives,
as well as to estimate the real risk of loss for the company.
The initial assessment of the collection file includes a phase of gathering information about the
debtor. For example, you can consult the Bodacc to check that the debtor is not subject to
bankruptcy proceedings (sauvegarde, redressement or liquidation judiciaire), in which case you
must declare your claim to the appointed judicial representative. You can also check Sirene
notices to determine your debtor’s solvency.
What’s more, you can consult this customer’s history in your books. Is he in the habit of paying
his invoices late, or is this a one-off?

Secondly, you need to analyze the debt to be collected. In fact, before implementing a collection
procedure in the strict sense of the term, you need to check that the company is actually entitled
to do so.
To do this, it is necessary to ensure that the claim is:
• certain
• liquid
• required
• and non-prescribed

Stage 2: Preparing documents and preliminary actions

Before initiating debt collection proceedings as such, it is also necessary to prepare the relevant
documents and carry out certain preliminary actions.
For example, it’s a good idea to check that you have all the supporting documents you need to
prove the existence of the debt. This may include a:
• contract
• signed quotation
• a signed order form
• an invoice
• etc.
Depending on the customer’s risk profile, the amount outstanding, and your business relations
with him, you can already plan the measures you need to put in place to minimize risk. For
example, you can contact the sales team to reduce payment terms for future orders, or even block
new orders to this company until the debt has been settled.
Finally, you can prepare a formal letter requesting payment.

Step 3: Communication with the debtor

Now that you’ve properly prepared your collection file, the next step in the debt collection
procedure is to contact the debtor.
To make contact with the debtor, there are several collection techniques at your disposal:
• telephone reminders
• e-mail reminders that the invoice is due for payment
 • dunning letters sent by post or e-mail
Would you like to send a reminder letter to your creditor? Download our dunning letter template,
fill in the essential information and send your letter.
The aim of all these measures is to maintain communication with the debtor, in order to find an
amicable solution and avoid having to resort to legal proceedings. This can take various forms:
• immediate and full payment of the invoice;
• negotiation of additional payment terms;
• setting up a repayment plan.
In the event of an amicable settlement agreement, it is preferable to draw up a written document
formalizing the commitments of the debtor and the creditor.
If the debtor does not respond to reminders, or does not respect the amicable agreement, the
creditor can send a letter of formal notice. This registered letter with acknowledgement of receipt
is the starting point for calculating interest and late payment penalties. If the situation is not
rectified within the allotted time (15 days minimum), the creditor may initiate legal collection
proceedings against the debtor.
The formal notice is therefore the pivotal stage between amicable and enforced debt collection.

Step 4: Implementation of legal collection measures

If the amicable collection phase fails, the creditor company can take legal action by applying to
the court to obtain a writ of execution for payment of its debt. This is known as forced or judicial
collection.
Depending on the amount of the debt, but also on the situation, several forced collection
procedures are possible.
There are three relatively quick and inexpensive judicial collection procedures:
• injunction to pay in order to obtain a writ of execution
• simplified collection procedure
• provisional injunction.

Step 5: Follow-up and closure

The final stage of a collection procedure is the follow-up of debt payments.
If, following the reminder, the debtor has undertaken to make payment immediately, you should
check your bank account in the days that follow. Similarly, if an out-of-court settlement has been
reached, you should follow up the case to ensure that the instalments are paid on time.
In addition, in the event of seizure by a judicial commissioner or bailiff, you must follow up the
case with him/her, and in particular, the receipt of payments.
What is a Credit Policy?
An organization that advances credit and lends to others must consistently ensure that new
business aligns with its credit risk tolerance. Similarly, it must effectively collect debts to limit credit
losses and safeguard its assets. A credit policy is the complete guidelines and processes for
executing this corporate credit strategy.
Credit risk analysis assesses the effectiveness of a company’s policy and balances various
interests (for example, sales goals and customer demand) to achieve its goals. Policies are
uniquely tailored to the organization’s specific needs, from small businesses selling to customers
on credit, to large financial institutions lending directly to corporations.

Key Highlights
• Credit policy is a firm-specific framework, designed by management, to standardize
lending decisions in accordance with the firm’s risk appetite.
• Types of credit policies span from a great willingness to extend credit (loose credit) to low
or unwillingness to extend credit (tight credit or no credit).
• Components of credit policy include the credit application process, types, limits and terms
of credit, collection, monitoring and control, and risk management.

Types of Credit Policy

One way to categorize credit policies is by how loose or stringent a policy is toward advancing
credit and managing credit risk, no matter if the goal is credit sales or asset-based lending.

The type of policy is based on firm-level goals and the business environment, so it should adjust
dynamically. The ABA report on credit conditions is an example index that measures the general
type of credit policy for financial institutions.

➢ Loose credit
Represents a greater willingness to extend credit to grow the business; a strategy to take on
higher credit risk and reap the rewards. Examples include granting credit to below-average credit
profiles with worse risk ratings, more limited access to capital, and weaker capacity.

➢ Flexible credit
Represents a willingness to extend credit depending on circumstances. It’s generally a neutral
strategy that does not aggressively grow or restrict access to credit for clients. Examples include
granting credit to a broader range of average credit profiles with a process for exceptional
approval to policy for clients that may fall outside a diverse risk range.
 ➢ Tight credit
Generally, means less willingness to extend credit to support revenue growth. This is a strategy
of restraint often implemented to limit credit losses and/or replenish capital. Examples include
only granting credit to above-average credit risks, such as better risk ratings, greater access to
capital, and more robust capacity.

➢ No credit
This is an unwillingness to extend credit, as a company is highly risk-averse or has no business
case to support the cost/benefit of extending credit. Examples include “cash only” small-dollar
consumable goods or businesses with slim margins and insufficient capital to extend trade credit.

Components of a Credit Policy

Rigorously applying the Cs of credit along with tight administration practices throughout the sales
and collection cycle is what usually forms the components of a sound credit policy. As a firm grows
and gains the capacity to serve a broader range of clients, it assesses and evolves its policy.
➢ Credit application process
Describes the evaluation and approval of credit. Due diligence may include reviewing the client’s
financial picture against specific metrics, past performance with credit, and collateral (if any)
pledged to support the request. Amendment, renewal, and refinancing of existing credit also play
a pivotal role in this process.
➢ Credit types, limits, and terms
Cover the types of credit, the amount available, and their repayment terms. For simple trade credit,
it may be “2/10 net 30”, which provides a discount for prompt payment, with full payment due after
a grace period of 30 days. More complex examples, such as forms of AR financing or asset-based
financing, carry conditional terms linked to specific company performance.
➢ Collection
Administers credit post-advance. The collection process may involve an internal team and
systems, or it may require external means (such as collection agencies and other legal remedies).
These all serve to recover the credit in full and in the manner agreed upon. A useful measure is
the average collection period.

➢ Monitoring and control

Assess the effectiveness of the credit policy and cover the entire gamut of credit decisions and
performance of the credit portfolio. Examples include the growth in credit sales, days sales
outstanding, delinquencies, and provisions for credit losses. The process gauges and controls the
achievement of its credit strategy or provides evidence to adjust the policy if conditions warrant.
 ➢ Risk management
Includes tools and processes to support crafting the credit policy and mitigating portfolio risk.
Portfolio-wide risk mitigation techniques include an internal risk rating system, customer
concentration limits, and industry diversification.
Other examples are layers of approval when tailoring to complex terms of advance and repayment,
sourcing insurance (such as trade credit insurance), letters of credit, and other products that
protect against the deterioration in the performance of credit and the credit portfolio.

What Is the Credit Collection Period?

The term refers to the time a business gives its customers to pay after issuing an invoice. Financial
professionals also refer to it as the grace period or net period. For example, if you issue an invoice
on January 1st with payment due in 30 days, the credit collection period would also be 30 days.
This specific credit type is known as net 30 payment terms.

What Is Credit Management Collections?

The process involves managing customer credit and collections to ensure that a company’s
receivables get paid on time. It includes the following:
• Extending credit
• Setting credit limits
• Monitoring customer spending
• Collecting payments.
Credit management collections is an integral part of keeping your business finances healthy.
Maintaining control over your receivables can ensure a positive cash flow and avoid financial
difficulties.

How Does Business Credit Work?

While the net 30 approach is quite common, it’s an example of only one kind of payment term.
Here are the three main ways companies often structure their credit options and resulting
collection efforts.
➢ Extended Credit
This is the most common type of business credit and usually takes the form of net 30 or net 60
payment terms. With extended credit, businesses give their customers a certain period to pay
their invoices. This type of credit is often used for one-time purchases, for building relationships
with new customers and for bulk transactions.
➢ Recurring Credit
Subscription-based businesses or businesses that sell repeat orders tend to use this method.
Recurring credit allows customers to make automatic payments on a predetermined schedule.
This can be helpful for companies that have difficulty collecting payments on time.
 ➢ Deferred Credit
Larger purchases, such as equipment or vehicles, often involve this credit. Businesses give their
customers a set time to pay off the purchase price. Companies that sell more expensive items
can use this to secure business, especially from individuals and smaller businesses.

What Are Some Common Credit Collection Services?

Sometimes, managing accounts receivables on your own requires more resources than you can
spare. When this happens, you can outsource some collections functions to an app or a company.
Consider these options.
❖ Collections Agencies
Selling your customers’ debts to a collection agency is an attractive option. You won’t get the total
amount owed, but you can get some of the money back and write off your losses. However, note
that collections agencies will not consider business relationships when pursuing money owed.
❖ Accounts Receivable Software
There are many software options available to help businesses manage their accounts receivables.
These options can automate invoicing, payments, and collections. They can even automate
communications, such as dunning notices.

What is Sales and Collection Cycle?

The Sales and Collection Cycle, also known as the Revenue, Receivables, and Receipts (RRR)
Cycle, is composed of various classes of transactions. The sales class and receipts class of
transactions are the typical journal entries that debit accounts receivable and credit sales revenue,
and debit cash and credit accounts receivable, respectively. These are the recording of the sales
and cash collection of the sale.
Additionally, there are other classes of transactions in the sales and collection cycle that include
sales returns and allowances (debit sales returns, credit accounts receivable), write-offs of
uncollectible receivables (debit allowance for doubtful accounts, credit accounts receivable), and
bad debt expenses (debit bad debt expense and credit allowance for doubtful accounts). We focus
here on the more common journal entries.

What is Accounts Receivable (AR)?

Accounts Receivable (AR) represents the credit sales of a business, which have not yet been
collected from its customers. Companies allow their clients to pay for goods and services over a
reasonable extended period of time, provided that the terms have been agreed upon. For certain
transactions, a customer may receive a small discount for paying the amount due to the company
early.
The average AR days measure is an important part of forecasting changes in non-cash working
capital in financial modeling.

Why do Companies have Accounts Receivables?

Some businesses allow selling on credit to make the payment process easier. Take, for example,
a phone provider. The provider may find it hard to collect payment perpetually every time someone
makes a call. Instead, it will bill periodically at the end of the month for the total amount of service
used by the customer. Until the monthly invoice has been paid, the amount will be recorded in
accounts receivable.
Allowing purchases on credit also encourages more sales. Customers are more likely to buy items
if they can pay for them at a later date.
For someone working in FP&A, equity research, or investment banking, it’s important to
understand the cash conversion cycle – the amount of time it takes a company to convert its
inventory into sales and then cash – as it provides important information on the company’s cash
flow.

Risks of Outstanding Accounts Receivable Balances

There are several risks associated with carrying a large AR balance, including:
1. Uncollected debt – High A/R that goes uncollected for a long time is written off as bad
debt. This situation occurs when customers who purchase on credit go bankrupt or
otherwise do not pay the invoice.
2. Cash flow deficiencies – A business needs cash flow for its operations. Selling on credit
may boost revenue and income, but it offers no actual cash inflow. In the short term, it is
acceptable, but in the long term, it can cause the company to run short on cash and have
to take on other liabilities to fund operations.

AR’s Impact on Cash Flow and Financial Modeling

When a company has an accounts receivable balance, it means that a portion of revenue has not
been received as cash payment yet. If payment takes a long time, it can have a meaningful
impact on cash flow. For this reason, in financial modeling and valuation, it’s very important to
adjust free cash flow for changes in working capital, which includes AR, accounts payable, and
inventory.

Credit Collection Strategies

1. Early Notification
Shortly after an account becomes delinquent, the end client receives a notification about the
outstanding debt. In some countries, specific rules are set for this type of communication
(e.g., FDCPA in the U.S.), which assumes that the person in debt needs to be formally informed
about the situation, typically in a letter or an e-mail.

2. Segmentation by Risk Level

Evaluating risks is a big part of collecting debts. By gathering all the info about the person who
owes your business money, you can group each case based on how likely the client is to follow
through on their payments.
Debt collection segmentation means sorting clients based on their likelihood of paying. Clients
with a good track record get regular reminders, while those with a medium risk benefit from
proactive steps. High-risk clients might need strong tactics, and the riskiest cases could end up
in court. Make sure to approach each case in the best way to get the money back.

3. Customized Payment Plans

The era of personalization enters almost every market, and debt management may tap into its
benefits.
Individuals who struggle with paying their debt aren’t always trying to avoid paying at all. However,
the common responses to debt agencies are largely narrowed down to poor financial decisions
and bad management of their own budget.
In many cases, the initial encounter with a debt management representative is discouraging —
research conducted in the UK saw that 50% of respondents have voiced their concern about
harassment or aggression from debt collectors.
To increase the chance of successfully retaining the owed amount of money, you should offer
customized payment options. These options give the debtor flexibility and put them back in the
driver’s seat.
4. Skip Tracing for Hard-to-Find Debtors
When it comes to chasing down people who owe money, finding them can be a real challenge.
But you can track down those elusive debtors with the right methods like skip tracing.
One great way to skip tracing is through online databases and social media. You can search
through these tools to find potential leads. Social media sites like Facebook, Twitter, and LinkedIn
can give you a lot of info about where someone is and what they’re up to.
You’ve likely already teamed up with skip-tracing pros who are experts at finding hard-to-track-
down folks. These specialists have access to all sorts of resources and techniques that can really
help you find those slippery debtors.
Another valuable resource for skip tracing is using public records and address histories. By
accessing databases that store information on property ownership, past addresses, and legal
records, debt collectors can piece together a trail that leads to the debtor’s current whereabouts.
5. Legal Compliance Monitoring
When it comes to collecting debts, the legal aspect of it comes first. You’ve got to ensure you’re
following all the rules and regulations – otherwise, debt collection firms can suffer from colossal
penalties and fines. As a means of mitigating such risk, you need to set up systems to ensure
you’re following federal, state, and local laws and industry regulations.

Let’s take a closer look at why legal compliance monitoring is so crucial in debt collection.
First off, you’ve got to have really solid systems in place to make sure you’re following all the rules.
This means creating and implementing clear policies and procedures that match the laws and
regulations. You’ve also got to regularly check for any potential issues and deal with them before
they become big problems.
6. Negotiation Optimization
Debt management is very much a “people business,” where customer relationship often defines
the success of the whole process.
As a result, investing in negotiation techniques — from everyday reading, such as tips on
improving debt recovery negotiations — to regular workshops for your team will improve your
performance in the long term.
7. Automated Communication
In correlation with the previous point, you need the highest communication standards to stay
relevant and achieve a high recovery rate. One thing that helps is introducing automated
communication.
This may include:
• Automated calling
• Mailing journeys
• Panel/app for indebted individuals to track their outstanding debts

8. Incentivized Repayment Programs

Some debtors may try reducing the amount due — it’s a common practice that may increase the
recovery rate but deplete the overall sum of the retained budget.
However, simple mathematics proves that sometimes it’s better to close more cases that are
worth less.
By introducing various incentivized repayment schemes, your debtors are encouraged to pay
earlier to cut on fees or stretch the repayment period to ease the pressure without you raising
their additional costs.
Such incentives may also work in your company’s favor the next time someone is in debt again.
A debt management partner who helped along the way is a go-to choice for clients.
On the downside, creating an incentive program is time-consuming and requires a framework to
make certain clients eligible. And building such a program from the ground up is costly.
 9. Empathy Training for Collectors
As a debt collector, it’s beneficial to tap into your empathy. All to connect with debtors and navigate
challenging conversations. Empathy training can improve your collection strategies and improve
the overall customer experience.
Consider these key elements:
• Start by helping collectors see things from the debtor’s point of view
• Teach collectors active listening techniques for better communication
• Prepare collectors to handle emotional responses with poise
• Stress the significance of language and tone in collection discussions
• Incorporate fun exercises and role-playing scenarios into the training
• Offer continuous training, feedback, and coaching to collectors
Empathy training benefits both debtors and collectors, ultimately boosting the organization’s
reputation and fostering stronger customer relationships.
10. Customer Communication Preferences
Regarding debt collection strategies, understanding customer communication preferences is
crucial in maintaining a positive relationship while pursuing payments. By aligning communication
methods with customer preferences, businesses can increase the likelihood of successful debt
recovery.
Here’s a closer look at navigating customer communication preferences in debt collection:
• Use various communication channels: Customers have different preferences about
ways to communicate with you. Some prefer phone over mail, some would like to get an
email. Adjusting to your customer’s preferences increases the chances of successful
communication
• Personalizing communication: Address customers by their preferred name and
acknowledging their individual circumstances can help build rapport and trust.
Personalized communication shows customers they are valued and understood,
potentially leading to more cooperative interactions
• Transparency and clarity: When discussing debt-related matters, it’s important to use
straightforward and understandable language, avoiding jargon or complicated terminology.
Clearly outlining the purpose of communication and providing relevant information can
help customers feel informed and empowered to address their financial obligations
11. Integration of Debt Collection Platforms:
Debt collection agencies can boost success by integrating debt collection platforms with CRM,
predictive analytics, and automated communication tools. A robust CRM system manages debtor
information while predictive analytics identifies patterns for targeted debt recovery strategies.
 12. Customer Feedback Analysis:
Understanding customer feedback is crucial for refining debt collection strategies. By analyzing
feedback, you can identify pain points, areas of improvement, and successful tactics.
Let’s explore the process of customer feedback analysis in debt collection.
• Gathering feedback: Collect feedback through various channels such as surveys, direct
customer interactions, and online reviews. Use open-ended questions to encourage
detailed responses, and consider implementing rating scales to quantify satisfaction levels
• Categorizing feedback: Once collected, categorize the feedback into different segments
based on common themes. This could include issues with communication, payment
options, or overall experience. Categorizing feedback allows for a clear understanding of
recurring concerns.
• Identifying patterns: After categorization, look for patterns within each segment. Are
there specific trends or recurring phrases that indicate widespread customer sentiments?
Identifying patterns helps address root causes and formulate targeted solutions.

Challenges in Credit and Collection Operations

Now that you have a fair understanding of B2B credit and collection operations, let’s discuss some
of the challenges faced by organizations due to a lack of technology adoption:
• Limited resources and high reliance on manual processing

Many organizations are facing challenges related to staffing constraints, rising transaction
volumes, increased compliance, and regulatory issues, with employees spending a lot of
time on manual low-value tasks. This has resulted in organizations grappling with high
operational expenses, reduced productivity, and inability to cater to critical customers
during credit and collection operations.
• Lack of a streamlined collection process

Without a strategy-driven, automated collection process, organizations lack a streamlined

workflow that enables the collection team to identify the best mode of action for increased
collection recovery. Owing to this, different stakeholders can follow disparate credit and
collection processes. Further, as tasks are performed manually organizations are unable
to optimize performance.
• High adjustment volumes

High adjustment volumes are aggravated when there is difficulty in identifying and
resolving disputes. The result is low customer satisfaction, unresolved discrepancies and
teams spending considerable time and effort on resolving these issues.
 • Inconsistent credit assessments

Without systematic and real-time reviews of accounts receivable portfolio and other
customer parameters, credit limits and associated credit score and risk ratings are likely
to become outdated. As a result, organizations might face excessive credit holds, a lack
of visibility into actual portfolio risk, and missed opportunities to mitigate risks or take
advantage of sales opportunities.
• Limited data visibility

When receivables data is maintained manually or in disparate systems, teams do not have
a complete overview and face challenges while accessing information. It becomes
challenging for teams to ascertain the number of outstanding invoices and the
corresponding liabilities. This complicates the ability to recognize trends in delayed
payments and assess whether corrective measures are necessary.

The Role of Collection Agencies

A collection agency is a company used by lenders or creditors to recover funds that are past due
or from accounts that are in default. Often, a creditor will hire a collection agency after it has made
multiple failed attempts to collect its receivables. A lender may outsource the debt-collection
activity to a collection agency, or it may have an internal department or a debt-collection subsidiary
that would handle the job.
Key Takeaways
• A collection agency is a company that lenders use to recover funds that are past due or
from accounts that are in default.
• Collection agencies work closely with lenders to try to retrieve delinquent funds.
• Collection agencies are regulated by the Fair Debt Collection Practices Act (FDCPA) and
bound by rules about what they can and cannot do to collect funds.

Fast Fact
While creditors sometimes hire collection agencies to collect debt on their behalf, they also
sometimes sell debt, often for substantially less than the amount of the debt. In these cases,
the collection agency becomes the new creditor.
 When a Borrower Pays
If the borrower pays the debt as a result of the collection agency's efforts, then the creditor
pays the collection agency a percentage of the funds, or assets, that it recovers, depending
on the terms of the agreement.
When a Borrower Does Not Pay
If the borrower will not or cannot cover their arrearage, the collection agency can update the
borrower’s credit report with a "collection" status, which leads to a drop in the
individual’s credit score. A low credit score can affect a person's chances of obtaining a loan
in the future, as an account in collections can remain on their credit report for seven years.

Debt Collection Harassment

Harassment by a debt collector can come in different forms, including repetitious and excessive
communications through one or multiple channels intended to annoy or abuse you.

It’s harassment when debt collectors:

▪ Place repetitious phone calls or use electronic communications – such as text, email, and
social media messages – intended to harass, oppress, or abuse you or any person
▪ Use obscene or profane language
▪ Threaten violence or harm
▪ Publish lists of people who refuse to pay their debts (this does not include reporting
information to a credit reporting company)
▪ Call you without telling you their name
What are false, deceptive, or misleading practices by debt collectors
Debt collectors can't use false, deceptive, or misleading practices. This includes
misrepresentations about the debt, including:
▪ The amount owed
▪ That the debt collector is an attorney if they are not
▪ False threats to have you arrested
▪ Threats to do things that cannot legally be done
▪ Threats to do things that the debt collector has no intention of doing
SEC Memorandum Circular No. 18, Series of 2019
In August 2019, the SEC issued Memorandum Circular No. 18, Series of 2019, entitled
“Prohibition on Unfair Debt Collection Practices of Financing Companies (FC) and Lending
Companies (LC)”.
M.C. 18 of 2019 is directed at all Financing and Lending Companies in the Philippines!
M.C. 18 of 2019 seeks to prevent Financing Companies and Lending Companies from harassing
borrowers and engaging in unethical, abusive and/or unfair practices when seeking to collect
debts.
This prohibition applies whether the company is seeking to collect the debts itself or via a third-
party service provider.
Why did the SEC release a Memorandum on Unfair Debt Collection Practices?
M.C. 18 of 2019 identifies two main reasons for why the SEC believed it necessary to issue rules
and prohibitions on certain debt collection practices:
1. At the time, the SEC had been receiving various complaints which alleged that certain
Lending and Financing Companies had been harassing customers or “borrowers” and
engaging in abusive, unethical and unfair acts when seeking to collect their debts;
2. The SEC also referred to its own understanding that Financing and Lending Companies
were using third party debt collection service providers in an attempt to avoid any liability
for harassment that the Financing and Lending Companies might incur as a result of its
debt collection practices.
In light of the above, M.C. 18 of 2019 was issued by the SEC in August 2019 and took effect very
shortly after.

What is an “Unfair Collection Practice”?

First of all, it’s important to note that the SEC is not preventing Financing or Lending Companies
(or indeed, their third-party debt collection providers) from collecting debts from borrowers which
are properly due and owing to them under the original loan agreement.
This is provided that the companies seek to collect debts in a reasonable and legally permissible
manner.
The SEC does, however, want to ensure that all such debt collection practices observe the
principle of good faith and reasonable conduct! In particular, the SEC wants to prevent companies
from engaging in debt collection practices that amount to “unscrupulous and untoward acts”.
In light of this, the SEC lists out some examples of what will constitute an “Unfair Collection
Practice”, as outlined below:
• Use or threat of use of violence or other criminal means to physically harm a person or
harm their reputation or property;
• Threatening to take any form of illegal action;
 • Using insults or profane language which results in the abuse of a borrower and/or which
amounts to a criminal offence or act under law;

• Public disclosure or publication of the name or other personal information of a borrower

who is allegedly refusing to pay a debt (see list of exceptions below);
• Communicating or threatening to communicate to any person information about a loan
which is known to be false or should have been known to be false (see list of exceptions
below);
• Using false representation or deceptive means to collect a debt or obtain information that
relates to a borrower;
• Contacting a borrower at unreasonable times, such as before 6am or after 10pm. The
exception to this is where a debt is more than 15 days overdue or the borrower has
consented (which must be written, electronic or recorded) to being contacted at such
unreasonable times.
• Contacting a borrower’s contact list other than those who were named as guarantors or
co-makers for the loan(s).
The SEC states that this list is not meant to be limited or exhaustive. With that in mind, Financing
and Lending Companies must ensure at all times that their debt collection practices are conducted
in good faith, with reasonable conduct and must refrain from engaging in unscrupulous and/or
untoward acts.

Keep Borrower Information Confidential

From the perspective of debt collection, M.C. 18 of 2019 requires that Lending and Financing
Companies must keep all customer information strictly confidential!
However, M.C. 18 of 2019 does outline a number of exceptions to that confidentiality requirement.
Customer information can be disclosed where:
• The written or recorded consent of the borrower has been provided;
• It is a release, submission or exchange of information with other financial institutions,
credit information bureaus, lenders, their agents or other representatives;
• It is required by a Court Order or government agency authorized by law;
• The information is disclosed to an agent of the Financing or Lending Company in order to
enforce their rights against a borrower;
• The information is disclosed to a third-party service provider for the purpose of assisting
or providing services to the Financing or Lending Company to help it administer its
financing/lending operations;
• The disclosure is to an insurance company provided it is for the purpose of insuring against
the borrower’s default or other credit loss, and the borrower from fraud or unauthorized
charges.
Outsourcing of Debt Collection Services
M.C. 18 of 2019 does not prohibit the outsourcing of debt collection to a third party! The
Memorandum merely outlines where the ultimate responsibility rests if a third-party debt collector
agency is engaged.
So, outsourcing of debt collection practices is still allowed. Any third-party debt collection service
provider engaged by a Financing or Lending Company will be deemed an “agent” of the company.
As such, the ultimate responsibility for compliance with proper debt collection practices (and in
particular, M.C. 18 of 2019) will always remain with the Financing or Lending Company.
Mandatory Policies and Procedures for Handling Customers/Borrowers!
M.C. 18 of 2019 requires Financing and Lending Companies to adopt policies and procedures for
any personnel who are required to handle the collection of debts to disclose their full name and
true identity to the relevant borrower.
The above requirement relates to both in-house collectors and third-party provider collection
agencies.
Financing and Lending Companies are also required to establish a Customer Service function
that is responsible for promptly addressing borrower queries, concerns and complaints.
Importantly, M.C. 18 of 2019 requires that the President or CEO and the Compliance Officer of a
Financing and Lending Company must sign and submit a sworn certificate stating that they have
complied with these specific requirements!
For further information on the compliance requirements relating to this sworn certificate, you can
check out a recently issued clarification by the SEC here – SEC Clarifies Compliance
Requirements for Newly Registered Financing and Lending Companies in the Philippines.

Penalties under M.C. 18 of 2019

The SEC has also outlined the relevant penalties for violation of M.C. 18 of 2019, as outlined
below. Violations will be determined on a “per loan transaction per complainant” basis.
1. First Violation – PHP25,000 for Lending Companies. PHP50,000 for Financing
Companies.
2. Second Violation – PHP50,000 for Lending Companies. PHP100,000 for Financing
Companies.
3. Third Violation – At its discretion, the SEC can impose a financial penalty of not less than
twice the penalty for the Second Violation (see above) but not more than PHP1,000,000.
The SEC can also suspend the lending or financing activities of a company for up to 60
days. Finally, the SEC also has the power to revoke the Certificate of Authority to
Operate as a Financing or Lending Company.
Finally, Financing and Lending Companies should be aware that the imposition of the above
penalties does not prevent the SEC from imposing additional penalties under any other form of
legislation that might apply to Financing or Lending Companies or their directors or officers. For
example, penalties and sanctions might also be imposed under the Revised Corporation Code of
the Philippines depending on the specific circumstances.

Credit Bureaus Philippines

About The Credit Information Corporation (CIC)

The R.A. No. 9510, otherwise known as the Credit Information System Act (CISA) of 2008,
prescribed the powers and functions of the Credit Information Corporation whose primary
mandate is to:
• Receive and consolidate basic credit data
• Act as a central registry or central repository of credit information
• Provide access to reliable, standardized information on credit history and financial
condition of borrowers

About your CIC Credit Report

What is a credit report?
A credit report is a summary of your financial transactions submitted to the Credit Information
Corporation (CIC). The CIC has the authority to gather and collate these reports under Republic
Act 9510.

What does a credit report contain?

A credit report contains your basic information such as your name, TIN, SSS or GSIS numbers,
place of residence, employer, and business. It will also include all of your loan contracts with
lending institutions, utility subscriptions, and other obligations which the CIC is authorized to
collect.

Who can see my credit report?

Your credit report can only be accessed with your explicit authorization. This access is limited only
to yourself or the financial entity you are transacting with.
How often does the CIC Credit Report get updated?
In accordance with Rule 4.2 of the Implementing Rules and Regulations (IRR) of R. A. No. 9510,
regular updates on their borrowers’ credit data shall be submitted by the participating entities
within 30 days from the time they are made available to them by their data subjects/borrowers.
What are the benefits of my credit report?
In the process of obtaining a loan or service, you may be asked by the lender or service provider
to sign a waiver of access. Your credit report will allow the lender or service provider to assess
your application in a fair and objective manner. In general, people with good track records of
payment may receive lower interest rates or more services than those with poor payment track
records.

Can my credit report be used by others and for other purposes other than what I allowed
it to be used for?
Use of your credit report is limited to the specific purpose and duration that you authorized. Once
the specific transaction is completed, the report cannot be recycled, passed on, sold on, or used
in any way other than for the specific purpose you authorized.
Can I get a copy of my own credit report with credit score even if I am not applying for a
loan or a service?

Yes. One of our accredited credit bureaus, CIBI Information Inc., recently launched the CIBI App
where you may get a copy of your credit report and credit score online, anytime, anywhere.

Note:

Credit score is a service provided by CIC's accredited credit bureaus. It is derived from CIC's
credit reports. If you do not have any loan transactions in your credit report for the last two years,
no credit score can be generated for you.
The CIBI App is temporarily unavailable for both Android and iOS users from 16 April 2021 until
further notice for the online Know-Your-Customer (KYC) integration activity. You may still request
for your credit report with credit score online through the web app version.

Can I refuse to have my data submitted to the CIC?

No. A person's credit data is collected by the CIC through the various lending institutions and
service providers that are part of the submitting institutions covered by R.A. 9510.

How can I clear my negative credit history?

Rule 4.5 - A of the Implementing Rules and Regulations of R. A. No. 9510 states that "any negative
information on a borrower shall stay in the Corporation's database for not more than 3 years from
and after the date the negative information shall have been rectified through the following:

I. Payment or liquidation of debt; or

II. Settlement of debt through compromise agreement or court decision exculpating the
borrower from any liability."

As such, a bad/negative credit history may be cleared through paying your dues on time.
In the event that your bad/negative credit data still reflects on your credit report despite it being
cleared with the concerned financial institution, you may file a dispute online through the CIC’s
Online Dispute Resolution Process (ODRP).
To know the steps on how to file a dispute, you may visit the Online Dispute service on the CIC
website.

How can I have a good credit score?

Credit bureaus calculate credit scores based on five criteria. Take note of these factors in order
to have a good credit score:

❖ Credit payment history – How regular you pay your debts, how much you repay, and
whether you’ve paid on time or not;
The amount owed or credit utilization ratio – How much of your credit limit you spend. If
you’re maxing out your credit card, you’re likely to miss your loan repayments in the future
and get a lower credit score;

❖ Length of credit history – The average age of your credit card and loan accounts, and
the length of time since those were used;

❖ Types of credit used – Whether you’ve availed of a variety of credit types such as auto
loans, mortgages, and credit cards. This information gives lenders an idea if you can
manage different credit types responsibly; and

❖ New credit – How often you’ve opened new accounts. Applying for multiple credit cards
or loans at once can hurt your credit score.

Accredited Credit Bureaus / Special Accessing Entities (SAEs)

Credit bureaus authorized to access the CIC credit data:
1. CIBI Information, Inc.
2. CRIF Philippines
3. TransUnion Philippines
 Republic Act No. 9510 - Credit Information System Act (CISA)
Fourteenth Congress
Second Regular Session

Begun and held in Metro Manila, on Monday, the twenty-eight day of July, two thousand eight.

REPUBLIC ACT No. 9510 October 31, 2008

AN ACT ESTABLISHING THE CREDIT INFORMATION SYSTEM AND FOR OTHER

PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled:

Section 1. Title. - This Act shall be known as the "Credit Information System Act".
Section 2. Declaration of Policy. - The State recognizes the need to establish a comprehensive
and centralized credit information system for the collection and dissemination of fair and accurate
information relevant to, or arising from, credit and credit-related activities of all entities
participating in the financial system. A credit information system will directly address the need for
reliable credit information concerning the credit standing and track record of borrowers.
The operations and services of a credit information system can be expected to: greatly improve
the overall availability of credit especially to micro, small and medium-scale enterprises; provide
mechanisms to make credit more cost-effective; and reduce the excessive dependence on
collateral to secure credit facilities.
The State shall endeavor to have credit information provided at the least cost to all participants
and shall ensure the protection of consumer rights and the existence of fair competition in the
industry at all times.
An efficient credit information system will also enable financial institutions to reduce their over-all
credit risk, contributing to a healthier and more stable financial system.
Section 3. Definition of Terms. - For purposes of this Act:
(a) "Accessing Entity" refers to any submitting entity or any other entity authorized by the
Corporation to access basic credit data from the Corporation.
(b) "Basic Credit Data" refers to positive and negative information provided by a borrower to a
submitting entity in connection with the application for and availment of a credit facility and any
information on the borrower’s creditworthiness in the possession of the submitting entity and other
factual and objective information related or relevant thereto in the submitting entity’s data files or
that of other sources of information: Provided, that in the absence of a written waiver duly
accomplished by the borrower, basic credit data shall exclude confidential information on bank
deposits and/or clients funds under Republic Act No. 1405 (Law on Secrecy of Bank Deposits),
Republic Act No. 6426 (The Foreign Currency Deposit Act), Republic Act No. 8791 (The General
Banking Law of 2000), Republic Act No. 9160 (Anti-Money Laundering Law) and their amendatory
laws.

(c) "Borrower" refers to a natural or juridical person, including any local government unit (LGU),
its subsidiaries and affiliates, that applies for and/or avails of a credit facility.
(d) "BSP" refers to the Bangko Sentral ng Pilipinas, created under Republic Act No.7653.
(e) "Corporation" refers to the Credit Information Corporation established under Section 5 of this
Act.
(f) "Credit facility" refers to any loan, credit line, guarantee or any other form of financial
accommodation from a submitting entity: Provided, that for purposes of this Act, deposits in banks
shall not be considered a credit facility extended by the depositor in favor of the bank.
(g) "Credit Rating" refers to an opinion regarding the creditworthiness of a borrower or of an issuer
of debt security, using an established and defined ranking system.
(h) "Credit Report" refers to a summary of consolidated and evaluated information on
creditworthiness, credit standing, credit capacity, character and general reputation of a borrower.
(i) "Government Lending Institutions" refers to existing and future government financial institutions
(GFIs), government-owned and controlled corporations (GOCCs) primarily engaged in lending
activities.
(j) "Negative Credit Information" refers to information/data concerning the poor credit performance
of borrowers such as, but not limited to, defaults on loans, adverse court judgments relating to
debts and reports on bankruptcy, insolvency, petitions or orders on suspension of payments and
corporate rehabilitation.
(k) "Non-Accessing Entity" refers to an entity other than a Submitting Entity, Special Accessing
Entity or Borrower that is authorized by the Corporation to access credit information from a Special
Accessing Entity.
(l) "Outsource entity" refers to any accredited third-party provider to whom the Corporation may
outsource the processing and consolidation of basic credit data pertaining to a borrower or issuer
of debt or convertible securities under such qualifications, criteria and strict confidentiality
guidelines that the Corporation shall prescribe and duly publish.
(m) "Positive credit information" refers to information/data concerning the credit performance of a
borrower such as, but not limited to, information on timely repayments or non-delinquency.
(n) "Relevant Government Agencies" refers to the Department of Finance, Department of Trade
and Industry, Bangko Sentral ng Pilipinas, Insurance Commission and the Cooperative
Development Authority.
(o) "SEC" refers to the Securities and Exchange Commission.
(p) "Special Accessing Entity" refers to a duly accredited private corporation engaged primarily in
the business of providing credit reports, ratings and other similar credit information products and
services.
(q) "Submitting Entity" refers to any entity that provides credit facilities such as, but not limited to,
banks, quasi-banks, trust entities, investment houses, financing companies, cooperatives,
nongovernmental, micro-financing organizations, credit card companies, insurance companies
and government lending institutions.

Section 4. Establishment of the Credit Information System. - In furtherance of the policy set forth
in Section 2 of this Act, a credit information system is hereby established.
(a) Banks, quasi-banks, their subsidiaries and affiliates, life insurance companies, credit card
companies and other entities that provide credit facilities are required to submit basic credit data
and updates thereon on a regular basis to the Corporation.
(b) The Corporation may include other credit providers to be subject to compulsory participation:
Provided, that all other entities qualified to be submitting entities may participate subject to their
acceptance by the Corporation: Provided, further, That, in all cases, participation under the
system shall be in accordance with such standards and rules that the SEC in coordination with
the relevant government agencies my prescribe.
(c) Participating submitting entities are required to submit to the Corporation any negative and
positive credit information that tends to update and/or correct the credit status of borrowers. The
Corporation shall fix the time interval for such submission: Provided, that such interval shall not
be less than fifteen (15) working days but not more than thirty (30) working days.

(d) The Corporation should regularly collect basic credit data of borrowers at least on a quarterly
basis to correct/update the basic credit data of said borrowers.
(e) The Corporation may also access credit and other relevant information from government
offices, judicial and administrative tribunals, prosecutorial agencies and other related offices, as
well as pension plans administered by the government.
(f) Each submitting entity shall notify its borrowers of the former’s obligation to submit basic credit
data to the Corporation and the disclosure thereof to the Corporation, subject to the provisions of
this Act and the implementing rules and regulations.
(g) The Corporation is in turn authorized to release consolidated basic credit data on the borrower,
subject to the provisions of Section 6 of this Act.
(h) The negative information on the borrower as contained in the credit history files of borrowers
should stay in the database of the Corporation unless sooner corrected, for not more than three
(3) years from and after the date when the negative credit information was rectified through
payment or liquidation of the debt, or through settlement of debts through compromise
agreements or court decisions that exculpate the borrower from liability. Negative information shall
be corrected and updated within fifteen (15) days from the time of payment, liquidation or
settlement of debts.
(i) Special Accessing Entities shall be accredited by the Corporation in accordance with such
standards and rules as the SEC in coordination with the relevant government agencies, may
prescribe.
(j) Special accessing entities shall be entitled access to the Corporation’s pool of consolidated
basic credit data, subject to the provisions of Section s 6 and 7 of this Act and related
implementing rules and regulations.
(k) Special accessing entities are prohibited from releasing basic credit data received from the
Corporation or credit reports and credit ratings derived from the basic credit data received from
the Corporation, to non-accessing entities unless the written consent or authorization has been
obtained from the Borrower: Provided, however, That in case the borrower is a local government
unit (LGU) or its subsidiary or affiliate, the special accessing entity may release credit information
on the LGU, its subsidiary or affiliate upon written request and payment of reasonable fees by a
constituent of the concerned LGU.
(l) Outsource Entities, which may process and consolidate basic credit data, are absolutely
prohibited from releasing such data received from the Corporation other than to the Corporation
itself.
(m) Accessing Entities shall hold strictly confidential any credit information they receive from the
Corporation.
(n) The borrower has the right to know the causes of refusal of the application for credit facilities
or services from a financial institution that uses basic credit data as basis or ground for such a
refusal.
(o) The borrower, for a reasonable fee, shall have, as a matter of right, ready and immediate
access to the credit information pertinent to the borrower. In case of erroneous, incomplete or
misleading credit information, the subject borrower shall have the right to dispute the erroneous,
incomplete, outdated or misleading credit information before the Corporation. The Corporation
shall investigate and verify the disputed information within five (5) working days from receipt of
the complaint. If its accuracy cannot be verified and cannot be proven, the disputed information
shall be deleted. The borrower and the accessing entities and special accessing entities who have
received such information shall be informed of the corresponding correction or removal within five
(5) working days. The Corporation should use a simplified dispute resolution process to fast track
the settlement/resolution of disputed credit information. Denial of these borrowers’ rights, without
justifiable reason, shall entitle the borrower to indemnity.
Section 5. Establishment of the Central Credit Information Corporation. - There is hereby created
a Corporation which shall be known as the Credit Information Corporation, whose primary
purpose shall be to receive and consolidate basic credit data, to act as a central registry or central
repository of credit information, and to provide access to reliable, standardized information on
credit history and financial condition of borrowers.
(a) The Corporation is hereby authorized to adopt, alter, and use a corporate seal which shall be
judicially noticed; to enter into contracts; to incur liabilities; to lease or own real or personal
property, and to sell or otherwise dispose of the same; to sue and be sued; to compromise,
condone or release any liability and otherwise to do and perform any and all things that may be
necessary or proper to carry out the purposes of this Act.
(b) The authorized capital stock of the Corporation shall be Five hundred million pesos
(P500,000,000.00) which shall be divided into common and preferred shares which shall be non-
voting. The National Government shall own and hold sixty percent (60%) of the common shares
while the balance of forty percent (40%) shall be owned by and held by qualified investors which
shall be limited to industry associations of banks, quasi-banks and other credit related
associations including associations of consumers. The amount of Seventy-five million pesos
(PhP75,000,000.00) shall be appropriated in the General Appropriations Act for the subscription
of common shares by the National Government to represent its sixty percent (60%) equity share
and the amount of Fifty million pesos (PhP50,000,000.00) shall be subscribed and paid up by
such qualified investors in accordance with Section 5(d) hereof.
(c) The National Government may subscribe or purchase securities or financial instrument that
may be issued by the Corporation as a supplement to capital.

(d) Equal equity participation in the Corporation shall be offered and held by qualified private
sector investors but in no case shall each of the qualified investor represented by an association
of banks, quasi-banks and other credit-related associations including the associations of
consumers have more than ten percent (10%) each of the total common shares issued by the
Corporation.

(e) The SEC in coordination with relevant government agencies, shall prescribe additional
requirements for the establishment of the Corporation, such as industry representation, capital
structure, number of independent directors, and the process for nominating directors, and such
other requirements to ensure consumer protection and free, fair and healthy competition in the
industry.
(f) The Chairman of the SEC shall be the Chairman of the Board of Directors of the Corporation.
Whenever the Chairman of the SEC is unable to attend a meeting of the Board, he/she shall
designate an Associate Commissioner of the SEC to act as his/her alternate.

The powers and functions of the Corporation shall be exercised by a board of directors composed
of fifteen (15) members. The directors representing the government shares shall be appointed by
the President of the Philippines.

(g) The directors and principal officers of the Corporation, shall be qualified by the "fit and proper"
rule for bank directors and officers. To maintain the quality of management of the Corporation and
afford better protection to the system and the public in general, the SEC in coordination with the
relevant government agencies, shall prescribe, pass upon and review the qualifications and
disqualifications of individuals elected or appointed directors of the Corporation and disqualify
those found unfit. After due notice to the board of directors of the Corporation, the SEC may
disqualify, suspend or remove any director who commits or omits an act which render him unfit
for the position. In determining whether an individual is fit and proper to hold the position of a
director of the Corporation, due regard shall be given to his integrity, experience, education,
training and competence.
The members of the Board of Directors must be Filipino citizens and at least thirty (30) years of
age. In addition, they shall be persons of good moral character, of unquestionable integrity, of
known probity, and have attained competence in the fields of law, finance, economics, computer
science or information technology. In addition to the disqualifications imposed by the Corporation
Code, as amended, no person shall be nominated by the national government if he has been
connected directly with a banking or financial institution as a director or officer, or has substantial
interest therein within three (3) years prior to his appointment.
(h) The Board of Directors may appoint such officers and employees as are not otherwise
provided for in this Act, define their duties, fix their compensations and impose disciplinary
sanctions upon such officers and employees, for cause. The salaries and other compensation of
the officers and employees of the Corporation shall be exempt from the Salary Standardization
Law. Appointments in the Corporation, except to those which are policy-determining, primarily
confidential or highly technical in nature, shall be made only according to the Civil Service Law.
(i) The Corporation shall acquire and use state-of-the-art technology and facilities in its operations
to ensure its continuing competence and capability to provide updated negative and positive credit
information; to enable the Corporation to relay credit information electronically as well as in writing
to those authorized to have access to the credit information system; and to ensure accuracy of
collected, stored and disseminated credit information. The Corporation shall implement a
borrower’s identification system for the purpose of consolidating credit information.
(j) The provisions of any general or special law to the contrary notwithstanding, the importation by
the Corporation of all equipment, hardware or software, as well as all other equipment needed for
its operations shall be fully exempt from all customs duties and from all other taxes, assessments
and charges related to such importation.
(k) The Corporation shall have its principal place of business in Metro Manila, but may maintain
branches in such other places as the proper conduct of its business may require.
(l) Any and all acquisition of goods and services by the Corporation shall be subject to
Procurement Laws.

(m) The national government shall continue to hold sixty percent (60%) of the common shares for
a period not to exceed five (5) years from the date of commencement of operations of the
Corporation. After the said period, the national government shall dispose of at least twenty percent
(20%) of its stockholdings in the Corporation to qualified investors which shall be limited to
industry associations of banks, quasi-banks and other credit-related associations, including
associations of consumers. The national government shall offer equal equity participation in the
Corporation to all qualified investors. When the ownership of the majority of the common voting
shares of the Corporation passes to private investors, the stockholders shall cause the adoption
and registration with the SEC of the amended articles of incorporation within three (3) months
from such transfer of ownership.
Section 6. Confidentiality of Credit Information. - The Corporation, the submitting entities, the
accessing entities, the outsource entities, the special accessing entities and the duly authorized
non-accessing entities shall hold the credit information under strict confidentiality and shall use
the same only for the declared purpose of establishing the creditworthiness of the borrower.
Outsource entities which may process and consolidate basic credit data are absolutely prohibited
from releasing such data received from the Corporation other than to the Corporation.
The accreditation of an accessing entity, a special entity and/or an outsource entity which violates
the confidentiality of, or which misuses, the credit information accessed from the Corporation,
may be suspended or revoked. Any entity which violates this section may be barred access to the
credit information system and penalized pursuant to Section 11 of this Act.
The Corporation shall be authorized to release and disclose consolidated basic credit data only
to the Accessing Entities, the Special Accessing Entities, the Outsource Entities and Borrowers.
Basic Consolidated basic credit data released to Accessing Entities shall be limited to those
pertaining to existing Borrowers or Borrowers with pending credit applications. Credit information
shall not be released to entities other than those enumerated under this Section except upon
order of the court.

Section 7. Educational Campaign. - A continuing nationwide educational campaign shall be

developed and undertaken by the Corporation to promote the benefits of a credit information
system to the economy; to create awareness on the rights of consumers/borrowers to access
their credit reports collected, stored and disseminated by the Corporation; to disseminate the
rights of the borrowers to dispute any incorrect/inaccurate credit information in the database file
of the Corporation; to familiarize consumers of the procedure in collecting, storing and
disseminating credit information of borrowers by the Corporation; and to brief consumers of other
related information.
Section 8. Rules and Regulations. - For purposes of creating a healthy balance between the need
for reliable credit information and safeguarding consumer protection, ensuring free and healthy
competition in the industry, the SEC, in coordination with relevant government agencies and
existing industry stakeholders, shall issue the implementing rules and regulations (IRRs), which
shall be reviewed, revised and approved by the Oversight Committee to ensure consistency and
compliance with the provisions of this Act, embodying among others:
(a) The basic credit data shall be limited or confined in form and content to an objective and factual
information and shall exclude any subjective information or opinion;
(b) Restrictions on the use and transfer of credit information;
(c) Rights of the borrowers to access their respective credit information and to dispute the factual
accuracy of such credit information;

(d) Requirements and standards for the establishment of the Corporation including, but not limited
to, ownership, industry representation, independent directors and process of nomination of
directors;

(e) Accreditation standards for submitting entities and special accessing entities and non-
accessing entities;
(f) Sanctions to be imposed by the Corporation on:
(i) The submitting entities for non-submission of reports and for delayed and/or erroneous
reporting;
(ii) Accessing entities, special accessing entities, outsource entities and duly authorized non-
accessing entities, for breaches of the confidentiality of misuse of, the credit information obtained
from the credit information system; and
(iii) Violations of other applicable rules and regulations: Provided, that these administrative
sanctions shall be in the form of fines in amounts as may be determined by the Corporation but
in no case to exceed Thirty thousand pesos (PhP30,000.00) a day for each violation, taking into
consideration the attendant circumstances, such as the nature and gravity of the violation or
irregularity. Imposition of administrative sanctions shall be without prejudice to any criminal and
other sanctions as may be applicable under this Act and relevant laws;
(g) Suspension or cancellation of the rights of any Accessing Entity or Special Accessing Entity to
access Credit Information from the Corporation; Provided, That the SEC in coordination with
relevant government agencies and existing industry stakeholders, may issue subsequent
regulations consistent with the IRR as approved by the Congressional Oversight Committee.

In addition, the SEC may regulate access to the credit information system as well as the fees that
shall be collected by the Corporation from the Accessing and Special Accessing Entities, taking
into consideration the policy of lowering the cost of credit, promoting fair competition, and the
need of the Corporation to employ state-of-the-art technology; and
(h) The basic credit data about a borrower shall be limited to credit information existing on the
date of the enactment of this Act and thereafter.

Section 9. Congressional Oversight Committee. - There is hereby created a congressional

oversight committee, composed of seven (7) members from the Senate and seven (7) members
from the House of Representatives. The Members from the Senate shall be appointed by the
Senate President with at least three (3) Senators representing the minority. The Members of the
House of Representatives shall be appointed by the Speaker with at least three (3) members
representing the minority.
After the Oversight Committee approved the implementing rules and regulations, it shall thereafter
become functus officio, and therefore cease to exist: Provided, That the Congress may revive the
Congressional Oversight Committee in case of a need for any major revision/s in the
implementing rules and regulations.

Section 10. Indemnity in Favor of the Corporation, its Officers and Employees. - Unless the
Corporation or any of its officers and employees is found liable for any willful violation of this Act,
bad faith, malice and/or gross negligence, the Submitting Entities, Accessing Entities, Special
Accessing Entities, Outsource Entities and duly authorized non-accessing entities shall hold the
Corporation, its directors, officers and employees free and harmless to the fullest extent permitted
by law and shall indemnify them from any and all liabilities, losses, claims, demands, damages,
deficiencies, costs and expenses of whatsoever kind and nature that may arise in connection with
the performance of their functions without prejudice to any criminal liability under existing laws.
Section 11. Penalties. - Any person who willfully violates any of the provisions of this Act or the
rules and regulations promulgated by the SEC in coordination with the relevant government
agencies shall, upon conviction, suffer a fine of not less than fifty thousand pesos (PhP50,000.00).
nor more than one million pesos (PhP1,000,000.00) or imprisonment of not less than one (1) year
nor more than five (5) years, or both, at the discretion of the court.
Section 12. Inviolable Nature of the Secrecy of Bank Deposits and/or Client Funds. -Pursuant to
Republic Act No. 1405 (Law on Secrecy of Bank Deposits), Republic Act No. 6426 (The Foreign
Currency Deposit Act), Republic Act No. 8791 (The General Banking Law of 2000), Republic Act
No. 9160 (Anti-Money Laundering Law) and their amendatory laws, nothing in this Act shall impair
the secrecy of bank deposits and and/or client funds and investments in government securities or
funds.
Section 13. Annual Report. - The SEC shall submit an annual report to Congress on the status of
the implementation of this Act.
Sec. 14. Principal Government Agency. - The SEC shall be the lead government agency to
implement and enforce this Act. As lead agency, the SEC shall consult and coordinate with other
relevant government agencies in the adoption of all rules and regulations for the full and effective
implementation and enforcement of this Act, taking into account the policy objectives contained
in Section 2 hereof.
Section 15. Separability Clause. - Should any provision of this Act or the application thereof to
any person or circumstance be held invalid, the other provisions or sections of this Act shall not
be affected thereby.
Section 16. Repealing Clause. - This Act repeals Presidential Decree No. 1941 in its entirety. All
laws, decrees, executive orders, rules and regulations or parts thereof which are inconsistent with
this Act are hereby repealed, amended or modified accordingly.
Section 17. Effectivity Clause. - This Act shall take effect fifteen (15) days following its publication
in the Official Gazette or in at least two (2) newspapers of general circulation.

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