Credit and Collection Management
A Module on Collection Policies, Procedures, and Recovery of Credit Granted
Prepared for: ___________________________
Prepared by: ___________________________
Date: ___________________________
Learning Objectives
At the end of this module, students should be able to:
1. Know and understand the importance of collection policies and procedures.
2. Identify ways on how credit granted can be recovered effectively.
Introduction
Credit and collection management is an essential component in ensuring business
sustainability and customer satisfaction. This module aims to provide learners with a clear
understanding of how collection policies and recovery methods are applied in real-world
business practices.
1. Collection Policies and Procedures
A. Importance of Collection Policies
Collection policies provide clear guidelines for recovering debts while maintaining good
customer relationships and ensuring smooth cash flow for operations.
B. Causes of Non-Payment
• Natural disasters (typhoons, floods, fires)
• Financial mismanagement (lavish spending, unrealistic payment terms)
• Product/service issues (defects, poor repair services)
• Loss of income (extended hospitalization, death of breadwinner)
C. General Collection Policies
• Hiring Collectors Wisely: Employ individuals with integrity and community ties.
• Protecting Cash Collections: Require daily remittance; use surety bonds.
• Customer Orientation: Educate customers on payment schedules and official receipts.
• Stages of Collection: Reminder, request, appeal, threat, friendly recovery, and drastic
recovery.
2. Recovery of Credit Granted
A. Friendly Recovery Efforts
Friendly efforts aim to encourage voluntary payment and preserve relationships:
• Term Extension
• Merchandise Return or Swap
• Penalty Condonation
• Restructuring (adjusted payment terms)
• Addition of Guarantors or Sureties
B. Drastic Recovery Efforts
When friendly methods fail, more serious measures are applied:
• Court Actions: Garnishment, levy, payment orders
• Repossession: Take back items sold on installment
• Foreclosure: Recover real estate securing a loan
• Writ of Replevin: Recover movable assets
Self-Assessment
Answer the following multiple-choice questions:
1. Which of the following is NOT a reason for non-payment?
a) Typhoons
b) Unrealistic payment schedules
c) Effective customer orientation
d) Product defects
Answer: c) Effective customer orientation
2. Why is it risky to hire top academic achievers as collectors in small enterprises?
a) They mishandle cash collections.
b) They leave quickly due to lack of career growth.
c) They demand higher salaries.
d) They lack technical knowledge.
Answer: b) They leave quickly due to lack of career growth
3. What is the main advantage of friendly recovery efforts?
a) Eliminates legal action.
b) Strengthens customer relationships.
c) Guarantees payment.
d) Faster than drastic measures.
Answer: b) Strengthens customer relationships
4. What document allows sellers to cancel a sale and repossess an item?
a) Deed of Conditional Sale
b) Promissory Note
c) Chattel Mortgage
d) Trust Receipt
Answer: a) Deed of Conditional Sale
5. What is a 'surety undertaking' in collection policies?
a) Employer guarantee for debtor
b) A document signed by a collector’s relatives to cover losses
c) Company pledge of assets
d) Court order for debt collection
Answer: b) A document signed by a collector’s relatives to cover losses
Key Takeaways
✔ Collection policies ensure financial stability and compliance.
✔ Friendly recovery methods maintain customer relationships.
✔ Drastic measures should be used as a last resort to minimize conflicts.
