FM 328 Module 1

FM 328
CREDIT AND COLLECTION
Noel R. Terrora
TABLE OF CONTENTS
Week no. Module Topic Page
Week 1 Main Topic:
Background History of the Development of Credit in the
Philippines.
Sub-topic 1:
Overview of Credit and Collection Management
Sub-topic 2:
Credit and Collection function
Week 2 Main topic:
The Credit Manager
Sub-topic 1:
Qualifying for Credit Manager
Sub-topic 2:
The Cardinal C’s of a Credit man
Week 3 Main topic:
Credit and Collection Policy
Sub-topic 1;
The credit Cycle
Sub-topic 2:
Factors Affecting Decisions
Week 4 Main topic:
Daily Recording of Business Transactions
Sub-topic 1:
Recording a Cash Register Receipt
Sub-topic 2:
How to Record Payment in Accounting
UNIVERSITY OF THE VISAYAS
College of Business Administration

Department: Business Administration
FLEXIBLE LEARNING SYLLABUS

Faculty information:
Name of faculty: Nole R. Terrora
Email address noel_terrora@uv.edu.ph Mobile no. 09368466178
Consultation
schedule Friday 8:00 12:oo
Module code FM 328

Module Credit and Collection Management
name
Unit hours 3 units/ 54 hours
Duration 4 weeks
Course This course is on Credit and Collection, specifically this course will
description focus on the Principles (meaning and Function of Credit).
background history of the development of credit in the Philippines.
Why the Credit and collection department; the role of such
department in the over-all company objectives; outside credit and
collection outfits. The Credit manager. Credit and collection policies.
Financing installment accounts. Recording and accounting in credit
and collection. Monitoring and controlling the credit and collection
funds.
Course goal Upon the completion of this course the learner is expected to be
knowledgeable about credit and collection in the Philippine setting
Course
learning LO1 Define and describe credit and collection
objectives
LO2. Determine the role of credit and collection in a business
organization
LO3. Analyze the contribution of credit and collection to the success
of a organization.
LO4. contrast credit and collection as profit center in an organization
Course
content This module provides an in-depth study of credit and collection
management where student will have their initial exposure to the
benefits derived from the credit and collection management.
This module is divided into four (4) modules with a two (2) to a
maximum of three (3) topics per module.
Module 1- Credit and Collection
Module 2- The Credit Manager
Module 3- Credit and Collection Policy
Module 4- Daily Recording of Business Transactions

Category of Description
learners
Category 1 No gadget: no internet connection: asynchronous/synchronous
Category 2 With gadget: unstable internet connection:
asynchronous/synchronous
Category 3 With gadget: stable inter net connection: synchronous
Teacher Synchronous :
learning  Real time/virtual class
method  L2L audio chat/texting
Asynchronous online :
 group forum discussion using Open LMS
 Ms teams
Asynchronous offline :
 Modular approach
Contact
hours Synchronous : 16 contact hours
indicative of
students Asynchronous online and offline : 38 hours
workload
Independent Study. Preparation for the course, reading of modules
and completion of the end of topic self-check activities, output to be
compiled in e-portfolio. Reviewing of lecture and other instructional
materials accessed through the Open LMS and websites.
Preparation and completion of periodical assessments.
Provision of feedback and assistance through one-on-one

consultation with the learner via audio chat, messenger, text, email
and other available social media platform.
Preparation to Answer to 10 essay question for its module (2hrs)
Assessment Major LO Point Week

component assessment Addresse s due
d
ASSESSMENT LO 1 40 Week 1
Completion of
Essay/ Module 1
discussion/case coverage
study
10 items
Reflective
essay/discussio
n
1 case study
LO 2 40 Week 2
Preparation to Completion of
Answer to 10 Module 2
essay question LO3coverage
for the module
(2hrs) 5 items
reflective
Case study essay/discussion
1 case study
LO 3 40 Week 3
Answer to 5
Completion of
essay question
Module 3
for its module
coverage
(2 hrs)
LO 4 40 Week 4
Completion of
Module 4
coverage
60 End of
Completion of week 4
E-portfolio end of the LO1 by the
topic/module LO2 end of
Self-check LO3 the
activities LO4
semeste
r
TOTAL POINTS 220
Points Earned Grade Points Earned Grade

211-220 1.0 141-150 2.1
Grading 201-210 1.1 131-140 2.2
system 196-200 1.2 121-130 2.3
191-195 1.3 111-120 2.4
186-190 1.4 101-110 2.5
181-185 1.5 96-100 2.6
171-180 1.6 91-95 2.7
166-170 1.7 86-90 2.8
161-165 1.8 81-85 2.9
156-160 1.9 75-80 3.0
151-155 2.0 74 and below INC
An INC is given if the final grade is 2.5 or better but missing any two of the course
requirements listed above. INC should be complied within 365 days immediately after
the close of the Semester.
To pass this module, the learner must obtain at least 75 points.

Students who would fail to submit any of the periodical
assessment and the required e-portfolio will have until the end
of the Semester within which to comply. Those who cannot
Reassessment fully comply with the requirements will be given an INC
requirement grade. The INC grade has to be complied within one year from
the close of the semester. The INC grade will automatically
become 5.0 or failed immediately if not complied.
Prescribed Terrora N.R.. (2020). Module on Credit and Collection

Learning
Resources
Print
Supplemental Judge Jose T. Apolo. Credit and Collection in the Philippine
Readings setting. National Bookstore, 2003
www.creditorsnetwork.com
Prepared by: Date approved: Approved by:
Noel R. Terrora ____________________ Rosemarie C. Espanol CPA, DM

Faculty Dean
Reviewed by:
_____________________
Philip Almanon ___________________ Media Specialist
Program Coordinator _
Language Expert
Module 1
Credit and Collection
Module Learning Objective/Outcome:
At the end of the module, the learners should be able to:
LO1. Discuss the background history of the Development of credit in the Philippines
Topic Intended Learning Outcome

1. Background history of the development LO1 discuss the background history of
of credit in the Philippines the development of credit in the
Philippines
2. Overview of credit and collection LO2 explain the overview of credit and
management collection management
3. Credit and collection function LO3 Identify the credit and collection
functions
ILO Learning activities/resources

Category 1 Category 2 Category 3
ILO1 Read module 1, Access and read digital Access and read digital
.5 hours topic 1, of the printed module 1 module 1, topic 1
(4.5 hours module topic 1
asynchronous
for category 1)
2 hours (synchronous/
2.5
hours asynchronous for
category 2&3)
ILO2 Read module 1, Read the digital Read the digital

(4.5 hours topic 2, of the printed module 1, topic 2. module 1, topic 2.
asynchronous module
for category 1)
2.5
category 2&3)

(4.5 hours topic 3, of the printed module 1, topic 3. module
asynchronous module Answer 1st Major 1, topic 3. pages
for category 1) Answer 1st Major Assessment. Log in to the open
2 hours (synchronous/ Assessment. Please be Please be guided with LMS and answer 1st
2.5 guided with the the rubric provided or Major Assessment
hours asynchronous for rubric provided. log-in to the open page. Please
category 2&3) Compile to LMS. be guided with the
ePortfolio rubric
provided.
Topic 1:
Background History of the Development of credit in the Philippines
BACKGROUND HISTORY OF THE DEVELOPMENT OF CREDIT IN THE
PHILIPPINES
The consensus among our credit men is that the true and full concept of credit
consciousness has not yet found its mark on our people. Ask those companies
engaged in credit selling look into their books if you may and you will find
confirmation of this statement. To many buyers a 30-day term may mean anywhere
between 90 to 120 days. To some, this may even mean that provided the pay any
overdue balance at the time they place the next order (which may vary naturally
according to the needs of the buyer), their credit is still good. How many companies
are now in serious financial trouble because of this? Which lead us to the mor
important question: why is this so?
To find out the answer, we will have to trace the development of credit in the
Philippines.
In the earlier times even as late as the years before the last world war, credit was
synonymous with debt (“utang” in local parlance) with all its negative connotations.
Thus, to the rich and poor alike, it is more of a stigma to avail of credit which mean
being in debt no matter how promptly one pays his indebtedness. Conversely, to have
no debt was viewed as a status symbol. True to this common belief credit transactions
then attracted mostly people with not so good credit standing who incurred debts out
of pure necessity, or, worse, with intent to defraud creditors. Example of these are the
poor tenants who are perpetually indebted to their landlords or the por laborers who
live hand-to-mouth existence, and had to depend on credit to survive.
Of course, when we described credit in its negative connotations admittedly, there

were exceptions - and its should be understood in a general way. As far back as 1932,
there was already an Association of Credit Men, Inc. taking care of the credit needs of
the metropolitan areas. But on the whole, the country was still in the stone age as far
as credit was concerned. In fact, the vestiges of this concept of credit are still much
evident to a great segment of our town and barrio populace.
As a logical consequence of above orientation collection lagged and foreclosures

became common, so much so that the mind of the people became conditioned to the
belief that provided one paid his debts ultimately, matter how much delayed or where
court proceedings had to be initiated - his credit is still good!
After world war II and during the process of rehabilitation, business began to pick up.
Companies started to sprout like mushrooms and durable goods became more
available to the people. After years of deprivation and want people were naturally
hungry for these goods. There was a big market but people simply did not have the
cash to buy. The answer? Credit.
When really good credit risk customers started to trickle in and finally flood the credit
establishments during after liberation years, they were attracted in large measure by
by the wide-scale advertisements of every type of credit come-ons by installment
houses. This sad state of credit orientations was still prevalent. This was further
deteriorated by cut-throats competitions in credit sales - some going as far as
offering no-down payment deals. The result. Credit-coddling. Even the customers
who would have turned into really good accounts were “contaminated” as it were and
many become acclimated to this deplorable credit practice. The philosophy that seems
to have developed is “others can get away with it, why not me?”
To make matters worse for the credit men, and to confound further an already
confounded credit affairs our legislators thru the years passed laws after laws - all
substantially favoring the debtors - and practically neglecting the creditors. It is
submitted though that may be at the time these laws were passed, they were then
justified by existing conditions of the times. Consider, for example, wanton
exploitation of the tenants and the laborers, who were always in perpetual debts to
their landlords and employers. The union movement then was only in their infancy
and the only protection they could look up to is our laws.
Some of these laws for example, are the following (these laws, among others are
discussed more extensively in subsequently).
1. USURY LAW (CA No. 2655) - The provisions are so stiff as to prevent any
substantial protection to creditors who, more often than not, have to take unusual
credit risk. Consider for example, the sale of cars and trucks. No matter how
substantial the down payment is, the risk is unusually high because of the great ease
by which the unit could be hidden or stripped of vital parts (commonly known as
“cannibalization”). And yet, this law through the years has remained substantially the
same, with only minor amendments since enacted.
By the Central Bank Fiat and affirmed no less than our Supreme Court, however, this
law is now a dead law.
2. TWO INSTALLMENT DEFAULT RULE UNDER CIVIL LAW (Art. 1484,

R.A. 386) - Before any sale payable in installments can be cancelled, at least two
installments must be overdue. But supposed there is bad faith? Can the seller afford to
wait?
3. NO DEFICIENCY JUDGMENT RULE IN FORECLOSURE OF CHATTEL

MORTGAGE - In case the value of the chattel foreclosed is less than the account,
the judgment creditor cannot recover the deficiency. If the chattels have been
impaired while foreclosure proceedings is in process what now? Impairment
mortgaged chattels is usually accompanied also by clandestine disappearance of the
debtor’s other assets so in the end the credit is left holding an empty bag.
4. OUR LAWS ON BOUCING CHECKS - Rarely, if ever can one secure a

conviction under our present laws, even after the amendments purportedly making
them “stiffer.” Thus, bouncing checks is one of the major headaches of credit men, it
is heartening to note though that a bouncing checks law has been enacted. How
effective it is as a deterrent is still open to question as evidenced by the ever growing
incidents of bouncing checks. Moreover the laws on this matter, as written are still
subject to many defenses.
5. OUR COURT PROCEDURES IN REPLEVIN CASES - Under our present

procedures, our Sheriffs cannot seize property under mortgage on their own authority
but must be armed with a court warrant of seizure. Aside from the expenses involved (
a bond must be submitted to the court by the mortgagee among others), because of the
time lag in obtaining such a warrant the seizure orders oftentimes cannot be served
anymore after it is secured. The reason is obvious: the debtor has ample time to
”prepare” for such eventuality.
6. OUR VERY SLOW JUSTICE SYSTEM. With all these breaks for the debtors. It
is any wonder then that we as a people have become credit-spoiled? There is no
question that credit is vital to a progressive economy. In fact, it is believed that the
entire economy will collapse if credit transactions are stifled. Picture an economy
without credit. No factories could be established. No large scale businesses could
operate.
Topic 2
Overview of Credit and Collection Management
Objectives
 To set up information for credit and collection management
 To update A/R information for credit and collection management
 To determine the average number of days a customer is late in paying invoices
 To locate summarized information about the status of an account
 To review and work customer accounts for credit management
 To create credit reporting tapes
 To review and work past-due accounts for collection management
 To print credit and collections reports
About Credit and Collections Management

Effective management of credit and collections information is fundamental to an
Accounts Receivable department. The JD Edwards World Accounts Receivable
system offers a variety of features to help manage your receivables. You can set up
and define information to meet the specific needs of your business.
Credit and collections management consists of:
 Setting up credit and collection information
 Updating A/R information for customer analysis
 Determining average days late
 Reviewing account status information
 Managing credit information
 Creating credit reporting tapes
 Managing collections information
 Printing credit and collections reports
Credit collection
 Credit collection- connotation

 Credit collections management
Credit collection refers to the general debt recovery process of reimbursing unpaid
and past-due credit loans from the consumer in debt, on behalf of the lender. Such
process is normally performed by specialized DRAs (Debt Recovery Agencies),
which act on lender’s behalf in exchange of an interest, which is to be requested from
the creditor or from the debtor, depending on the collection agency’s terms and
policy. Debt collection is directly connected to the definition for “credit” and “credit
loan”. It generalizes the procedure of granting a monetary loan to a consumer with a
written reservation that the sum will be restored by the consumer (an individual or a
business organization) before an alluded deadline has passed. Debt recovery
proceedings typically include tracing services, pre-legal phone calls, emails and
letters; legal proceedings with the usage of special debt recovery solicitors in
compliance with country and international government approved laws; and court
process, involving small claims court procedures, wage garnishment, seizure of
belongings or property, etc.
Credit collection- connotation

As positive cash flow is vital for a business, so is the debt recovery. If this operation
is performed successfully, it will automatically generate positive cash flow and
income in creditor’s financial system. A credit collection is preceded by a legal credit
contract, serving as a law agreement between a first party (a creditor/lender) and a
second party (a consumer). When the consumer falls behind with his payments, which
are to be made on an agreed date, he becomes a debtor and the monetary credit
amount is considered as a bad debt or a past-due late payment. Such payment falls
under the definition “late”, when 30-60 days have passed. Usually the deadline is 30
days, but it can vary, depending on creditor’s policy. When there is a past-due
payment on lender’s list, this is marked as a financial loss for creditor’s organization
and the debt will be written-off and transferred to a professional debt recovery
agency.
Typically most creditors will try to begin a debt recovery on their own, with their
private financial resources. If the recovery is not successful, they usually hire a DCA
(Debt Collection Agency) and assign the debt recovery process to private recovery
agents. These agents use standardized methods and schemes for debt recovery as: pre-
legal actions, preceded by tracing and tracking the debtor; legal process after the pre-
legal operation; the following court actions; and continual monitoring. The last
service is also considered as part of the credit collections, although it is not an active
process. Monitoring is vital for corporations, as this function provides the necessary
scoring of past and future debtors and measuring the possibility of new past-due
payments occurrence. This process of supervision is done internally and externally as
well. This means that although the creditor can carry out a monitoring within his
company, using his employees; a debt recovery agency can also perform such service.
It is vital also for companies, which offer commercial loans, as the scoring is very
important for creditor’s future business partners and corporate borrowers.
Credit collections management

The credit collection process can also enlist a restructuring of the debt plan if the
debtor is unable to cover the default payments’ requirements. In such case the subject
of debt can use the so-called debt collections management. This service is provided by
the creditor (if there is such department in his company); by a debt recovery agency;
or by a private debt management company, which specializes only in carrying out
specific and individual debt management plans for indebted subjects.
A debt recovery management carries out different debt management plans (DMPs). A
DMP represents an unofficial agreement between the creditor and the indebted
subject. It is based on a regular payment (most often- monthly), which the debtor is
able to afford. A debt management plan is usually offered to consumers in debt, which
are not in a stable financial state and cannot pay the amounts on time. The aim of such
credit collection management is to help debtors gain control over their outcome
without the need of further falling into debt. Another positive feature of debt recovery
management plans is that when the creditor agrees to such option, further interest and
fees, applicable for the debtor, are to be frozen.
When a credit collections management plan contract is to be signed, a debtor has three
options for payment, depending on who offers the debt management agreement. If the
creditor has his own debt recovery management department, the debtor will have to
pay directly to the debtor. If a DCA provides debt management services, the subject
of debt will make monthly payments to the agency, which will deduct its interest and
transfer the rest to the lender. If such services are provided directly by a specialized
Debt Management Organization (DMO), then the debtor will transfer the payments to
the DMO, along with its commission fees and the management company will forward
the rest of the amount to the creditor.
Topic 3
Credit and Collection Function
Credit Collection Functions
For this is the basic reason the primary role that the credit and collection unit must play
in a business enterprise - to maximize profits and minimize bad debts losses
through proper credit evaluation of each application and through efficient and
consistent collection follow-ups.
No matter how substantial the volume of sales if bad debts losses are not controlled
thru the operation of an efficient credit and collection machinery, the ultimate
financial result of the business would be impaired. It would be like filling a jar of
water with a hole in it.
Some view the credit and collection function as a sales “resistance.” There is a
traditional “animosity”, or, at the very least a continuing aloofness between the sales
people and the credit men. If we look deep enough into it, we will find that this is due
mainly to the lack of proper understanding of the role played by each of the overall
company objectives. It is to be noted that the primary objective of the credit and
collection unit is to maximize profits. This, too is the primary objectives of sales. So,
there should really be no conflict, no friction between sales and credit. For both have
the same primary objective. The only difference is that while sales attains its objective
by selling more, credit realizes its objective by “minimizing bad debt losses through
proper screening and evaluation of each credit application and through efficient and
consistent collection follow-ups of its receivable.”
Banks and other lenders as well as independent collection agencies perform credit
collection functions. A variety of collection functions can be used in recouping
outstanding debts from consumers who have fallen behind in their payments. Each
company follows its own business model, collecting debts using a variety of
strategies, but the method must follow the requirements of the Fair Debt Collection
Practices Act.
Organization
An organization designates the credit collection function to be either centralized or

decentralized. The key to this function, whether branches or a central office perform
the function, is standardization. Inside the company, the credit collection
management team adopts specific procedures to collect payments from borrowers
pursuant to their individual situations.
Controls
Collection functions must include built-in controls. An organization adds controls,

such as quality control monitoring of debt collection phone calls and
correspondence and supervisor approval of payment plans and settlements, to ensure
consumers are treated appropriately. Under the Fair Debt Collection Practices Act
(FDCPA), consumers are protected from debt collector practices that are deceptive,
abusive or unfair. When you are contacted by a debt collector, you should keep
notes and ensure that the specifics of this contact do not violate your consumer
rights under this act.
Phone Calls
Most debt collectors use phone calls to attempt to collect debts. Even small business
owners must use practices to get unpaid accounts current. As a consumer, you
should know your rights regardless of the type of company contacting you. Even
companies not regulated by the FDCPA should follow good business practices by
not abusing or deceiving you during phone calls. You should not be contacted
before 8 a.m. or after 9 p.m., and a creditor cannot call your line multiple times in
one day. Some companies put your phone number on auto-ring, and you may be
called more than once a day. You should keep track of the number of times a
company calls you each day, and you may consult an attorney to file a complaint
against a debt collector that harasses you.
Handing Over Accounts
Lenders and companies, even small businesses, initially may try to collect debts
from consumers directly. After a certain amount of time with an unpaid balance,
such as 90 days, 120 days or 180 days, a business may decide to transfer an
outstanding account to a credit collection agency. If you've had an outstanding
medical bill, you've probably received a letter from the provider stating that this is
your final notice before your account is turned over to collections. When you're
ready to make payments on an account, you must determine whether you should pay
the original creditor or the credit collection agency.
Week 1: module 1
1st major assessement
100 points
Self check activity
1. What is the USURY law ? and why this law is already considered repelled?
2. Discuss briefly, what is a credit and collection management?
3. Describe simply what is restructuring of debts?
4. Explain the credit and collection function.
5. Why is it that credit and collection function is also considered a sales resistance?
Case study (50 points)

A newly formed beverage company moderately capitalized, has purchased
40 units of delivery trucks from a a motor vehicle dealer. The total value of the
trucks amounted to P1,350,000.00. The local bodies built at the expense of the buyer
was valued at P500,000.00. the buyer made an initial down payment of P250,000.00
and amortized the balance, with finance charged for 36 monthly installments.
The company promptly paid the first two (2) installments of the amortization
schedule. Then it met a series of difficulties. First, one of its two principal
machineries broke down. Then, it suffered from acute water shortage such that it
had to contened with the rising cost of sugar which made production doubly
expensive. As if these problems where not enough, it met difficulties in the
procurement of empty bottles which is reportedly controlled by a giant soft drink
company.
The present status of the account P450,000.00 overdue equivalent to six (6)
monthly installments. The total unpaid balance is about P1 million. Present value of
the vehicles -P1,250,000.00. the credit manager of the vehicle dealer made a
thorough evaluation of the account as it presently stands. In point of character, the
major stockholder of the company is a successful businessman in his own rights. He
has varied interests here and abroad and, moreover, except for this particular
business, he has been proven financially responsible and capable. From the point of
view of capital, the company fails for indeed it is suffering from dire lack of capital.
Capacity is impaired for the moment although there are high hopes that come
summer time, assuming the operational difficulties are solved, business should pick
up and prove profitable. Collateral-wise, the transaction is still viable. Note that out
of the present balance of P1 million, the total value of the trucks including the cost
of locally built bodies is still P1, 250,000.00.
The question that confronts the credit manager is whether at this particular point
the company should lower the boom and repossess the vehicles. Judging from the
amount overdue and the number of installments outstanding and unpaid. The initial
answer answer seems to be YES, Yet, there are factors that militate against taking
repossession action, to wit:
1. If the action is taken surely the selling company would have lost a potential fleet
customer.
2. If the units are repossessed, the seller faces the problem of having in its inventory
P1 million worth of assets which it cannot hope to readily convert into cash since
the trucks are are constructed for soft drinks delivery purposes and there is a limited
market for this type of trucks.
3. The cost of storing the vehicles will be approximately 2.5 per month.
Requirement:
1. Times new roman 12 short
2. To be submitted on or before midterm through email (nterrora@gmail.com)
3. Strictly follow this format
a. Background of the case (summary)
b. Statement of the problem (only one main problem)
c. Alternative courses of action (minimum of three and a maximum of five)
d. Recommendation
e. Conclusion
Rubrics for the essay
Point value 5 4 3 2
Well developed Introduction Introduction Collection of

introduction; creates interest; adequately information is
STRUCTURE: engages the presents one explains the unclear or not
Introduction, reader and crates main topic; background but related to the
development, interests; thesis conclusion may lack detail; topic; thesis is
conclusion is clearly stated; effectively thesis states the vague; conclusion
original main summarizes position; does not
idea; draws topics sufficient summarize main
conclusion with number of points; main idea
difficulty examples and is missing
details that relate
to the topic;
conclusion is
recognizable
CONTENT: Well developed Two ir three Three or more Insufficient, vague
main points; main points but points are or underdeveloped
Main points,
supporting they may lack present; narrative examples; poor
supporting concepts,
concepts, details; examples shows the events development of
body paragraphs
theories and and details may but may lack ideas
examples are relate to the topic details; sufficient
concrete; and some number of
consistent point examples is examples and
of view; detailed included details that relate
topic to the topic
explanations
ORGANIZATION Logical Details are Organization is No discernable
OF THOUGHTS: progression of arranged in a clear; transition pattern or
thoughts; mature logical are present but organization;
Structure of ideas,
transition progression with may be weak; unrelated details;
flow of ideas,
between ideas; appropriate acceptable transition are not
transitions
structured flow transitions arrangement of present
of ideas examples.
STYLE: Writing is Writing is clear Writing is clear Writing is
smooth, coherent and sentences but sentences confusing and
Word choice,
and skillful; have varied may lack variety; hard to follow;
writing patterns, pleasing variety structure; good adequate word contains
sentence variety in sentence word choices choices inappropriate
structure; precise sentences; poor
word choices and inconsistent
word choices
MECHANISM: Punctuation, Punctuation, A few errors in Distracting errors
spelling, spelling, punctuation, in punctuation,
Grammar/syntax
capitalization are capitalization are spelling and spelling and
functionalism
correct, no generally correct, capitalization capitalization
spelling
errors; consistent with few errors.
standard English
usage
- End of module 1 -
Module 2
The Credit Manager

LO1. Define and describe the credit manager

1. The credit manager LO1 Define and describe the credit
manager
2. Qualifying for credit manager LO2 Determine the qualifications of a
credit manager
3. The Cardinal C’s of a credit man LO3 Identify the Cardinal C’s of a credit
man

.5 hours topic 1 module module 2 topic 1
(4.5 hours 2, topic 1
asynchronous
for category 1)
2.5
category 2&3)

(4.5 hours topic 2, pages of the module 2, topic 2. module 2, topic 2.
asynchronous printed
for category 1) module
2.5
category 2&3)

asynchronous module Answer 1st Answer 1 st Major 2, topic 3. Log in to the
for category 1) Major Assessment. Assessment. open LMS
2 hours (synchronous/ Please be Please be guided with and answer 1 st Major
2.5 guided with the the rubric provided or Assessment page.
hours asynchronous for rubric provided. log-in to the open Please be guided with
category 2&3) Compile to LMS. the rubric
ePortfolio provided.
Topic 4:
The Credit Manager
The Credit Manager

When a business organization sells on credit, the administration of that credit
becomes, on some level, a management function. The type and extent of
management required is not the same in different types of institutions nor is it
always handled in the same way comparable organizations. The level of
management required for the administration of credit in a firm is determined, more
than anything else, by the concept of credit prevailing there. In some instances,
credit is viewed as a simple function of approving credit transactions. Little real
management activity is involved here. In other cases as the concept broadens, the
credit function embraces sales and finance policy and other top management
strategy. The management of credit then become a responsibility of a higher order
and calls for talent equal to the task. This task is handled by a credit manager.
Current Status and Functions of Credit Manager

Credit positions vary according to the importance given to the position by top
management. They are identified by countless different titles representing the
graduations of authority and combinations of responsibility. On the officers’ level
the credit position may be known as Financial Vice President; in lower echelons, the
position is designated as Credit Manager, Assistant Treasurer, General Credit
Manager, Branch Credit Manager, Loans Manager, Credit Man, Credit
Correspondent, Chief Bookkeeper, Credit and Adjustment Clerk, and many other
similar titles.
Irrespective of the title though, the performance of credit work is the responsibility
of positions of both line and staff character in an organization. Positions which are
specialized or not, depending upon the size and nature of the business. The functions
falling to the the different positions vary from credit policy-making at the top to the
passing upon individual credit transactions at the bottom, and they are determined
throughout by the combinations of line of merchandise handled, territories served,
classes of customer and volume of business.
In companies where the management of credit occupies, the credit the credit
manager of the executive usually reports directly to the chief corporate officer. The
person in that position is responsible for the formulation of credit policies and the
administration of credit operations that will maximize sales and profit, minimize
loss, and maintain a satisfactory turnover of the company’s investment in account
receivable. This is accomplished through pertinent research into economic
conditions and business practices; by establishing policies, procedures and practices
with respect to sales terms, financing arrangements, types of credit and use of
capital by planning, developing, administering and maintaining the necessary credit
organizations; by operating the credit on sound principles and practices; and by
maintaining with other departments and agencies internal relations essential to the
achievement of the objectives. This level of management is not responsible for the
detailed performance of credit work.
In this wise, a well-known credit management practitioner (the late Atty Santos
Migallos, Jr.) has described the expanding role of the credit manager. “He must
understand business and the world around him. As the person who must eventually
accept responsibility for the release of so much value of the company’s goods and
services on any of the countless “buy-pay-later” arrangements, the credit manager
must doubtless have a thorough understanding of his company’s financial and
production capabilities, his sales department’s selling ability, and to bring the
money back.”
Beyond his own company, he must have a thorough understanding of the complex
world around him - he must know his total environment:
1. The alert credit man reads at least two (2) newspapers a day two (2) magazines a
week and at least a book a month.
2. The alert credit man is aware of the political, social and economic forces at work
in his community;
3. The alert credit man must keep abreast of the latest business development and
trends, especially in credit and finance;
4. Current credit management courses here and abroad emphasize the need for credit
managers to know the larger economic and social picture. For example, the
Graduate School of Credit and Financial Management which is open at Harvard
University and Dartmouth College each summer offers the following required
subjects for the practicing executives besides pure credit management subjects;
a. Financial Management
b. Managerial Psychology
c. Computer applications to Credit Decision-making
d. Current trends in Marketing
e. Economics of Money and Credit
f. Management Policy
g. Management of Human Resources
h. Management Science Approaches to credit and Financial Manager.
The credit manager must make contribution in the overall company planning and
thinking towards the future. It is inconceivable that a company’s three or five-year
plan should be finalized without taking into consideration and giving careful weight
to the credit executive’s opinion on the “financial shape” of the company’s customer
as well as beyond the confines of his organization. As earlier discussed lack of
credit consciousness is one of the basic inadequacies in the Philippines today.
Where credit manager does not occupy a top position but is still highly placed in the
organization, the person in charge directs all credit and collection activities and is
responsible for the interpretation of policy and its application. He staffs the credit
organization and trains its personnel. He plans, executes and coordinates programs
for the operation of the credit department approving major credit extensions,
deciding borderline cases and reactivating dormant accounts. He also directs the
work of collecting. It is the task of employees on this level to maintain contacts with
customers credit and collection services used by the company financial institution
the trade and to the administration of selected accounts grouped alphabetically by
products or brand customer class, sales territory or other geographical division.
In concerns where credit management is on the lowest administrative level, the

person holding the position of credit manager, or equivalent, is responsible for the
actual extension of credit in accord with established policies. His chief duties relate
to the extension of credit in analyzing request conducting credit investigation
evaluating credit risks setting credit limits, and referring credits to higher authority.
Making collections is another chief duty, which entails maintenance of controls
following up accounts calling upon customers, representing the company at
creditors’ meetings and supervision of collection correspondence.
Topic 5
Qualifying for Credit Manager
Qualifying for Credit Management
For the proper and effective management of credits and collection, the person
incharge and, in varying degrees, those at lower levels in the administration of the
numerous activities that fall in its province, must possess certain personal
experience and educational qualification. With respect to the personal characteristics
required, and seem that in Biblical terms, the ideal Credit manager must have
something of the patience of Job, the wisdom of Solomon, the courage of David,
and the prophetic sense of John. In so far as all requirements which must be met by
those who would engage in credit work done. They are relatively few and
unspecialized at the bottom but as the management function of a given position
broadens, the requirements of education experience and personal competence of the
person holding such a position, increase.
Operational Management
Most individuals enter the field of credit employment at the level of responsibility
for actual credit extensions, where application are handled discretion exercised,
collections made and the multitude of credit records kept. A college education is
essential for this position, and the employee should also have a knowledge of the
rudiments of credits and collections, commercial law and, in mercantile and in bank
credit departments, accounting and financial statements analysis.
If the position at this level includes the actual granting of credit and making of
collections, familiarity with risks is beneficial. This may have been acquired
through previous work in the field investigating risk or making collections, in
handling the correspondence of the credit and collection department, in the
preparation of reports or the analysis of statements and other credit information or
even in the work of selling.
The personal qualification expected on this level begin with the ability to gather,
organize and retain the detailed information pertinent to accounts and to translate
them into the operations of the credit routine. Such an employee should be capable
of synthesizing facts and communicating his ideas to his superior in so far as he
meets the public he is expected to make a pleasing appearance and to speak and acts
in a manner that makes a favorable impression. Where judgment and discretion
enter his work he must be fair.
Departmental Management
Advancement in the credit profession usually represents the rising from one position
to another, so that specifications for a departmental managership would generally
include experience of five or six years in credit and collection work. Breadth of
experience would also be necessary, and this should include exposure to the various
of credit activity. Management competence, however, arises not only out of
thorough familiarity with operations but also from ability to organize people and
supervise them in their activities. Consequently, some experience along this line in
either credit or other work is helpful.
Executive Management
In a few establishment, in many mercantile houses, and in most financial and

banking organizations, credit management reaches a level of executive capacity. It is
attained by growth out of lower credit positions and by the encompassment of
broader business activities. Education carried further in the principles and practice
of credits and collections and in accounting and some practical experience with the
credit aspects of finance, law and business administration are desirable.
Business and Social Status of Credit Manager
To the individual contemplating a professional career in business, the role of credit

manager holds forth promising opportunities, to men and to women alike. In retail
stores, a large percentage of the credit positions is held by women, the long tenure of
whom bespeaks the stability of the work and its attractiveness from a career
standpoint. In the larger retail institutions, however, the manager of credits and
collection is more often a man, under whom there are various assistants, the number
depending upon the size of the organization and the credit task involved. Mercantile
and manufacturing establishments, likewise employ credit experts specialists, often on
ore remunerative terms than retailers, because of the greater breadth of training and
experience which mercantile credit usually requires. Not least among the professional
opportunities for credit management are those with the growing number of personal
and mercantile credit. Banks, credit information agencies, and trade associations also
employ many people in different phases of credit work. In addition to being
reasonably remunerative, credit positions afford work of high value in social service
and sufficiently vary to constitute a stimulating challenge to the progressive
individual.
Topic 6
The Cardinal C’s of Credit Men
The Cardinal C’s of Credit MEN
The late Mr. Placido R. Real Jr. May times president of CMAP, has thus described the
essential qualifications and characteristics which credit man posses.
1. Competence and Capability. The first C of credit man, of course, is competence

and should know his areas of responsibility. He must be aware of institutional
viewpoints and correspondingly acts in behalf of the institution as a whole. He should
know and understand the goals, objectives and policies of the company, of the other
departments in the business organization, of his own department which is credit. And
he must have a clear understanding of what the end points of his efforts are and
should be.
2. Communication. The credit man by the very nature of his function, must be a good
communicator. He must have the ability to effectively convey his ideas. And this
includes not alone the preparation of reports and correspondence but also the
delegation of duties and the corresponding authority to subordinate.
3. Constructiveness. The credit must be positive and constructive in his approach to

both credit and collection management. In the dispensation of credit, he must find a
way by which credit can be granted and in the process free himself of the negative
image of one concerned with finding a way which credit should be denied.
4. Creativity. Creativity is another cardinal C of credit man. They key to creativity, it

is said, is the development of broad personal interest. Concerned with both marketing
and finance. Keeping pace with changing times and changing conditions. Constant
pursuit of creative answers to new questions.
Very simply creativity has defined as the ability to put old ideas together to solve a
new problem.
5. Conscientiousness. Like every man in the business organization he must be

devoted and dedicated to his job. The credit man must serve as a catalyst of the
members of the credit team and with the other units of the company. He must be a
strong proponent of cooperation and coordination in the entire organization.
6. Consistency. Another quality of credit man is consistency. He must be consistent

in making credit decisions. He must have a consistent performance which is
consistent with company goals and objectives. He must not necessarily deviate, not
completely veer away from policies and guidelines to accommodate friendships and
other personal consideration.
7. Certitude and Celerity. In credit checking, analysis, evaluation appraisal - as a

matter of fact, in the entire credit approval process - it is a must that credit man not
only acts with certainty and accuracy but also with swiftness and speed. Verification
need to be done. Confirmations need to be made. And always, the need is
immediate/urgent. Celerity and Certitude, therefore are C’s which are critical to the
credit man’s job.
8. Contact. Again in connection with the credit approval process, particularly the
gathering and verification of credit information, and even though the later exercise of
collection, another important C comes to the foreign contact. The credit man must
have a good contact. He must have a good public relations both within and outside
business organization.
9. Cost Consciousness. The next C stands for cost-consciousness. If we are to review

the objectives of credit we will recall that one of its principal objectives is the
minimization of cost. Minimum production cost in credit evaluation. Minimum cost in
remedial account management. And the overriding purpose for all these, of course, is
the maximization of profits.
10. Character. A good credit man must also have character. Honesty, integrity,
reliability. We believe we are all agreed on this, but in addition, I say that a credit man
sometimes need to be a “character.” And the reason is pretty obvious. He sometimes
has to be, if he is to cope up with clients who turn out to be “character” Only a
“character” can deal effectively with “characters.”
11. Confidence. Credit is said to be based primarily on trust and confidence, i.e., trust
and confidence reposed on the debtor by the creditor. Actually, confidence should
work both ways. The debtor should also have trust and confidence in his creditor as
personified by the credit man. Only where there is reciprocity of confidence will
mutual understanding and mutual respect characterize the relationship between the
credit man and the customer.
Speaking of confidence, it is important that the credit man must have confidence in
himself.
12. Computer literate. The credit man must have at least some basic knowledge of
computers and the ins and outs of information technology.
13. Congeniality, etc. The next group fo C’s actually refer to personal characteristics,
namely congeniality, charming personality, cleanliness and courage. By cleanliness is
meant that a credit man must be grooming, and grooming means concern for the
overall. By courage, we mean that while credit man often encounters pressures, he
should be cool and calm and deliberate, but certainly mus be firm and
uncompromising.
14. Considerateness. Then, of course, the credit man must be considerate. He must
realize that he is dealing with human beings and therefore must have regard of other’s
feelings. The off quoted golden rule is a handy thought to ponder upon all the time
Considerateness is often brought to bear in collection efforts. In this connection it

must be borne in mind that failure of a debtor to pay is not always the result of deceit
or fraud, in many cases, it seems from legitimate reasons. In such cases, it is
incumbent upon the credit man to extend assistance to the customer.
15. Common sense. The last C, but certainly not the least important, is common
sense. In credit and collection management - and in any field of endeavor for that
matter common sense is a must.
Credit men, with the possible exception of a few who have been privileged to be
schooled abroad, never had the opportunity of learning their craft in college or in the
university. Even the credit men of the highest local multinational companies learned
the tricks of the trade not from scholastic training but directly from the university of
experience.
In sum, the good credit manager must possess the following essential traits and
characteristics:
1. Poise, necessary to relate well with customers and an understanding of business
psychology. He must be able to match an understanding of customer motivations with
the manner and method of his approach.
2. Good articulation to effectively communicate in a variety of media - letter phone

and personal interview.
3. An aggressive attitude capable of maintaining persistent and continuous follow-up

of the credit and collection problems - in recognition of the relatively short time frame
available for accomplishment such a posture is necessary to meet the demands of the
market place (customer delivery requirements for the products) to speed the flow of
cash from the receivables investment; and protect this investment from loss.
4. Analytical mind
5. Academic experience and/or indicated interest should be in the subject areas related
to credit - corporate finance, accounting, business law and economics
6. Personal ambition necessary to achieve committed goas
Additionally for the credit manager he must have a professional grasp of the subject
matter pertinent to the activity he supervises. He should be a =financial executive of
experience acumen and initiative, able to capably represent his company and function
to the management of the customers as well as within his company.
Position Summary
The Credit and Collections Manager is an integral member of the controller’s group,
protecting the financial assets of the company within accounts receivable. This person
is responsible for managing receivables, ensuring SOX compliance in the department,
and reporting corresponding results. This position partners with customer service,
sales, accounting and senior business leaders to deliver exceptional cash management
and business process improvements via the Crane business system.
Responsibilities and Duties
 Responsible for the accurate and timely activities of the Accounts Receivable
and Credit and Collection functions of the company according to established
policies and procedures.
 Provide management with complete and accurate records of Accounts
Receivable.
 Extend credit to customers in accordance with established policies and
procedures to adequately protect the company’s investment in Accounts
Receivable.
 Maintain a systematic program that accurately documents the collection of
customer accounts.
 Supervise and direct employee activities in your department including
employee performance evaluations, discipline, communications, and
assistance with questions and problems.
 Leads Sarbanes Oxley (SOX) compliance and reinforces internal controls.
 Champions continuous improvement initiatives and drives business processes
improvements via Crane business system
Qualifications and Competencies
 B.S. degree in accounting, business or related field

 Minimum 3-5 years of experience in credit and collections field
 Minimum 2 years of supervisory experience
 Ability to work in an environment of strong internal controls
 Excellent verbal and written communications skills
 Working knowledge of any major ERP system
Week 2: MODULE 2
2nd major assessment
100 points
Self check activity:
1. What is the current status and function of a credit manager?

2. Why is it necessary for a credit manager t understand business and the world
around him?
3. Why is there a need for the credit manager to contribute in the overall company
planning and thinking towards the future?
4. What and explain a personal characteristics of a credit manager?
5. Discuss the business and social status of a credit manager.
6. 7, 8 9, 10. discuss individually at least five (5) Cardinal C of a credit man.
Point value 5 4 3 2
details that relate
to the topic;
conclusion is
recognizable
Main points,
body paragraphs
topic to the topic
explanations
Structure of ideas,
flow of ideas,
transitions
of ideas examples.
Word choice,
writing patterns,
pleasing variety structure; good adequate word contains
sentence variety
in sentence word choices choices inappropriate
word choices
Grammar/syntax
functionalism
spelling
standard English
usage
- End of module 2 -
Module 3
Credit and Collection Policy
LO1. Discuss the credit and Collection Policy

4. What to include in a credit and LO1 Determine what to include in a
collection policy credit and collection policy
5. The credit cycle LO2 Discuss the credit cycle
6. The factors that affects decisions LO3 identify the factors that affects
decisions

.5 hours topic 1 module module 3 topic 1
(4.5 hours 3, topic 1
asynchronous
for category 1)
2.5
category 2&3)

(4.5 hours topic 2 module 3, topic 2. module
asynchronous 3, topic 2
for category 1)
2.5
category 2&3)

(4.5 hours topic 3, module 3, topic 3. module
asynchronous Answer 3rd Major Answer 3rd Major 3, topic 3.
for category 1) Assessment. Please be Assessment. Log in to the open
2 hours (synchronous/ guided with the Please be guided with LMS
2.5 rubric provided. the rubric provided or and answer 3rd Major
hours asynchronous for Compile to log-in to the open Assessment page.
category 2&3) ePortfolio LMS. Please
be guided with the
rubric
provided.
Topic 7
What to include in a Credit and Collection Policy
WHAT TO INCLUDE IN A CREDIT AND COLLECTIONS POLICY
A credit and collections policy ensures that every collector is making the same
decisions when it comes to managing accounts. If one collector is allowing customers
to go further past due than another, your accounts receivable department will suffer. If
difficult accounts aren’t being escalated to a credit manager, you have no
transparency into why you aren’t collecting on all your invoices. A credit and
collections policy keeps everyone on the same page, which is vital to an accounts
receivable department working at top performance.
Your credit and collections policy can be as in depth or as brief as you would like, but
keep in mind that even the most basic policy should help a company answer the
following questions:
o What is the purpose of the policy?

o What are the goals of the credit department?
o How will those goals be measured?
o Who is responsible for what?
o What is the credit evaluation process?
o What is the collections process?
As you work through to build each section of your policy be sure to answer the above
questions to help guide your sales and collections department. A solid credit policy
will include the following sections:
MISSION STATEMENT
A well crafted mission statement will define the purpose of the credit department and
provide a general, long-term focus for the department as a whole. Be sure this
statement aligns with the corporate mission, is specific to your industry, and has input
from upper management as well as the sales and finance departments.
DEPARTMENTAL GOALS
What is the objective of the credit department? What is the long-term goal and what
are the short term goals that will help you work toward it? Be sure these goals are
measurable. Some examples might be:
o To have a collection effectiveness index of X%
o Average days sales outstanding to be X days
o A bad debt write-off of X%
Be sure to research industry averages as you define your goals to ensure your goals
are on target with your specific industry. This will also help you benchmark and
compare yourself to your competition.
ROLES AND RESPONSIBILITIES
In this section you will describe the different roles of the department, who reports to
whom, and who is responsible for what. Some of the roles you will want to define
include:
o CFO
o Credit manager
o Invoicing manager
o Collections manager
o Credit analyst
o Billing clerk
o Collection specialist
o Collections manager
PROCEDURES
This is the real meat of your credit policy. Here you will define the rules that apply to
all customers (with as few exceptions as possible) to guide your sales and credit
department. You want these rules to be flexible but not vague or open for
interpretation. Some of the procedures you will want to define and explain include:
o Evaluating the creditworthiness of new customers and reevaluating that of

current customers
o Terms and Conditions of sale
o Invoicing
o Collections procedures
o Disputes and deductions
o Credit holds
o Payment plans
o Write-offs
o Third party collections
o Law suits
Topic 8
The Credit Cycle
Below is a credit cycle to guide the credit man in the planning
The Credit Cycle
Market planning and control Effective market size of partially affected

by terms extended to customers and
credit policies of the company
The current cycle and credit The problem of cash flow and the are part
of the credit responsibility
The cost of borrowing and credit Credit policies must consider the
inevitable problems of cost of money and
the efficiency in the utilization of funds.
Profitability and credit Credit efficiency affects the ultimate
goals of profitability. The problems of
money and costs are aggravated by
receivable write-off
a. The effective credit man should view his responsibility from the broader
perspective of the key objectives of the company.
b. The concept of sound financial management incorporates the broad aspects of
credit management.
c. The credit man cannot “insulate” himself for the problems of marketing and sales.
d. The credit man who has direct contact with the market must consider a PR
representative of the company.
Before going any further in the presentation of credit and collection policies, it is best
to know the basic reasons why CREDIT BUSINESS IS GOOD BUSINESS.
1. Credit customers ordinarily do most of their trading with the store where they have
the account.
2. Credit customers are not so price-conscious as cash customers.
3. Credit customers do not shop around so much. They buy the article they need and
move on.
4. Credit customers can be sold more than cash customers. It is so easy to say “charge
it”
5. Credit customers (if selected well) are among the best people in town and have
more money to spend.
6. Credit customers is not so competitive from a price viewpoint and stores don’t need
so many specials and price-cutting events but advertise merchandise service and
quality instead.
7. Credit customers stay with a store for a longer period of time, for years, if they are
treated well.
8. Credit customers all have an ascertainable credit limit, and if kept within it, their
accounts are practically as “good as gold.”
9. Credit customers even marginal cases, can, with the credit business’ system of
account control be induced to pay their bills promptly.
10. Credit customers who fail to pay will be billed a small percentage of the total
business produced as outlined above, that the merchant could lose more than that
amount and still do a profitable credit business.
11. Credit customers are your customers! Cash customers are anybody’s customers.
Specifically on installment sales, the National Retail Credit Association of St. Louis
Missouri, USA made a study on the subject in the Small Marketers Aid. The result of
which is reproduced hereunder since it contains information on installment selling
applicable also to Philippine business.
“installment selling can only help small marketers to increase their sales and profits.
In some cases it can give an edge over competition. In all cases, it carries certain
operating expenses and creates problems which are not present in cash sales.
This aid discusses questions small marketers need to answer before deciding whether
to offer installment selling. Among them are:
1. What goods am I offering?

2. What type of credit do my customers want?
3. What are my financial resources?
4. Are my competitors offering installment credit?
5. What laws regulate installment selling?
When a store or service establishment offers installment selling it is offering long-

term credit - credit stretched out to 90 days or longer - rather than 30-day credit. In
installment credit the customer normally makes a down payment and signs a contract
to pay a certain amount at stated intervals.
Topic 9
Today more and more retailers appreciate the fact that installment customers can be a
valuable sales-producing group. However, before you can decide whether to use
installment selling, you have to consider several factors.
Kinds of goods sold - the majority of goods sold on installment terms are durable
items, of high unit value, and often have a repossession value. Ordinarily, goods for
immediate or temporary use should not be sold on long-term credit. The reason: the
customer begrudges allocating a slice of his income for merchandise he has used up
almost forgotten.
Customers’ desire - do your customers really want installment credit? If you are
running a small variety store or a pastry shop, chances are your customers do not want
it.
On the other hand, if you are selling repair services, say television and air
conditioning, perhaps, your customers do want installment credit. They might prefer
to pay the major repairs by the month.
Financial resources available - installment credit means longer credit transactions

and longer repayment periods than if you are selling on a 30-day charge account.
Your accounts receivable will turn over relatively fewer times. So unless you can get
additional money you may run short of cash.
However, there are institutions which specialize in financing installment sales may
small marketers prefer to sell these installment contracts to such institutions.
Action of competitors - selling on installment credit is one way to attract sales

customers. Your competitors may be offering this service already but you might have
to do it, too. Can you make your plan more attractive than theirs?
Regulatory laws - the Philippine Government has statutes special or regular directly
related to installment selling. While most of the laws still apply only to motor vehicles
more and more are being written with all goods coverage.
Policies of installment credit
MEASURING RESULTS
It is important to measure the effectiveness of your credit department regularly; at

least once every quarter. The metrics you are measuring would align with the goals
you set in section two. So if your goal was to reduce DSO by X% how close are you
to that percent? What can you do to get there? Your policy should be a living
document, if you find you are struggling to meet your goals, make changes to your
policy until you find what works for your specific organization.
Most businesses have a written credit policy. It spells out who gets how much credit,
for how long, and under what conditions. However, some of the same businesses fail
to back their credit policy with a written collection policy, which takes effect when a
receivable becomes past due or a check bounces.
Four Elements for Success
1. Consistency and Credibility

Your business needs to maintain one consistent attitude when dealing with people
who owe money. Oftentimes,
the owner of the business defines and dictates the attitude to be replicated by all
employees. Collectors need
to know that the attitude will be supported up and down the line by all others whom
come into contact with
debtors in various capacities. If this fails to happen, the collectors’ credibility will be
diminished in the debtor’s
mind.
2. Dealing with Debtors

Your collection policy needs to reflect:
· Who is authorized to negotiate, and
· Who is allowed to make exceptions
Collectors must understand how much flexibility they have in dealing with debtors.
Can they arrange or alter installment payment plans, reduce the amount due under
certain circumstances, change the due date, forget a debt entirely, or hold out for
payment in full? It’s important that a collector knows these answers prior to
negotiating with debtors since any hesitation on their part can weaken their position.
Exceptions need to involve everyone, especially the collector. A key part of this is
eliminating unilateral decisions from up the line. For example, consider a debtor who
doesn’t like that a collector is requiring payment in full. The debtor may then go
directly to the owner/manager who, without informing the collector, unilaterally tells
the debtor to forget the debt. The owner/manager does this to eliminate an
uncomfortable situation. This quick “fix” can and will, however, put the breaks on
your collection efforts.
3. Practices Within the Policy

You need to determine what sort of practices your policy will include for dealing with
debtors. While the possibilities available to you are endless, consider the following
questions:
Will you put messages on your past due statements?
Will you use collection letters?
Will you use the telephone?
Will you talk to debtors in person when they visit your business?
Will you go to debtors and talk with them face-to-face?
Your answers to these questions help define your business’s attitude toward debtors
and help create your collection policy.
4. Enforcing the Policy
A collection policy is only as strong as your willingness to enforce it. And, you will
need to enforce it. Unfortunately, some people will not pay you unless you take
action. These people have little interest in maintaining a business relationship and are
the very people you want to collect from the most. This is when you need to review
all the possibilities open to you regarding enforcement. Considering practical, ethical,
legal, and business factors, you need to answer the following questions. Can you do
it? Are you willing to do it? Are there ethical problems in doing it? Is it legal to do it?
Would the action(s) do more harm than good to your business? Are you willing and
able to:Erase the deal? This includes repossessing products or rendering previous
services unusable (such as disconnecting utility service), if applicable. Stop service?
This involves withholding future services (or requiring payment prior to service),
discontinuing delivery, or reducing the level at which products or services are
available. Charge a penalty?This includes interest charges and billing fees.Impact
credit? This includes accurately reporting your experience to credit bureaus, which
affects the debtor’s ability to obtain credit.Hire an agency? This includes outsourcing
accounts to an agency for professional collection.
Week 3: module 3
3rd major assessment
Self check activity:
100 points
Self Check Activity:
Explain briefly each of the following reasons why credit business is good business1.
1. Credit customers ordinarily do most of their trading with the store where they have
the account.
2. Credit customers are not so price-conscious as cash customers.
3. Credit customers do not shop around so much. They buy the article they need and
move on.
4. Credit customers can be sold more than cash customers. It is so easy to say “charge
it”
5. Credit customers (if selected well) are among the best people in town and have
more money to spend.
Case study:
The case of the returned collateral
In 1962, Company XYZ a domestic Corporation engaged in marketing of
named brand hardware items, extended a credit line up to P20,000.00 to company
ABC. Company ABC was a medium-sized corporation based in Davao which has
been in business for the past 15 years. To secure the credit line, company ABC
offered, and company XYZ accepted, a pledge of PW & ED bonds worth P25,000.00
owned by Mr. B, a majority stockholder of Company ABC. Once the credit line was
established, Company ABC started purchasing hardware items from company XYZ.
At the start, the 30-day credit term was faithfully complied with. As a matter of fact
there was times when credit extensions exceeded the P20,000.00 credit limit but the
accounts were paid in good order.
However, in 1965, several business reverses forced company ABC to renege in
its credit commitments. The payments that usually came within 30-day credit term
began to falter. There were times when accounts would be outstanding up to 60 days,
and sometimes even 90 days. Anyway, the accounts was still moving until late 1966
when company ABC could no longer keep up its payments and thus company XYZ
suspended credit.
Meantime Mr. B through his emissary, made representations with company XYZ,
to withdraw the PW & ED bonds for purpose of having them replaced with a new
series which yielded a better rate of interest. Because of the intimacy of Mr B. with
company XYC, the PW & ED bonds were released to him upon upon the later giving
a receipt which simply stated: RECEIVED PW & ED NO. 123 AND 345 WITH
FACE VALUE OF P25,000.00 TO BE EXCHANGED UPON CONVERSION TO
7% NEW BONDS,”
Shortly thereafter, company ABC filed voluntary insolvency proceedings. An
earlier civil case for collection filed by Company XYZ to recover the outstanding
obligation of company ABC amounting to around P19,000.00 proved to no avail. The
writ and execution was returned unsatisfied for the reason that company ABC had no
more assets to satisfy the same.
Therefore, company XYZ turned to Mr. B who, after one year, has not compiled
with his commitment to replace the release PW & ED bonds. To its dismay, company
XYZ verified from the Central Bank that the bonds has been encashed. For with
company XYZ sued Mr. B for damages claiming that had he not fail with
commitment to replace the bonds, he would not have suffered the loss corresponding
to the unpaid obligation of company ABC. In his defense, Mr. B cited Article 2110 of
the civil code which provides.
If the thing pledged is returned by the pledgee to the pledgor or owner, the
pledge is extinguished. Any stipulation to the contrary shall be void.
Company XYZ, countered by saying that the return of the bonds to Mr. B was not
the return contemplated by Article 2110 as it was made for a specific and definite
purpose. For exchange with a higher yielding bond.
After trials, the lower court rendered judgment in favor of company XYZ and
against Mr. B. it ruled that the return of the bonds was not the return contemplated
under Article 2110 of the Civil Code. Further, it ruled that Mr. B acted in bad faith in
having encashed the bonds contrary to his commitment to replace the same and to
submit the bonds to company XYZ. Mr B appealed the decision.
Requirement:
4. Times new roman 12 short
5. To be submitted on or before midterm through email (nterrora@gmail.com)
6. Strictly follow this format
f. Background of the case (summary)
g. Statement of the problem (only one main problem)
h. Alternative courses of action (minimum of three and a maximum of five)
i. Recommendation
j. Conclusion
Point value 5 4 3 2

details that relate
to the topic;
conclusion is
recognizable
Main points,
body paragraphs
topic to the topic
explanations
Structure of ideas,
flow of ideas,
transitions
of ideas examples.
Word choice,
writing patterns,
pleasing variety structure; good adequate word contains
sentence variety
in sentence word choices choices inappropriate
word choices
Grammar/syntax
functionalism
spelling
standard English
usage
- End of module 3 -
Module 4

LO1. Discuss Daily recording of Business transactions

1. Daily recordingof business LO1 Discuss the daily recording of
transactions business transactions
2. Recording a cash register receipt LO2 Simulate a cash register receipt
3. How to record payments in accounting LO3 Simulate how to record payments in
accounting

.5 hours topic 1 module module
(4.5 hours 4, topic 1 4, topic 1
asynchronous
for category 1)
2.5
category 2&3)

asynchronous module 4, topic 2.
for category 1)
2.5
category 2&3)

asynchronous module pages 14 to 17. 4, topic 3. Log in to the
for category 1) Answer 4th Major Answer 1 st Major open LMS
2 hours (synchronous/ Assessment. Please be Assessment page 18. and answer 4th Major
2.5 guided with the Please be guided with Assessment. Please
hours asynchronous for rubric provided. the rubric provided or be guided with the
category 2&3) Compile to log-in to the open rubric
ePortfolio LMS. provided.
Topic 10

While few entrepreneurs start their own businesses because they're fond of paperwork,
recording your day-to-day sales, purchases and other transactions is a must. Learn where
to record what, and how often to do so.
Control of your financial record keeping begins with accurately recording pertinent
transactions. You need to record:
 Sales and revenue transactions, including cash transactions
 Accounts receivable, if you extend credit to your customers
 Accounts payable, if you purchase from your suppliers on credit
 Summaries of transactions in your general ledger
Consider Separate Accounting for Different Product Lines

If you have more than one product line or department, you may want to keep a separate set
of books for each. Many entrepreneurs find separate accounting provides more meaningful
information for their products. The practice may reveal that one product line or department
is profitable and another is not.
Unfortunately, it may be difficult to keep a separate set of books for each product line or
department. For example, some or all expenses may not apply to only one department, but
must be allocated among departments. You should seek the advice of an accountant before
setting up an accounting system of this nature.
Selecting the Right Accounting Software
Shop around for the right accounting software, and be sure to ask for your accountant's
opinion. With so many options like QuickBooks, MYOB, Peachtree, as well as online
options, take the time to consider the pros and cons of each.
While many accountants will do their best to accommodate their clients' already installed
software, their experience with companies of you size and (hopefully) your industry will
provide real insight. Ask your accountant for recommendations prior to investing in a
system. If your accountant knows the software you've chosen, he or she will probably help
you set it up.
If you have employees, your chosen software should permit the use of passwords to
control access to all or some of your accounting transactions. In order to prevent
irregularities by your employees or others, it's wise to restrict access to your accounting
records.
Whether your operate your business as a sole proprietorship, partnership, or corporation,
always keep your personal transactions separate from your business transactions in your
accounting software. Using business funds to pay for personal expenditures complicates
your record keeping and can lead to serious tax problems. It can also result in some hefty
accounting fees as you pay your accountant to sort it all out.
Maintaining Sales and Cash Receipts Journals

You record daily sales in a sales journal. To simplify your bookkeeping, we recommend a
combined sales and cash receipts journal. With a journal that combines sales and cash
receipts, you record all sales (cash and credit) and all cash receipts, including collection
of accounts receivable, in one journal, which your software should be able to
accommodate.
Entries in your sales and cash receipts journal come from the source documents you use in
your business every day. These documents are sales invoices, daily cash register totals,
daily cash sheets and daily sales registers.
Keeping Tabs on Sales Invoices
If you use sales invoices, you will post the information from each invoice to an entry in the
sales journal. If you maintain customer charge accounts, you will also be posting entries to
the accounts receivable ledgers so that each customer account is up-to-date. Sales invoices
should be numbered.
While you can store paper copies in file cabinets, tracking invoices digitally makes much
more sense.
If you prefer a paper method, prepare two copies at a minimum: one copy for the
customer, one for you. Preferably, you should prepare the invoices in triplicate, with two
copies retained by you. File one by customer name, the other by invoice number. Include
canceled or voided invoices when filing by number so you can account for all of them.
Whether digital or paper, the invoice should show:
 The date of the sale
 Quantity, if applicable
 Price or rate
 An extension column, if applicable (quantity multiplied by price)
 A payment due date
Don't worry about creating a sales invoice template. Most office suites (such as Microsoft
Office or OpenOffice.org) contain a number of invoice templates that may be used as a
starting point to design your own sales invoice. And a quick "sales invoice" Google search
will surface free templates on a number of websites.
Topic 11
Recording a Cash Register Receipts
Recording Cash Register Receipts

If you use cash registers, daily sales can be totaled on the register. Most cash registers
produced within the last decade should be able to separately record cash sales and charge
sales, and keep track of sales tax.
Some should also be able to record cash received on account. At the end of the business
day, record your cash register totals in the sales journal.
Example
Say you total the cash registers of your automotive supply store at the end of the day. The
totals show cash receipts of $1,640, cash and charge sales of $1,325 and $450,
respectively, which include sales tax of $75, and $315 received for payment on customer
charge accounts. You will make the following entry in your combined sales and cash
receipts journal:
Debit Credit
Cash 1,640
Accounts receivable 450
Sales 1,700
Sales tax payable 75
When you become more comfortable with bookkeeping entries, you could simplify the
above entry slightly by "netting" the change in accounts receivable for the day:
Debit Credit
Cash 1,640
Sales 1,700
Sales tax payable 75
Opting for Cash Sheets in Lieu of Registers

If you don't use a cash register, you can record cash receipts on a daily cash sheet and
record sales on a columnar sales register. The sales register is simply a record of each sale
for the day. Total the cash sheet and sales register at the end of every day. Enter the totals
in the sales and cash receipts journal.
A variety of different types of sales journals and cash receipts journals are available. To
simplify your bookkeeping, we recommend a combined sales and cash receipts journal.
If you are going to be recording sales and cash receipts manually in a journal, visit an
office supply store. They will have many different kinds for you to choose from. Look at
the different column headings, and choose the one that best meets the needs of your
business.
If you will be using computer software, you probably won't have to decide which type of
journal to use. Your program will probably have some type of sales and cash receipts
journal, but may allow you to customize it based on your type of business.
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Topic 12
How to Records Payments in Accounting
How to Record Payments in Accounting?
Recording payments in accounting can otherwise be referred to as “accounts

payable,” which means the total amount a given company owes to companies or
suppliers for products or services. Furthermore, the accounts payable balance is
reflected in the balance sheet, specifically in the current liabilities section, and
includes all invoices that are due to be paid.
For example, a company that just purchased its office supplies from Company B and
received an invoice of $500 should record the amount in its accounts payable sub-
ledger and pay it on or before the due date to improve its cash flow and avoid late
penalty fees.
Accounts Payable vs. Accounts Receivable
Accounts payable and accounts receivable are accounting concepts used in accrual
accounting to record transactions when cash is not exchanged. Accounts payable are
recorded by a company when it purchases goods and services on credit and will make
payment in a future period. Accounts payable are considered current liabilities of the
company.
Accounts receivable is the opposite, as it is where a company records the sale of its
goods or services to another but has not yet collected any funds. Accounts receivable
are considered current assets of the recording company.
Example of How to Record Payment in Accounting
Let’s say a company called Bags Unlimited sold 100 nylon bags to Company B, and
both companies agreed on a certain payment due date. Bags Unlimited sends
its invoice and writes the due date as December 15, as agreed by both parties. It
records the transaction as an accounts receivable while Company B records it as an
accounts payable.
Is Accounts Payable a Debit or a Credit?
The question above does confuse some due to the terminology used in accounting. For
example, accounts payable are considered a debt of a company because they involve
the purchase of goods on credit. However, in double-entry accounting, an increase in
accounts payable is always recorded as a credit.
Credit balance in accounts payable represents the total amount a company owes to its
suppliers. Once the invoice is received, the amount owed is recorded, which
consequently raises the credit balance.
When the invoice is paid, the amount is recorded as debit to the accounts payable
account; thus, lowering the credit balance. The higher the accounts payable, the
higher its credit balance is, and the lower the accounts payable, the lower its credit
balance.
The Accounts Payable Process
The accounts payable process looks like an easy task, but it entails very careful
scrutiny of invoices because the slightest errors can spell huge losses for a company.
In fact, all companies, especially the big and long-standing ones, need to adopt an
automated accounts payable system to make sure the following process is accurately
performed.
1. Receipt of an invoice
The first step is the receipt of the invoice, which can be done through various
channels such as by email, fax, or courier.
2. Forwarding to the right individual
Because it can just arrive by mail or through the company’s email, it must be
forwarded to the appropriate person, who may be the accountant,
manager, bookkeeper, or the accounts payable specialist, if there is such a position.
3. Inputting of details
Once it reaches the hands of the correct person, the details of the invoice are then
inputted into a file such as a spreadsheet or an accounting system, which is saved.
4. Approving invoices
The approval of invoices is very crucial. Ideally, before payments are made, every
invoice should go through rigid scrutiny to ensure that all invoices are valid and
authorized. In fact, there are various points that need to be checked specifically,
including:
 Pre-approval of the expense or the purchase order issued by the company

 The arrival of the goods purchased before the payment is to be made
 The singularity of the invoice
 Contracts and agreements with suppliers
5. Issuing of checks
After the steps are completed and the invoice’s been verified, the accountant creates
the checks and specifies the amount to be paid on each check. They are sealed in
envelopes, labeled with the appropriate addresses, and sent to the intended recipients.
The above steps are in a manual accounts payable system. Because it is very tedious
and time-consuming, with a high probability of errors, an automated system is highly
recommended.
Characteristics of a Well-run Accounts Payable System
An accurate accounts payable process results in accurate financial statements that

ultimately lead to the success of a company. A well-run accounts payable system
exhibits the following characteristics.
 Legitimate invoices are processed, not just accurately but timely as well.
 Invoices are recorded in the correct accounts.
 Unprocessed expenses are adjusted.
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What Is a Loan Receivable?
Financial institutions account for loan receivables by recording the amounts paid out
and owed to them in the asset and debit accounts of their general ledger. This is a
double entry system of accounting that makes a creditor’s financial statements more
accurate.
NOTE: FreshBooks Support team members are not certified income tax or
accounting professionals and cannot provide advice in these areas, outside of
supporting questions about FreshBooks. If you need income tax advice please
contact an accountant in your area.
What Is a Loan Receivable?
A loan receivable is the amount of money owed from a debtor to a creditor (typically
a bank or credit union). It is recorded as a “loan receivable” in the creditor’s books.
How Do You Record a Loan Receivable in Accounting?
Like most businesses, a bank would use what is called a “Double Entry” system of
accounting for all its transactions, including loan receivables. A double entry system
requires a much more detailed bookkeeping process, where every entry has an
additional corresponding entry to a different account. For every “debit”, a matching
“credit” must be recorded, and vice-versa. The two totals for each must balance,
otherwise a mistake has been made.
A double entry system provides better accuracy (by detecting errors more quickly)
and is more effective in preventing fraud or mismanagement of funds.
Let’s give an example of how accounting for a loans receivable transaction would be
recorded.
Let’s say you are a small business owner and you would like a $15000 loan to get
your bike company off the ground. You’ve done your due diligence, the bike industry
is booming in your area, and you feel the debt incurred will be a small risk. You
expect moderate revenues in your first year but your business plan shows steady
growth.
You go to your local bank branch, fill out the loan form and answer some questions.
The manager does his analysis of your credentials and financials and approves the
loan, with a repayment schedule in monthly installments based upon a reasonable
interest rate. You are required to pay the full loan back in two years. You walk out of
the bank with the money having been deposited directly into your checking account.
The bank, or creditor, has to record this transaction properly so that it can be
accounted for later, and for the bank’s books to balance. The manager records the
transaction into the bank’s general ledger as follows:
 Debit Account. The $15,000 is debited under the header “Loans”. This means the
amount is deducted from the bank’s cash to pay the loan amount out to you.
 Credit Account. The amount is listed here under this liability account, showing that
the amount is to be paid back.
You, as head of the bike company, should also record this. Here is how you would
process the $15,000:
 Debit Account. You would record this loan payment to the company’s checking
account. This increases your cash balance on your balance sheet, and how much you
have available to spend. As such, sometimes a ‘debit’ account is referred to as a
‘cash’ account.
 Credit Account. Now you have a liability and it needs to be recorded here. Under
“loan”, you would record the $15,000 principal. You also need to include any bank
fees associated with it.
Why do two bookkeeping steps need to be included here? Because this money has to
be paid back. If you do an entry that only shows $15,000 coming in but doesn’t
account for the fact that it must be paid back out eventually, your books will look a lot
better than they are. The books also won’t balance.
Is a Loan Payment an Expense?

Partially. Only the interest portion on a loan payment is considered to be an expense.
The principal paid is a reduction of a company’s “loans payable”, and will be reported
by management as cash outflow on the Statement of Cash Flow.
Is a Loan an Asset?
A loan is an asset but consider that for reporting purposes, that loan is also going to be
listed separately as a liability.
Take that bank loan for the bicycle business. The company borrowed $15,000 and
now owes $15,000 (plus a possible bank fee, and interest). Let’s say that $15,000 was
used to buy a machine to make the pedals for the bikes. That machine is part of your
company’s resources, an asset that the value of such should be noted. In fact, it will
still be an asset long after the loan is paid off, but consider that its value will
depreciate too as each year goes by. The financial reports each year should reflect
that.
What Is the Difference Between Loan Payable and Loan Receivable?
The difference between a loan payable and loan receivable is that one is a liability to a
company and one is an asset.
LOANS PAYABLE
This is a liability account. A company may owe money to the bank, or even another
business at any time during the company’s history. This ‘note’ can also include lines
of credit. Those figures should be included here.
LOANS RECEIVABLE
This is an asset account. If you are the company loaning the money, then the “Loans
Receivable” lists the exact amounts of money that is due from your borrowers. This
does not include money paid, it is only the amounts that are expected to be paid.
4rth week: module 4

4rth major Assessment
100 points
Self check activity
1. Explain, is accounts payable a debit or credit?

2. Discuss a well run accounts payable system.
3. Pre-approval of the expense or the purchase order issued by the company
4. The arrival of the goods purchased before the payment is to be made
5. The singularity of the invoice
6. What Is a Loan Receivable?
7. How Do You Record a Loan in Accounting?
8. Is a Loan Payment an Expense?
9. Is a Loan an Asset?
10. What Is the Difference Between Loan Payable and Loan Receivable?
Rubrics for the case study
Point value 5 4 3 2

details that relate
to the topic;
conclusion is
recognizable
Main points,
body paragraphs
topic to the topic
explanations
Structure of ideas,
flow of ideas,
transitions
of ideas examples.
Word choice, and skillful; have varied may lack variety; hard to follow;
writing patterns, pleasing variety structure; good adequate word contains
sentence variety in sentence word choices choices inappropriate
word choices
Grammar/syntax
functionalism
spelling
standard English
usage
- End of module 4 -

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FM 328

CREDIT AND COLLECTION

College of Business Administration

FLEXIBLE LEARNING SYLLABUS

Module code FM 328

Module 1- Credit and Collection

Module 2- The Credit Manager

Module 3- Credit and Collection Policy

Module 4- Daily Recording of Business Transactions

Preparation and completion of periodical assessments.

Provision of feedback and assistance through one-on-one

Preparation to Answer to 10 essay question for its module (2hrs)

Assessment Major LO Point Week

Points Earned Grade Points Earned Grade

To pass this module, the learner must obtain at least 75 points.

Prescribed Terrora N.R.. (2020). Module on Credit and Collection

Prepared by: Date approved: Approved by:

Noel R. Terrora ____________________ Rosemarie C. Espanol CPA, DM

Topic Intended Learning Outcome

ILO Learning activities/resources

ILO2 Read module 1, Read the digital Read the digital

ILO3 Read module 1, Read the digital Read the digital

Of course, when we described credit in its negative connotations admittedly, there

As a logical consequence of above orientation collection lagged and foreclosures

2. TWO INSTALLMENT DEFAULT RULE UNDER CIVIL LAW (Art. 1484,

3. NO DEFICIENCY JUDGMENT RULE IN FORECLOSURE OF CHATTEL

4. OUR LAWS ON BOUCING CHECKS - Rarely, if ever can one secure a

5. OUR COURT PROCEDURES IN REPLEVIN CASES - Under our present

 To set up information for credit and collection management

 To update A/R information for credit and collection management

 To determine the average number of days a customer is late in paying invoices

 To locate summarized information about the status of an account

 To review and work customer accounts for credit management

 To create credit reporting tapes

 To review and work past-due accounts for collection management

 To print credit and collections reports

About Credit and Collections Management

Credit and collections management consists of:

 Setting up credit and collection information

 Updating A/R information for customer analysis

 Determining average days late

 Reviewing account status information

 Managing credit information

 Creating credit reporting tapes

 Managing collections information

 Printing credit and collections reports

 Credit collection- connotation

Credit collection- connotation

Credit collections management

Credit Collection Functions

An organization designates the credit collection function to be either centralized or

Collection functions must include built-in controls. An organization adds controls,

Handing Over Accounts

Case study (50 points)

Rubrics for the essay

Well developed Introduction Introduction Collection of

Module Learning Objective/Outcome:

Topic Intended Learning Outcome

ILO Learning activities/resources

ILO2 Read module 2, Read the digital Read the digital

ILO3 Read module 2, Read the digital Read the digital

The Credit Manager

Current Status and Functions of Credit Manager