Collections and Repayments

Remedial Accounts
Management
Credit Review
Week 13-15
COLLECTION
PROGRAM

strategies, organization and

procedures for recovery of
receivables
OBJECTIVES OF COLLECTION PROGRAM

To reduce the amount of To reduce the company’s

bad debt losses while investment in accounts
controlling collection receivable
costs
COLLECTION POLICY
provides rules and steps to ensure customers pay on
time.

COLLECTION DEPARTMENT
responsible for monitoring and following up on
receivables
CREDIT MANAGER
Will determine the reasons why accounts become
overdue and delinquent and then the customers so
that proper measures can be initiated.

TYPES OF CUSTOMERS
● Misunderstood terms of sale

● Overlooked their account

● Disregard due dates

● Stretch their payables

● Temporarily illiquid

● Deliberately delinquent

● Insolvent
 STAGES OF COLLECTION

01 PRIMARILY STAGE
usually involves the
02 REMINDER STAGE
reminder is sent to
sending of monthly customer several days
statements after due date

03 FOLLOW-UP STAGE
where successive
04 DRASTIC STAGE
this stage is only resorted to
if the company is ready to
action are undertaken lose the customer
at regularly spaced (collection is through an
interval attorney or collection
agency)
 PROBLEM ACCOUNTS
AND
REMEDIAL ACCOUNT MANAGEMENT
LOAN PACKAGING
● Ignoring credit standards

● Over Focusing on project income, not client ability

● Vague loan purpose

● No clear repayment source

● Weak backup plan

● Poor amortization schedule

● Too soft credit terms due to competition

CUSTOMER RELATED FACTORS

● One or few officers dominate the business

● Business relies on one product
● Management can't adjust to industry changes
● Misuse of short-term loans
● Poor timing and financial planning
● Unprofessional management
RELATED FACTORS
● Missed early warning signs
● Weak loan agreements
● Unrealistic loan targets
● Ignored credit standards
● Loan not properly implemented
 EARLY WARNING
SIGNALS OF WEAKENED
ACCOUNTS
VIOLATION OF
LOAN AGREEMENT
PROVISIONS
▪ Diversion of funds/loan proceeds
▪ Lapses in installment payments
▪ Waiver or violation of safeguards
against defaults
▪ Unremitted collection
INTERNAL PROBLEMS
▪ Failure to submit financial statements on time

▪ Management shake-up

▪ Emergency/unscheduled BOD reorganization/meetings

▪ Willful default among members

▪ Disappearance of officers/assets

▪ Marked difference between projections and actual

operations

▪ Returned checks to suppliers and creditors

 FINANCIAL
▪ Low sales turnover
▪ Diminishing margin of profitability
▪ Decline in inventory turnover
▪ Build-up of receivables vs.
sales/total assets
▪ Increase in liabilities
▪ Decline in net worth
▪ Competitive operations
 FINANCIAL
▪ Deteriorating cash position
▪ Increasing collection period
▪ Rise in inventory costs as a percentage
of total assets without justifiable reasons
▪ Marked decline in current assets as a
percentage of total assets
▪ Increasing bad debts
▪ Rising sales, falling profits
▪ Rising operating expenses as a
percentage of sales/revenue
NON-FINANCIAL
INDICATORS
▪ Unreasonable request for substantial increase in credit

▪ Investment in non-related ventures of business

▪ Fast turn-over of employees without justifiable reasons

▪ Problems or squabble among and between stockholders or owners

▪ Flurry of insolvencies or bankruptcies in the field of business or area

of operation of the debtor or customer

▪ Habitual issuances of bouncing checks

 NON-FINANCIAL
INDICATORS
▪ Buying at big volumes and selling at cost or at a loss

▪ Substantial or repeated rumors about the unsatisfactory credit

habits of the debtor

▪ Sudden unexplainable decrease in manpower

▪ Poor appearance of the office or place of business

▪ Dishonesty of officers or employees of the debtor

▪ New laws adversely affecting a debtor’s business

▪ Insufficiency or lack of insurance coverage

Remedial Account
Problem Account
Management

the art of preventing A problem account is

problem accounts and one with a serious
taking action to repayment issue that
quickly fix repayment causes delays, may
issues when they need legal action, or
happen. risks financial loss.
Objectives of Remedial
Account Management:
● To nurse a substandard or doubtful account back
to health
● To regularize credit and document deficiencies
● To strengthen weaknesses of the credit extension
by way of additional collateral, security or
guaranty
● To locate missing customers (skip tracing)
● To anticipate debtor’s defenses
Requisites for Effective
Remedial Management

● Specific unit to handle problem account

(Organizational structure, Defined responsibility,
Adequate authority)
● Adequate manpower
(Qualifications, Selection, Training and
Development)
● Policies, systems and procedure
(Criteria for account takeover and Process
management guidelines)
Remedial Process
1. Account Review
2. Capability Analysis
3. Strategy Formulation
4. Strategy Implementation
REMEDIAL MEASURES
Remedial Measures
1. Loan Restructuring
2. Compromise Settlement
3. Off-setting/Linkage
4. Strengthen Collateral Credit Position
5. Assumption of Mortgage
6. Foreclosure
CREDIT REVIEW
Primary Goals Of Credit
Review:
▪ Assess the management of credit risks
▪ Identify areas in the credit operation that need improvement
and recommend corrective action
▪ Instill awareness adherence to credit standards and practices
▪ Provide inputs for credit policy formulation
▪ Provide feedback on the overall credit risk assessment
TWO MAJOR CREDIT ASPECTS

● PORTFOLIO ● PROCESS
QUALITY QUALITY
 PROCESS QUALITY CATEGORIZED

Target Market
Credit Initiation and Analysis

Loan Documentation and Disbursement

Credit Administration and Documents Management

Problem Recognition
ORGANIZATION STAFFING

● Organization ● Coaching and

and Training
Deployment
LOAN RECOVERY FOCUS

● Remedial ● Normal
Management Management
EXAMPLES OF CREDIT
POLICIES
 A. Loan Values
Security/Support Loan Value

Loans secured by Real Estate Up to 60% of appraised value

Loans secured by Chattel covered by Up to 50% of appraised value

Insurance

Loans secured by Shares of Stock Up to 50% of market value (less in volatile

markets)

Loans against Assignment of Proceeds of 50–80% of assigned export value (80%

Export Shipment only if track record is proven)

Loans against assignment of contracts, 50–80% of contract/receivable value

P.O.s, receivables, etc. from reputable
firms

Loans against deposits(same currency) Up to full deposit, interest paid monthly

Loans against deposits(different currencies) Up to 80% of deposit value (principal +

interest)
B. Policies on Loans Against Real Estate
1. Mortgage must be registered first
2. Property improvements must be insured
3. Corporation’s property used as collateral
4. Real estate developers certifying unsold
properties

C. Policies on Loans Against Chattel Mortgage

1. Chattel mortgage must be registered
2. Chattel must be insured
3. Identification tags on items
4. Regular appraisals

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D. Policy on Second Mortgage
A second mortgage is generally not allowed for new loans, but it may be
accepted to support an existing loan if the first loan can be prepaid and
the property value can cover both loans. The borrower must agree to let
the bank prepay the first mortgage if needed. These loans are treated
as clean in the bank's records.

E. Foreign Currency Loans

Foreign currency loans are given only to borrowers who earn in the same
currency to reduce exchange rate risks. If secured by deposits, only 80%
of the deposit’s value is used as loan support to protect the bank from
currency fluctuations. Any amount above that is treated as unsecured.

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F. Policy on Marital Conformity
Both spouses must give written consent for any loan, mortgage, or
property-related transaction involving conjugal or community property.
Without this, the bank risks being unable to collect using shared
property. Waivers are not allowed except under strict conditions and
with strong justifications.

I. Policies Covering Back-to-Back Loans

As back-to-back loans (loans vs. 100% cash deposits or cash LCs)
represent minimal risk (and are excluded in determining the total
aggregate exposure to a Borrower/group).

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J. Policies on Trade Check
Discounting
1. Loan terms must not exceed borrower's usual credit terms.
2. Interest is collected in advance.
3. No rebates for early-cleared checks.
4.Eligible checks: valid postdated checks for completed sales.
5. Ineligible checks: personal, risky, or from related parties.
6. Other branches must report closed or stopped accounts.
7. Drawer identity must be confirmed if not printed on check.
8. Each loan must have a credit agreement & documentation
9. All checks must be applied to the loan and cleared on schedule.

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 THANK YOU

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