Credit Management Practices of Selected Businesses in Tuguegarao City Post Defense Edit 1

St.
Paul University Philippines

Tuguegarao City, Cagayan 3500
CREDIT MANAGEMENT PRACTICES
OF SELECTED BUSINESSES IN TUGUEGARAO CITY
_______________________
A Research
Presented to the Faculty of School of Business,

Accountancy, and Hospitality Management
St. Paul University Philippines
_______________________
In Partial Fulfillment
of the Requirements for the Degree
Bachelor of Science in Business Administration Major in

Financial Management
________________________
By:
Kim A. Capistrano
Rachelle C. Eugenio
Kalehla H. Golino
Lynie Kaye B. San Juan
January 2022
1
Approval Sheet
In partial fulfillment of the degree of Bachelor of Science
in Business Administration major in Financial Management,
this thesis entitled “Credit Management Practices od
Selected Businesses in Tuguegarao City” has been prepared
by Kim A. Capistrano, Rachelle C. Eugenio, Kalehla H.
Golino, and Lynie Kay B. San Juan, who are hereby
recommend for oral examination.
MR. RUFO TUDDAO, MA

ADVISER
Approved by the tribunal oral examination with a
grade of _____.
NAME OF EXAMINEES
MS.SHIRLEY ENRIQUEZ MS.MARJORIE BAMBALAN

MEMBER MEMBER
DR. CHARITO GUILLERMO, CPA

CHAIRMAN
Accepted and approved in partial fulfillment of Bachelor of
Science in Business Administration major in Financial
Management.
DR.JUVIE BACANI, MBA DR. CHARITO GUILLERMO

Associate Dean, SBAHM Dean, SBAHM
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Abstract
This study reports on the “Credit Management Practices
of Selected Businesses in Tuguegarao City.” This research
utilizes the descriptive survey method in gathering the
data. A total of twenty-five (25) credit managers or
business owners of credit engaged selected businesses were
the participants of the study. The main data collection of
the study was survey questionnaire.
Most of the participants were male, who are 30 years
old and below, married and college graduate. The business
participants were mostly corporation, service business, had
been operating for 5-10 years and have less than 10
employees. The study looked into the participants’ extent
of implementation of their credit management practices on
credit granting, credit monitoring, collection process and
dealing with bad debts well. It was found out that the
participants implement all practices on all categories to a
very great extent, and it was also revealed there is a
significant difference to the extent of implementation of
the participants when they were grouped according to civil
status, form of business, nature of the business and number
of employees. The results also showed that the main problem
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encountered by the participants were mostly on
communication and the recommendation of the participants
focused on reminders to customers.
One of the recommendations was that the selected
businesses may continue doing and using the practices that
works best for their business and that brings the best
results that really helped and improved their business.
Another is that the credit managers or business owners may
explore more practices on dealing with bad debts for a
better extent of implementation. The conclusions that the
researchers came up were despite being relatively young
businesses, they have good credit management practices on
the following categories: credit granting, credit
monitoring, collection process, and dealing with and debts;
and dealing with bad debts was the category where all
businesses had difficulty in implementing.
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Acknowledgement
In the completion of this paper, the researchers would
like to express their gratitude to the following:
- Sir Rufo Tuddao, for guiding and helping us to finish
our study;
- Ma’am Cristie Suyu, for assisting and helping us when
we needed advice on our questionnaire;
- To the participants of this study, for giving their
time in answering our questionnaire;
- To our families, for supporting and understanding us
while we are conducting our research; and
- Above all, to the Almighty God, for giving us the
strength, courage, patience, discipline and wisdom to
make this research possible.
The Researchers
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Dedication
This humble piece of work is dedicated to the
following:
To our parents, who guided the researchers and gave
their full support physically, financially, emotionally,
and spiritually.
To all our friends, who have been with us through
thick and thin. The researchers will not be able to finish
this study without their words of encouragement.
To our professors, who guided and shared their
knowledge to us in order to accomplish this study.
And most of all to our Almighty Father for giving us
wisdom, patience, perseverance and strength to finish this
study.
The Researchers
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Table of Contents
Title Page
Approval Sheet………………………………………………………………………………………………… ii
Abstract………………………………………………………………………………………………………………… iii
Acknowledgment………………………………………………………………………………………………… v
Dedication…………………………………………………………………………………………………………… vi
Table of Contents………………………………………………………………………………………… vii
List of Tables…………………………………………………………………………………………………… ix
List of Figures……………………………………………………………………………………………… xii
Chapter 1 THE PROBLEM AND REVIEW OF RELATED LITERATURE
Introduction………………………………………………………………………………… 1
Review of Related Literature and Studies……… 6
Conceptual Framework…………………………………………………………… 57
Statement of the Problem………………………………………………… 59
Hypothesis……………………………………………………………………………………… 61
Significance of the Study……………………………………………… 61
Scope and Delimitation……………………………………………………… 63
Definition of Terms……………………………………………………………… 64
Chapter 2 METHODOLOGY
Research Design………………………………………………………………………… 66
Respondents/Subjects of the Study ………………………

67
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Instrumentation………………………………………………………………………… 67
Data Gathering Procedure………………………………………………… 68
Data Analysis……………………………………………………………………………… 69
Chapter 3 RESULTS AND DISCUSSION……………………………………………………… 71
Chapter 4 SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATION…………………………………………………………………………… 104
References………………………………………………………………………………………………………………… 108
Appendices………………………………………………………………………………………………………………… 120
Curriculum Vitae………………………………………………………………………………………………… 129
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List of Tables
Table Title Page
Table 1 Frequency and Percentage Distribution of 71

Participants when Grouped According to Sex

Participants when Grouped According to Age

Participants when Grouped According to
Civil Status

Highest Educational Attainment

the Business Participants when Grouped
According to Form of Business

the Business Participants when Grouped
According to Nature of Business

Business Participants when Grouped
According to Years in Operation

Number of Employees
Table 9 Weighted Mean and Qualitative Description 77

of the Participants’ Extent of
Implementation of Credit Management
Practices in terms of Credit Granting
Table 10 Weighted Mean and Descriptive Description 79

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Practices in terms of Credit Monitoring

Practices in terms of Collection Process

Practices in terms of Dealing with Bad
Debts
Table 13 Summary Table on the Extent of 85

Practices by the Participants
Table 14 Analysis of Variance on the Significant 87

Difference on Participants’ Extent of
Practices When Grouped According to Sex

Practices When Grouped According to Age

Difference on Participants’ Implementation
of Credit Management Practices When
Grouped According to Civil Status

Practices When Grouped According to
Educational Attainment

Practices When Grouped According to Form
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of Business

Practices When Grouped According to Nature
of the Business

Grouped According to Years in Operation

Grouped According to Number of Employees
Table 22 Frequency and Rank Distribution of 99

Problems Encountered by the Participants
in Implementing their Credit Management
Practices.
Table 23 Frequency and Rank Distribution of 101

Recommendations or Suggestions to Improve
or Enhance Credit Management Practices
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List of Figures
Figure Title Page
Figure 1 Research Paradigm 58
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Chapter 1
THE PROBLEM AND REVIEW OF RELATED LITERATURE
Introduction
Consumer credit may seem like a fairly new invention –
but it’s actually been around for more than 5,000 years! In
fact, many millennia before the credit score became
ubiquitous, there is historical evidence that cultures
around the world were borrowing for various reasons
(Desjardins, 2017). It is widely observed how shopping has
become a trend to people nowadays. From traditional
shopping to online shopping, trends have evolved and so did
the modes of payment. But then, every person has different
financial capacity; just as we are of different classes in
the economy, our income varies accordingly. Due to this
varying financial capacity, companies giving credit has
become one of the modes of payment existing until now.
Credit has existed longer even before we came into this
world. It only proves that even in the past eras, there
were difference in people’s financial capacities, thus the
need for credit.
Since credit has something to do with money, banks and
financial institutions offered giving credit to their
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consumers. The term bank credit refers to the amount of
credit available to a business or individual from a banking
institution in the form of loans. Bank credit, therefore,
is the total amount of money a person or business can
borrow from a bank or other financial institution (Twin,
2020). Also, through this method, banks and financial
institutions earn their profit by giving interest rates.
Not only do they earn money, but they also help in
circulating the money resulting in a flourishing economy as
most of the people who loan money are businessmen.
Presently, banks are not the only ones who offer
credit to their customers. Clothing shops, electronic
stores, department stores and even restaurants do offer
credit. And in most cases, companies partner up with
financial institutions when giving credit for easier credit
collection. This is precisely due to the product of credit
and technology called ‘credit card’. By simply swiping this
card to a machine, you automatically borrow money from the
bank to buy what you want and pay it later. Technology has
certainly developed to make the lives of people easier and
thus, banking has been more accessible with the combination
of internet and banking which resulted in online banking.
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Just as there is online banking, there is also what we call
online shopping where it enables consumers to shop while
using their gadgets, and of course, one of the options in
payment is using the credit card.
Credit eventually expanded over to the business sector
resulting in a new type of credit: Trade Credit - credit
extended by a seller who does not require immediate payment
for delivery of a product - is an important source of funds
for business customers. (Elliehausen, G. & Wolken, J.,
1993). This is usually used by business as source of short-
term financing.
According to Kagan (2021) in Investopedia, Trade
credit can be thought of as a type of 0% financing,
increasing a company’s assets while deferring payment for a
specified value of goods or services to some time in the
future and requiring no interest to be paid in relation to
the repayment period.
Chan (2021) also stated that Financial institutions
have been preparing for greater credit risks since the
beginning of the pandemic with banks last Spring increasing
their bad loan reserves in anticipation of a rise in
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defaults. The pandemic struck most of us unprepared. Due to
this, many businesses went bankrupt, and economies took the
fall. Amid the pandemic, expenses continued to pile up and
naturally, the due dates of credits still came. Cole
(2020) defined risk management as the process of
identifying, assessing and controlling threats to an
organization's capital and earnings. These threats, or
risks, could stem from a wide variety of sources, including
financial uncertainty, legal liabilities, strategic
management errors, accidents and natural disasters. Risk is
a factor that always exist in business. In order to
minimize this, companies need to be prepared on what to
come thus risk management. By simply assessing the possible
factors that can affect the business, it enables companies
to determine what they should be prepared for. Naturally,
risk management also exist in giving credit.
In simple terms, credit risks are calculated based on
a borrower’s ability to repay the amount lent to them
(Clark, 2019). In order to manage risk, creditors or the
companies must assess the customer’s ability to pay when
applying for credit such as knowing their credit worthiness
and credit history.
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Flinn (2020) stressed that credit management is
important because it reinforces a company’s liquidity. If
done correctly it will improve cash flow and lower the rate
of late payments. It’s the difference between a high or low
DSO, amount of bad debt a financial portfolio presents and
even negative or positive customer relations.
Some businesses in Philippines also implement giving
credit as one of their mode of payments during their
operations. This type of credit is less formal than loans
in banks allowing the buyer and seller to reach a mutually
beneficial agreement, despite having some terms and
conditions. By implementing this, the buyers can buy
supplies or services on credit while at the same time, the
seller also attracts attention of other buyers by not
demanding cash up front.
In Tuguegarao City, it is widely observed that some of
the businesses, which has been operating for years, give
credit to their customers, may it be to an individual or to
a business. Hence, the researchers sought to know to what
extent is the implementation of their credit management
practices on selected businesses.
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REVIEW OF RELATED LITERATURE AND STUDIES
To gain better knowledge and understanding regarding
the management practices of small businesses on credit and
bad debts, different concepts relevant to the study are
gathered. The literature review of the study therefore will
focus on the basic concepts of the credit management
practices. It consists of the following: small business
overview, credit management practices, debt management
practices, problems encountered in the implementation of
practices, and recommended best credit management
practices.
A. Small Business Overview
According to ASQ, Small business is defined as a
privately owned corporation, partnership, or sole
proprietorship that has fewer employees and less annual
revenue than a corporation or regular-sized business. The
definition of "small"—in terms of being able to apply for
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government support and qualify for preferential tax policy—
varies by country and industry.
Different Structures by Business Partner Alliance:
Partnership - When ownership responsibilities are
shared among two or more people, a partnership can be
formed. There are three different types of partnerships
which you might choose from, including general
partnerships, limited partnerships, and joint ventures.
Limited partnerships reduce liabilities for one or more of
the people involved in the partnership, based on their
investment percentages. Joint ventures limit the
involvement of partners based on a specific time frame. For
a partnership to work effectively, it’s best if the people
involved know each other very well, and have had prior
professional dealings with each other.
Corporation - A corporation is a legal business entity
which is owned by shareholders, and which is responsible
for all debts and liabilities, even though shareholders own
the business. Corporations are generally well-established
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companies, since they are subject to costly administrative
fees and double taxation, both at the corporate level and
at the shareholder level. In order for a business to be
sold to public interests, it must be a corporation.
Sole proprietorship - This is easily the most popular
type of small business structure, with it being owned by
either a single person or sometimes married individuals.
Sole proprietors have far less tax responsibilities and a
good deal more flexibility to run their business. The
downside of a sole proprietorship is that you are
responsible for all debts incurred by the business, and
your personal assets are exposed in the event of any kind
of litigation.
Types of Small Businesses:
 A merchandising firm is one of the most common types
of businesses. A merchandising firm is a business that
purchases finished products and resells them to
consumers. Consider your local grocery store or retail
clothing store. Both of these are merchandising firms.
Often, merchandising firms are referred to
as resellers or retailers since they are in the
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business of reselling a product to the consumer at a
profit.
 A manufacturing organization is a business that uses
parts, components, or raw materials to produce
finished goods. These finished goods are sold either
directly to the consumer or to other manufacturing
firms that use them as a component part to produce a
finished product. Manufacturing firms apply direct
labor to raw materials in order to produce the
finished goods purchased from retailers.
 A service organization is a business that earns
revenue by providing intangible products, those that
have no physical substance.
Enterprises by business size
According to OECD.org in small and medium-sized
enterprises (SMEs) employ fewer than 250 people. SMEs are
further subdivided into micro enterprises (fewer than 10
employees), small enterprises (10 to 49 employees), medium-
sized enterprises (50 to 249 employees). Large enterprises
employ 250 or more people.
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However Abrugar (2013) stated that Micro
businesses usually employ less than 10 workers, while small
businesses employ 10 to 99 workers. Moreover, medium
enterprises employ 100 to 199 workers, while companies
employing 200 employees and above could be considered as
large businesses.
In conclusion, the participants for this study
will be small business who have at most 50 employees.
B. Credit Management Practices
Credit
Definition
According to the Dictionary of Financial Dictionary,
credit is a term used for many financial services that
involve the borrowing of money. In its basic form credit
refers to a legally binding agreement between a borrower
and lender where the borrower receives money or assets and
agrees to pay them back at a later date, sometimes with
added interest. A lender is sometimes referred to as a
creditor and a borrower is sometimes referred to as a
debtor. It means that in credit, money is the most
important aspects or tool that is used in order to make a
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transactions. Also, credit is the simplest form to borrow
and to make purchase of goods and services.
Trade Credit
Trade credit is offering goods or services for sale
with a deferred payment, which grants the buying small
business time to pay. There may, or may not, be a penalty
imposed (i.e., the charge of interest) if the buyer does
not make payment by the Permitted deadline. Most inter-firm
sales are made on credit terms and trade credit is an
important source of funding for small businesses (Mian &
Smith, 1992). The stocks and flows of trade credit can far
exceed the size of those for bank credit, typically twice
as much, and trade debt is often a major asset for many
businesses, often representing a third or more of their
total assets (Peel, Wilson & Howorth, 2000). In this, trade
credit means they offer some goods and services to make a
sell from the buyers but, it has a period of time for them
to pay its credit. Failure to pay its credit at the given
time may cause the business to charge a certain interest
rate. (Bradley, D. & Rubach M.)
Importance of trade credit in Business
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For many firms, supplying trade credit is an
important competitive tool which can create new business,
build stronger supplier-customer relations, signal product
quality, financial health, and image, and differentiate
their products or services (Peel, Wilson & Howorth, 2000).
Trade credit can actually help the business to grow, expand
and build new opportunities for their business that could
help them accumulate profit in future.
The use of trade credit was most prevalent in
manufacturing, construction and tertiary (whole and retail
trade) industries, where physical capital is relatively
high. Its use as less prevalent in industries where human
capital costs are higher, such as business and professional
services (Bitler, Robb, & Wolken, 2001). In this, trade
credit is the most relevant tool that could help businesses
to grow and pander especially on those company or type of
businesses like manufacturing, construction and whole and
retail trade. (Bradley, D. & Rubach M.)
Credit Management
Definition
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Credit Management refers to the process of providing
credit, recovering credit on the due date and also
formulating a credit policy for a company or organization.
Credit Management is one of the techniques in order to
manage the bad debts of the company in an efficient manner
(Blog Spot, 2019). It shows that establishing credit terms
and ensuring that payments are made on time. It promotes
dialogue between finance and sales teams, resulting in a
delicate balancing act that minimizes risk while maximizing
opportunities.
Credit Management is a branch of accountancy, and is a
function that falls under the label of “Credit and
Collection’ or ‘Accounts Receivable’ as a department in
many companies and institutions. They will usually deal
with the credit vetting of customers, the resolution of
any invoice queries or disputes, allocations of payments or
cash application, internal fund movements, reconciliations
and also maintaining positive working relationships with
customer during the debt collection or credit review and
approval process. It involves screening of customers and
only those who are credit worthy are allowed to do
business. A sound review of the financial position of the
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customer, and understanding of their business model is the
first step in ensuring that the company does not end up
selling to a customer who ends up seriously delinquent or
in default (Assignment Point, 2021). In order to decrease
exposure to bad debt, over-reserving, and bankruptcies,
businesses may gain a better understanding of consumers'
financial strength, credit score history, and emerging
payment patterns. When you give your clients credit, you
run the risk of them not paying you back.
Importance in the business
Charles Mensah (1999) stressed the importance of
credit management as follows: Credit management process
deserves special emphasis because proper credit management
greatly influences the success or failure of financial
institutions. This means that credit should be followed by
credit policies that are both appropriate and appealing.
The procedures for improving credit management performance
and safeguarding the banking industry against failure.
According to Hettihewa, 1997, Credit Management is
extremely important as granting credit is considered to be
the equivalent of investing in a customer. Late payments
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and bad debts are expensive to a company, so the payment of
the debt should not be postponed for an extended period of
time. Credit management performance is heavily influenced
by the efficiency and effectiveness with which each step of
the loan processing is performed using different
parameters.
It is important for every business to maintain optimal
credit policy to overcome problem related to cash or cash
management. Credit Management helps in the Determination of
the Credit rating of the customer; Assessing the credit
risk associated with the customers by studying the credit
payments of the customers; Maintaining and building the
customer relationship; Detection of late payments in
advance; Preventing and avoiding bad debts from arising
(Blogger, 2019).
One of the most important activities in your company
is credit management or better known as credit control.
Credit management is the process to ensure that customers
will pay for the products delivered or the services
rendered. Credit management is of vital importance to your
cash flow: you can be profitable, but if you lack the cash
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to continue your business, you will either be bankrupt or
taken-over by someone who knows how to deal with cash. This
makes credit management an important process. In all your
dealings with a customer you will have to weigh two risks:
(1) the risk of late or non-payment, and (2) the risk of
losing the sales (EC Credit Control, 2020). It is one of
the most crucial operations in your company. It's a way of
ensuring that customers pay for the products or services
they've received.
There are strategies you can implement which might
well prevent this from being necessary in the first place.
These are: Check customer creditworthiness prior to
extending terms; Monitor customer’s credit files for
changes in circumstances; Being wary of unusual customer
behavior; Incorporate late payment clauses into agreements;
Be firm but fair in the face of customer demands (Lines
Henry, 2021). You have a much better chance of identifying
and avoiding potential problems long before you have an
unpaid invoice to pursue and your company becomes another
victim of supply chain insolvency if you are cautious about
who you extend credit to, how much you give, and how
closely you monitor your clients.
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Role in the Business
The properly organized credit department plays a
critical role in managing accounts receivable portfolio
risk to protect profits, prevent potential losses and help
the company sell more products or services.
The Credit Management function incorporates all of a
company’s activities aimed at ensuring that customers pay
their invoices within the defined payment terms and
conditions. Effective Credit Management serves to prevent
late payment or non-payment. Getting it right reinforces
the company’s financial or liquidity position, making it a
critical component in any business (Graydon, 2021). It is
aimed at ensuring that clients pay their invoices according
to the established payment terms and conditions.
Their job is to optimize company sales and reduce bad
debt losses by maintaining the credit policy. They do this
by assessing the creditworthiness of potential customers
and conducting periodic reviews of existing customers.
Evaluating the creditworthiness of potential customers;
Creating credit scoring models for risk assessments;
Approving and rejecting loans based on available data;
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Calculating and setting loan interest rates; Negotiating
the terms of the loan with new clients; Ensuring all loans
and lending procedures comply with regulations; Maintaining
records of all company loans; Monitoring loan payments and
bad debts; and Reviewing and updating the company’s credit
policy (Betterteam, 2021). The position of the credit
department is constantly changing. The credit department is
worried from the moment the order is put to the time the
money is collected. They are involved in the customer cycle
from order placement to payment collection. The cycle
involves gathering and analyzing all available data, with
the goal of arriving at the best risk mitigation position
possible.
Determination of the credit limit is determined by the
amount of information. Very important role is played by the
previous payment behavior of customer. Information on late
payments can be obtained not only from internal black list
of debtors, but also from registers of debtors. Credit
limits determination is easier in the case of permanent
customer (Siekelova, 2015). Credit limits can be
determined by a number of variables derived from previous
interactions with consumers. The consumer's market, the
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nation in which it operates, and the industries in which it
operates are all important. The data from the previous
period's financial statements may be examined. The credit
ceiling isn't fixed in stone. It is necessary to verify the
amount on a regular basis.
Effective credit risk management is the key task of
each company. Business partner creditworthiness is
different. It is recommended to have for independent groups
of consumers. We can talk about individual approach to
customers. Customers can be assigned to individual credit
groups based on objective criteria. Previous experience
with the customer can be very useful (Siekelova, 2015). It
is also possible to determine how much data a new customer
has. You will get information from the available credit
registers. The most important step is deciding each
customer group's credit limit. Based on the customer's
experience, insolvency can be identified quickly.
Appropriate credit norms form the cornerstone of credit
management. Credit management is a valuable tool for
lowering a company's credit risk.
Credit Management is not only important in business
but also in life. In the Literature review of Baisden, Fox,
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Batholomae (2018), it was stated by Shapiro (2007)
Relationships, ideas, feelings, and behaviors involving
money came from life experiences, family origin, and one’s
social and historical context. Some couples chose to hold
joint or separate bank accounts, and others chose a partial
pooling method, where still others chose to specialize in
financial management roles as opposed to joint management
(Addo & Sassler, 2010; Archuleta, 2008).
Hart (2018) stressed that in the manufacturing world,
just about everything needs to go right for a company to
turn a profit. And even the slightest hiccup in the payment
process can create a tragic domino effect that ends with
the company losing its business before many of its
employees even realize what is happening.
CMCS emphasized that The size of a manufacturing
company only plays a small part in how a debt collection
agency handles receivables. The challenges that face these
types of companies are similar no matter how big or small
they are. Global competition, health care costs, labor, and
energy creates extreme pressure to always have a positive
cash flow. Any disturbance in cash flow can disrupt the
company's operations and cause even more pressure to
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collect outstanding debts. Without a proven debt collection
agency on retainer, a manufacturing company could quickly
go under when cash flow gets disrupted.
Credit Standards
The five C's of credit is a system used by lenders to
gauge the creditworthiness of potential borrowers. The
system weighs five characteristics of the borrower and
conditions of the loan, attempting to estimate the chance
of default and, consequently, the risk of a financial loss
for the lender. But what are these five C's? The five C's
of credit are character, capacity, capital, collateral, and
conditions (Corporate Finance Institute).Among these five
important components- capacity, capital and collateral
forms the basis for quantitative financial analysis while
Character and Conditions are subjective.
Character: Lenders need to know the borrower
and guarantors are honest and have integrity.
Additionally, the lender needs to be confident the
applicant has the background, education, industry knowledge
and experience required to successfully operate the
business. Lending institutions may require a certain amount
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of management and/or ownership experience. They will also
ask about your licensing and whether or not you have a
criminal record.
Capacity (Cash flow): The lender wants to know that
your business is able to repay the loan. The business
should have sufficient cash flow to support its business
expenses and debts comfortably while also providing
principals’ salaries sufficient to support personal
expenses and debts. Examining the payment history of
current loans and expenses is an indicator of the
borrower’s reliability to make loan payments.
Condition: The lender will need to understand
the condition of the business, the industry, and the
economy, which is why it is important to work with a lender
who understands the WCB industry. The lender will want to
know if the current conditions of the business will
continue, improve or deteriorate. Furthermore, the lender
will want to know how the loan proceeds will be used-
working capital, renovations, additional equipment, etc.
Capital: Your lender will ask what personal investment
you plan to make in the business. Not only does injecting
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capital decrease the chance of default, but contributing
personal assets also indicates that you are willing to take
a personal risk for the sake of your business; it shows
that you have ‘skin in the game.’
Collateral: A lender will consider the value of the
business’ assets and the personal assets of the guarantors
as a secondary source of repayment. Collateral is an
important consideration, but its significance varies
depending on the type of loan. A lender will be able to
explain the types of collateral needed for your loan.
Credit Management Practices
Role in Business
Metrobank states that if you are unable to pay back
borrowed money on time, then you have bad debt. This could
harm your financial standing as you must pay the principal
(the original amount you borrowed) and the interest (the
fee or charge imposed by the lender as part of your
borrowing). Missing payments also result in overlapping
increase in penalties, which further worsens the debt. Bad
debts are debts that can no longer be collected as a result
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of poor credit collection. In order not to incur these,
some practices were created.
According to Hilton-Baird Collection Services (2018),
some of these practices are:(1) Perform regular credit
checks; (2) Tighten credit terms for selective customers;
(3) Send invoices electronically; (4) Diarise courtesy
calls; (5) Invest in training; (6) Prioritise invoices; (7)
Use a debt collector agency. Collection of credit is one of
the hardest task in credit management. It needs to be done
right or else it will lead to having bad debts and incur
loss instead of gains.
There are 4 ways Credit Management Techniques helps
you manage inventory: (1) Ensures the right finance happens
before a deal is closed, (2) Helps to offer shorter
delivery times and better payment terms, (3) Checks and
monitors creditworthiness using payment experience pools,
international credit bureaus and trade credit insurers to
detect any default risks before any delivery and invoice
reaches the customer, and (4) Monitors production and stock
availability for more reliable cash flow planning
(Smitherman, 2019).
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According to the Risk Management Association, some of
the credit risk management practices and techniques are:
BEST PRACTICE #1 - KNOW YOUR CUSTOMER - To be successful,
you must operate on pertinent, accurate, and timely
information. The information you gather and the
relationships you establish are critical to positioning
yourself as a valued financial consultant and provider of
financial products and services. Establishing a good
relationship can bring a long stream of equity to your
institution.
BEST PRACTICE #2 - ANALYZE NONFINANCIAL RISKS - The whole
concept of institutional risk management is to ensure that
a particular issue has been identified as a risk. At the
micro level, a loan is a risk. At the macro level, a
portfolio of loans is a risk. Your credit policy department
will identify risk factors and query the entire loan
portfolio (macro) to judge whether the particular risk is
relevant to other customers of your institution.
BEST PRACTICE #3 - UNDERSTAND THE NUMBERS - To understand
the numbers you should focus on the financial capacity of
the company as evidenced by the information provided and
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examine the accuracy of he information as well as the
quality and sustainability of financial performance. Before
beginning any financial analysis, it is important to
understand why companies and individuals borrow money.
BEST PRACTICE #4 - STRUCTURE THE DEAL - Learn what the
company does and how it operates. Then examine how it fits
into its industry and how it is affected by economic
conditions. That information shows you what the company’s
business strategy should be and how easy or difficult it
will be to carry out that strategy. Finally, you can
evaluate how competent the company’s management is to
accomplish the activities you have identified as crucial to
the company’s success.
BEST PRACTICE #5 - PRICE THE DEAL - Determining the
appropriate pricing is a critical credit risk management
technique. It ensures that your financial institution will
be adequately compensated for the risk of the deal.
BEST PRACTICE #6 - PRESENT THE DEAL - Communicating your
findings in a cogent and professional manner is a critical
practice in getting your proposal approved. Credit
decisions should not be made on financial statement
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analysis alone. A credit review would not be complete
without an equally significant emphasis on the qualitative
issues such as the ability of management, the competitive
business environment, and the economic issues relating to
the business.
BEST PRACTICE #7 - CLOSE THE DEAL - Closing the Deal takes
place after the analysis, structuring, and pricing have
been completed.
BEST PRACTICE #8 - MONITOR THE RELATIONSHIP - A profitable
relationship can quickly turn into an unprofitable one.
Loan payments may be timely, but deteriorating collateral,
idle equipment, or unpaid taxes can create serious risk for
you. Periodic reviews, ratings, and audits can ensure that
the client is one that will create long-term profitability
for your bank.
Moody’s Analytics (2018) stressed that A good
monitoring program will quickly identify any red flags that
would suggest the borrower’s financial health is starting
to deteriorate. Being able to detect these early warning
signals is critical, as it allows the bank to remedy the
increased risk to its investment.
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eCollect (2021) stated that 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. The aim of such
credit collection management is to help debtors gain
control over their outcome without the need of further
falling into debt.
Wilson & summers (2003) found evidence that firm size
affects credit extension choices directly by setting limits
on the possibilities for economies of scale, but it also
impacts indirectly by affecting the firm's access to
finance and its bargaining strength vis-à-vis suppliers.
The dominant position of larger customers in bargaining
with small suppliers constrains the impact of other factors
on the firm's choice of credit terms. Small firms are also
under pressure to conform to industry norms, although lack
of resources can be a limiting factor. Constrained firms
may make use of two-part terms in an attempt to improve
their cashflow.
C. Debt Management Practices
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Adamko, Birtus, & Kliestik (2014) mentioned in their
study that the provision of credit sales is commonplace in
effectively functioning economy. Company takes credit risk
very often. Credit risk is the risk of non-payment by the
customer. Knowing the business partner creditworthiness is
a prerequisite for the correct decision of providing credit
sales. Credit management means management of credit sales
to minimize the credit risk in the company. Credit managers
deal with issues of increasing debt due to the sales
invoice. They debate whether continuing to support this
increase is appropriate and when it is necessary to stop.
The establishment of credit standards for each group of
clients in the company limits credit management.
Gavlakova & Kliestik (2014) stressed that credit risk
management is the management of credit sale. It deals with
the management of the payment terms in the sale with
deferred payment. In the past, the sale of a late payment
was forced on them. It is common now. The goal of credit
risk management is to find the acceptable level of risk due
to the providing credit sales.
Adamko, Kliestik & Misankova (2014) stated that credit
risk is the risk of credit sale. It is directly
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proportional to the reliability of a business partner and
his financial situation. The role of credit management is
to reduce this type of risk by adopting preventive
measures. Reluctance-to-pay risk, which is subject to
payment reluctance debtor and Insolvency risk /risk of
default/ resulting from the deterioration of the financial
situation of the borrower. In this, reluctance-to-pay risk
which the debtor is capable of paying but unable to do so
due to his current financial situation. While the
insolvency risk is in the lender's best interest to keep
track of the borrower's financial situation when it
changes. The only efficient way to mitigate risk is to
verify the creditworthiness of business partners.
Good Debts
According to Smith (2021), Good debt is often
exemplified in the old adage "it takes money to make
money." If the debt you take on helps you generate income
and build your net worth, that can be considered positive.
So can debt that improves your and your family's life in
other significant ways.
Bad Debts
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Definition
Most transactions in business are conducted on a
credit basis, and the majority of customers do meet their
obligations. Credit is not usually given to customers until
references have been obtained regarding their ability to
pay their debts and their creditworthiness (Nicholson,
1989).
There are many definitions of bad debt and stated
below are some of the most common definition found:
According to Ibarra (2012), A bad debt is money owed
that cannot be collected. A debt becomes “bad” or
uncollectible when surrounding facts and circumstances
indicate that there is no longer any chance that the amount
owed will be paid. A bad debt is written off as a loss to
the business.
Tuovila (2019) stated that bad debt is an expense that
a business incurs once the repayment of credit previously
extended to a customer is estimated to be uncollectible.
Bad debt is a contingency that must be accounted for by all
businesses who extend credit to customers, as there is
always a risk that payment will not be received.
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According to GoCardless, businesses are judged by
potential investors on their financial statements, which
means that a bad debt could make your business look like it
isn’t doing as well as it is in reality. Consequently, it’s
important to classify bad debts as bad debts so that
investors can see that all your accounts are in good order.
If a company offers credit, they should be prepared to
estimate that a certain portion of their receivables will
not be collected. They should be prepared for problems like
this to occur and prepare a countermeasure thus credit risk
management is important.
Ibarra (2012) stated bad debts expense is one of the
several noncash expenses in the income statement. The
concept of bad debts expense is relevant to companies that
use the accrual basis of accounting and are heavy on credit
sales. Uncollectible account or a bad debt reduces revenue.
Improper valuation of this expense may either overstate or
understate the revenue of a company. Recognition of bad
debts is crucial in presenting the correct revenue of the
company. The clear presentations of bad debts in the
accounts of the company is important so the investors will
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know what is the standing of the company with regards to
its credit collection.
Trade Credit is profitable for firms until the
associated benefits exceed the costs. Breaching the optimal
level affects firm probability. The extent of the financial
constraints influences the optimal level of trade credit.
Knowing the relation between trade credit and firm
probability may induce managers to form proactive trade
credit management policies and help investors assess firm
probability and operational risk. However, given that our
study involves only large, BSE-listed firms, generalizing
the findings to other companies settings requires caution
(Baker Pattnaik, & Kumar, 2020)
Zambaldi, Aranha, Lopes, Politi (2009) states that
small firms face credit rationing and that low risk credit
contracts with liquid collateral are their primary source
of credit. Furthermore, the bank under study faces
difficulties in expanding the supply of credit to small
firms mainly because of cost, collateral-dependency and
constraints due to asymmetric information.
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Naiberg et al (2000) also stated that Survival is a
crucial challenge for these firms, which lack managerial
and investment resources to reach operational
sustainability in the long term.
Sources of Bad debts
There are several sources of bad debts. In the
part of the businesses, according to Debt Collection
Centre, the following reasons are what causes Bad Debts:
(1) Due to increasing competition and demand for clients
most businesses are forced to sell on credit. (2) The
ineffective handling of credit policies or procedures
causes delinquency. (3) There is increased abuse of the
credit grace period leading to slow or poor remittances.
(4) The sales department sets high targets for marketers
who strive to sell in order to achieve sales targets. (5)
Multiple borrowers and potential defaulters accessing
credit to services or products without tangible repayment
plans. (6) Lack of trained collectors to demonstrate
professionalism within the credit, revenue and debt
industry hence recovery is mostly done by the court
bailiffs or auctioneers. (7) Every business competes for
cash which is limited and scarce hence increasing debt
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portfolios. (8) Increased dishonesty and bribery as some
collectors connive with debtors. (9) There is inadequate
follow up especially on old accounts as staff concentrate
on easy to collect or new accounts. (10) Most debtors
prefer instalment payment hence leaving huge balances aging
on account and later accumulate arrears. (11) Lack of
governing authority to oversee credit and debt creates
laxity and brutality. (12) Inconsistency and irregular
paying habit in some industries. And (13) Busy schedule of
management hence unable to monitor effectively. There are
many causes especially when it comes to the fault of the
creditors. Bad debts are made when the receivable can no
longer be collected, the fault lies on both the creditors
and borrowers for failing to do what they are expected to.
Here, we can conclude that credit is a two-way
communication, and that one-sided communication never works
out leading to bad debts.
Hakel (2005) stressed that Industry experts agree that
a big part of the problem is that hospital front-line staff
lack the necessary resources to properly categorize
patients into the appropriate financial classifications
(charity, public assistance, potential bad debt). The
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unfortunate, and avoidable, result is unnecessary bad debt.
It's not that staff lack the will to do the job; they lack
the time, energy, and know how. And the reason, in large
part, is the complexity of the financial assistance
identification and application process.
How bad debts affect Businesses
Bad debts can affect businesses in several ways,
according to Munnery (2021), it can: Reduce the amount of
cash available to run the business day-to-day; Compromise
your ability to pay your own creditors; Convey a business
image of disarray or disorganisation to the business
community in general, but in particular to your staff and
customers; Negatively affecting plans for growth; and
Introduce the threat of insolvency if bad debt levels are
high. These will majorly affect how businesses perform and
of course, its reputation.
In Phillipines, majority of SMEs neither practice the
GAAP methods of recording bad debts known as the allowance
method nor record bad debts expense. The primary reason in
not using the GAAP standard is the lack of familiarity with
formal accounting practices. Most recordings are done and
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kept by the owners themselves. The companies that hire
professional accountants and bookkeeping personnel to
record business transactions are aware of the differences
between the GAAP methods and the BIR or the "direct-write-
off" method. However, companies prefer to comply with the
BIR methods or standards because they are easier, more
convenient to use and these are the methods they know BIR
will accept (Ibarra, 2012). Most of small and medium
enterprises lack the knowledge in managing their accounts.
This leads them to hire professionals to manage their
accounts, and so they are not aware of the importance of
bad debts and how it reflects in their business.
How to avoid Bad Debts
Ibarra (2012) stressed that some companies give credit
only to trusted clients or customers that assure them of
payment on time and therefore, incur no bad debts. Others,
like construction companies in the real estate business,
use the percentage of completion method to collect
revenues. No further work will be completed for the clients
if they do not settle their debts on time. Some companies
have contracts with the local government and therefore are
assured of collection. Some companies feel that their
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business is small and credit is not encouraged, while some
companies do not want to show bad debts in their income
statements because of additional supporting documents that
the BIR requires. Several countermeasures have been
implemented to reduce the recurrence of bad debt.
Munnery (2021) stated that to avoid bad debts, you
must do the following: credit check new customers; set
realistic credit limits; state your terms and conditions
clearly on business documentation; send invoices quickly,
find out whether customers operate a monthly payment run;
chase payment immediately a debt is overdue; and follow up
with phone calls to a specified contact. Some of these are
practices used by businesses in their collection of credit;
here in Philippines, most of it are used especially that
stating of terms and conditions, as well as following up
with phone calls, more so if the one in charge is a
collecting agency such as home credit and others.
According to MGI Worldwide; some practices used in
managing bad debts are the following:
1. Have a credit policy and terms of trade in place - Many
businesses supply goods and services on the basis of
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informal arrangements. Unfortunately this means that
disputes often arise that could have been avoided if there
had been clear, written terms of trade from the start.
Having clear terms of trade is an excellent way of
minimising and preventing bad debts.
2. Provide the right information on quotes, invoices and
statements - If you provide the right information on your
documents, and invoice promptly, you are more likely to be
paid on time. A good way to discourage late payment is to
show details on your invoices and statements of the
collection charges you may apply to overdue accounts.
3. Make sure your systems are up to date and monitored -
The best way to minimise issues is to monitor your debtors
ledger closely – by keeping close track of the days
outstanding you’ll be able to spot adverse trends and take
prompt action before they start to have an impact on your
cash flow.
4. Implement robust accounts receivable processes - It is
very important to have a robust collections process in
place, with set timescales for the various stages of
communication (letters, emails and phone calls)
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5. Don’t over extend credit and avoid concentration risk -
It’s critical that you regularly review the credit limits
for each of your customers. Look out for warning signs that
they are experiencing financial difficulties. Regularly
check for any changes in their buying habits and increasing
levels of debt – the new business the customer is giving
you may be the result of other suppliers removing credit
facilities. Long-standing customers can be the greatest
credit risk, because no one thinks to check on them.
6. Bad debt provisioning - Credit management is about
safeguarding your profitability, so you should make
provisions for bad debts in your annual or ongoing
budgeting process, and act swiftly if your debtors begin to
exceed your provisions.
Bad debts do not affect the operating expenses of the
companies. Bad debts expense represents only a small
portion of the operating expense. The estimated bad debts
expense by using the allowance method is almost the same as
the bad debts written off.
D. Problems Encountered in Implementation of the Practices
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Collections plays a critical a role in your
institution’s financial health. Limited resources,
personnel, and time are common denominators for many
collections departments. Financial institutions help them
simplify their collections processes, and generally
encounter the same difficulties and barriers. Financial
institutions may anticipate lending to grow as the economy
and consumer mood improve. There are 5 Common Collections
Challenges: (Stewart, C. 2018)
First, Lack of Automation is a common challenge we see
in financial institutions is an increase in the workload of
their collectors due to lack of technology and automation.
Collectors are faced with multiple manual processes that
not only make their collection process inefficient, but
increase the opportunity for human error.
Second, Disjointed Communication is When collectors
are operating within an environment of manual process, they
naturally experience difficulty communicating with their
superiors, counterparts, and customers. Communication can
occur via email, phone, or in-person, and without a unified
system, it can be difficult to track workflows and get
accurate status updates to collection activity.
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Third, Dependency on Multiple Programs. Another
challenge I often see within the financial institutions
that I work with is the dependence of multiple systems to
complete daily tasks. They typically need to use multiple
systems to generate and notate collections activity,
process payments, add notes, etc. Naturally, this causes
inefficiencies, reducing the number of calls a collector
can take per day. Since businesses are losing 20–30% in
revenue each year due to inefficiencies, finding ways to
combine tasks and services to improve efficiencies and
create a more productive workforce is more important than
ever for financial institutions.
Fourth, is the Frustration with Queuing Capabilities.
When inefficiencies exist, one of the major challenges
collection operations face is a streamlined and accurate
way to queue their calls. We often see that clients don't
have an efficient way to switch gears if their priorities
change. For example, if an institution sees a sudden
increase in late-stage delinquencies, they often don't have
a simplified way to update their collectors' calling
queues.
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Lastly, is the Dependency on IT because It's not
uncommon for financial institutions—or any organization for
that matter—to experience a strain on their IT resources.
Collection operations are no different. And the more
systems and platforms that are used to perform day-to-day
tasks, the more likely it is that updates will be needed
and issues will occur that will require IT involvement.
Heavy dependency on IT department to execute pertinent
changes within the collections application in a timely
manner is a major challenge we see in many collection
operations.
Nexa Collections stressed that debt collections can be
quite frustrating and boring if too many customers fail to
make payments on time. Your staff has to contact them to
make a payment on their past-due bills repeatedly. More
significant challenges arise when some of the following
issues:
Debtor is not traceable: Every business struggles with
the lack of current contact information of their debtors.
May be the debtor has moved from his current residence, or
your employee did an incorrect entry while typing the data
into the system. Some accounts may no longer in business or
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bankrupt: Creditors cannot try to collect on debts that are
discharged due to bankruptcy. Even if a debtor simply files
for bankruptcy, the debt collectors are not allowed to
continue collection activities while the bankruptcy case is
pending in court.
Debtor Excuses: We have a detailed article on
the excuses made by debtors, a pretty interesting article.
It will give you several ideas on how to handle all those
excuses.
Government Regulations and Laws: Did you know that the
government has many laws which need to be followed when
attempting to recover money from a person? In many states,
these restrictions apply to the original creditor as well.
These laws are designed to prevent Creditors/Collection
Agencies from putting unreasonable pressure on debtors. Not
following these debt collection laws and regulations can
result in getting sued back by the debtor.
Training Staff Regularly: No one likes calling people
again and again and insist them to pay their bills.
Invoicing people regularly and following up with them after
the past-due date requires tremendous patience, discipline,
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training and a process in place. As time passes by, the
debtor gets pretty immune to those reminder notices. Make
sure your staff even keeps a regular check of clients who
are past due. These cases should not slip away just because
no one is keeping a proper check.
Language barrier: Are all your customers English
speaking only? Do you have a bilingual staff who can speak
their language? Small businesses and medical professionals
often serve people whose primary language is
either Spanish or Mandarin.
Tax season: Tax filing season ( March to April) is
notoriously bad for debt collections. Many people must pay
IRS those unexpected taxes or fines.
Verification of debt: Debtors often ask
Creditors/Collection Agencies to provide all documents
related to the debt, which proves the debtor indeed owes
the money. Failure to provide adequate documents will lead
you to write off this debt. If it takes too long to locate
debtors data and you have to go through the bundle of
files, then it’s time for a procedural change.
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Maintaining positive customer relationships: Most
businesses do not want to lose customers or aggravate them
just because they have failed to make payments this time.
They may give more business in future after their situation
improves. They can potentially spread a negative word about
your business in the community or online.
Pause Collection Activity when the Government
notifies: During the coronavirus pandemic, several states
prohibited debt collection activity in their states.
Similarly, when hurricanes, wildfires, earthquakes, floods
or tornados arrive in a region, collection activity needs
to be paused. To keep track of all such events, a
collection agency must be on the lookout for these
notifications.
The inability to reach their debtors due to a lack of
updated contact information Some creditors are unable to
collect on debts that have been cancelled prior to
bankruptcy. The majority of the time, the debtor has an
excuse. Make sure your team monitors past-due clients on a
regular basis. Some clients are having difficulty
communicating since they do not speak English. Some
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businesses strive to safeguard their reputation and retain
favorable client relationships.
These are some problems banks encounter which
businesses possibly encounter when they give trade credit
according to Chakraborty (2015):
Customer Bankruptcy: halting collection efforts once a
customer (person or business) declares itself bankrupt.
Because bankruptcy is a detailed and lengthy process, it
can sometimes take years for a bank to receive money, if at
all it does. Several bad loans are suffered by banks due to
this reason.
Delinquent debtors: it is difficult to recover money
from defaulting borrowers as bad loans continue to
pressurize their capital base and threaten their ability to
grow in a competitive environment.
Customers falling out of business unexpectedly:
Several debtors each year, take heavy loans as business
investment and then fall flat and the business collapses
hard.
Higginson, Jacques, & Rudisuli (2018) emphasized that
Many shops are still organized by stage of delinquency, and
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many still rely mainly on the phone channel to contact
customers. While risk segmentation may be used in the first
few weeks of delinquency, as a means of identifying
customers to whom a live agent will be assigned, thereafter
additional segmentation is rarely applied. Contact channels
and treatments, furthermore, are adopted without the
necessary evaluation. Brute-force dialing is the norm,
leading many customers actively to ignore phone calls. To a
lack of sophistication, other challenges can be added—
including consumer-protection regulations and the
prevalence of debt-settlement companies determined to
enlist long-term delinquent customers. Clearly, lenders
need to invest in smarter and more effective collections
operations.
E. Best Credit Management Practices
Below are some of the credit management best practices
for companies to implement across their departments. These
are some of the best practices that I have seen and
implemented in my own work experience which have led to
fantastic results (Ramey, 2018).
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1. Document Policies and Procedures - Documenting what the
policy is going to be and sticking with that as much as
possible is a key to success. While circumstances can
and will allow for deviations from the plan when margins
justify the increased risk, in the majority of cases, a
well-defined credit policy can be the ‘guiding light’
for the organization in dealing with the particular
situation at hand.
2. Establish Credit Limits with Sign Off Levels - Another
principle for solid credit departments is to establish
credit limits and sign off levels throughout the
organization. Often times I see that credit limits are
a standard practice but sign off levels fluctuate. What
I mean by sign off levels is to have a certain dollar
amount level that a particular position or committee can
approve.
3. Develop a Risk Rating System - A risk rating system
(RRS) is a must for any organization looking to make
their credit department world-class. The RRS will help
prioritize departmental focus, categorize outstanding
A/R by risk rating levels, and create a better data set
for reviewing, sorting, and decision making.
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4. Obtain Buy In Across The Organization - Of prime
importance for the credit department is to obtain
internal ‘buy-in’ across the organization. Instead of
using the ‘it’s my way or the highway’ approach to
decision making, be sure to explain and outline any
decision and its impact on the stakeholders involved in
the decision. By doing so, the credit department begins
to build trust and better achieves the needed ‘buy-in’
throughout the organization.
5. Automate Systems - Companies that are trending towards
automation are in a better overall position to handle
workloads and are leveraging technology to increase
departmental focus. Take a moment to think about some
reports that you or your team generate on a daily basis
or weekly basis. Before this system was implemented,
over limit accounts had to be manually flagged in the
software. This was a time-consuming process and caused
many headaches as when the department was on overload,
flags were not updated to reflect the changing
circumstances. The result was frustration on both the
credit and sales sides due to ‘stale’ and unreliable
data. Not only did automating the process help create
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instantaneous data for the entire company, but it helped
the credit department do more with less. Instead of
spending time manually updating credit flags, the
department focused on more frequent analysis and calls
on past due invoices.
6. Have Sales Take Ownership - The sales department is a
vital function of any business. Without a good sales
team, companies are destined for failure. While a good
sales person needs to combine a good amount of
professionalism and bravado, he or she should also have
ownership of selling goods and services. A recipe for
disaster is to allow a salesperson to only focus on
sales without any regard for the cash conversion cycle.
7. Be Willing to Walk Away from “Bad Money” - Not all
customers are created equal. Some customers just lack
the ability or character to pay bills when due. In this
situation, both credit and sales needs to be willing to
walk away from an open credit relationship and be wiser
for doing so. Sure, if you do take that risk, you might
get lucky short-term and get paid, but a customer with
poor credit will eventually miss that crucial payment.
Then the company will be left chasing down a bill that
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will very likely become a bad debt. That is not a
situation that is good for anyone at the company.
8. Educate - The credit department should view itself as an
ally of the sales department. The end goal of any
transaction is to always be able to sell and to maintain
an ongoing relationship with that customer. One way
that credit personnel can help do this is to explain the
groundwork for any decision they may make.
9. View Yourself as a Partner - In helping to build a
relationship with sales, consider yourself a partner in
the selling process. Your goal is to be a ‘gatekeeper’
or the ‘guard rail’ to help the sales team avoid bad
debts. Keep in mind that roughly 70-80% of the selling
population will be able to pay – some might take longer,
some might pay sooner. The remaining 20-30% are the
marginal and sub-marginal accounts; these are the ones
that the diligent credit department gets paid to
monitor.
10. Take a Holistic Approach to Managing the A/R
Portfolio - Managing the A/R portfolio is the main
prerogative of the credit department function, however
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it is only one small gear in what makes up the company
engine. If the credit team is too tight on credit, the
company will be foregoing and missing out on profits. If
the credit team is too loose on credit, then increased
bad debts will adversely affect the company’s
profitability.
11. Develop a Keen Business Sense and Trust Your Instincts
- Last but not least, develop a keep business mindset
and trust your instincts. Being a good credit
professional requires that you pay attention to trends
which affect not only you company’s immediate customer
base, but macro trends that will eventually trickle down
into those customers you are selling products to. Is
the stock market in decline? Are interest rates rising
and your customer is carrying a lot of debt? What are
the general macro trends in your customer’s sector?
Knowing this information will help you make more
information decisions.
According to Slater Byrnes Recoveries, the best
practices to minimize risk and exposure to bad debts are
the following:
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1. Tightening your Terms & Conditions with the appropriate
indemnity clauses - The type of indemnity clause that is
imperative from an accounts receivable perspective is a
clause that talks about who is liable for collection costs.
2. Personal/Director guarantees to protect yourself - If a
individual becomes insolvent and is forced into bankruptcy
or is deceased, you can pursue guarantors for payment as
they are personally liable. If the residential agreement
has more than one guarantor, each person can be held liable
for the total amount of debt and will be pursued jointly
and severally.
3. Be proactive in accounts receivable
3.1 Communicate with your customer before a payment is due
- Genuinely reach out with the purpose of connecting and
adding value. Take the opportunity to check their
satisfaction with your services, and if they need anything
further from you.
3.2 Accept credit card payments - Accepting online credit
card payments makes it easy for customers to pay you:
customers can pay 24/7 and they don’t need to rely on
having cash in their bank account to pay you.
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3.3 Add a PAY NOW button to your emails and invoices - A
simple ‘Pay Now’ button on emails and/or invoices, leading
to your online payment gateway, means your customer is one
click away from paying your invoice quickly and securely.
3.4 Map and track your accounts receivables - Your business
should be able to pinpoint priority problem areas quickly
so you can assess the impact of overdue debt on your cash
flow.
3.5 Enact a multi modal communications plan - Your business
should have a pre-planned, escalating communication
strategy ready to activate as soon as an invoice is
overdue. Record your collections activities and
conversations in one place so you have a complete history
at your fingertips.
3.6 Thank your customer for payment - A ‘thank you’ email
can be generated from your accounting software (if it has
that functionality) or manually. Whichever method you use,
never underestimate the power of a timely ‘thank you’!
3.7 Undertake credit monitoring - Monitoring your
customers’ credit activities means you can put safeguards
67
in place before your business is adversely affected by
events like a customer declaring bankruptcy.
4. Know when to refer the debt to a collections agency -
Don’t panic—referring your customer to a debt collection or
legal agency doesn’t mean your payment problem will
escalate into a court case. Even a simple demand letter
from a third party can be enough to prompt an outstanding
payment.
Synthesis
As stated in the related literature, credit as mode of
payment is not something new and it has been used by banks
in the form of loans as well as other businesses. As
businesses continue to integrate credit into their mode of
68
payments, the customers of businesses also get this
privilege leading to the birth of trade credit, which is a
business-to-business agreement that allows business
customers to purchase goods on account. Aside from that,
credit is also offered to individuals which also have
different terms from those that are used in business
customers.
The studies cited in this chapter are related to the
present study because the themes explain the background and
what possible results, we can get from the data we
gathered. The difference, however, was that some of the
cited studies made use of different scope of participants
and were conducted in other places while the present study
was conducted in Tuguegarao City with the business owners
or credit managers of selected small businesses as its
participants. Furthermore, some of the cited studies dealt
with sources of credit and bad debts, but this study is
solely focused on the extent of implementation of credit
management practices used by the participants.
The information gathered served as a guide, which
directed the researchers in the process undertaken for the
completion of the study. The findings from the previous
studies helped the researchers in selecting the data that

69
were used in formulating their problems, supporting
questions, and hypothesis.
Conceptual Framework of the Study
Credit has become one of the most common means of
purchase nowadays. Because of its emergence, many companies
adapted this mode of payment and is now seen even in small
businesses.
70
Ramey (2018) mentioned that the credit department is
the lifeblood of a well - established sales process. If
sales are made on credit, it is only when the cash is
finally collected that the sale can be final and complete.
The credit department is charged with managing the cash
conversion cycle, which is the process of converting a sale
to the final product: cash in house.
As indicated by Graydon (2021) Effective Credit
Management serves to prevent late payment or non-payment.
Getting it right reinforces the company’s financial or
liquidity position, making it a critical component in any
business. However, bad credit management often results to
loss of sales and accumulation of bad debts.
The extent of implementation of credit management
practices of the businesses plays a great role in
establishing the position of the business and thus greatly
affects the business performance.
Research Paradigm
The conceptualization with regards to the extent of
implementation of credit management practices of selected
businesses in Tuguegarao City are illustrated in the
paradigm below:
71
INPUT PROCESS
OUTPUT
A. Profile of In-depth Assessed credit
the analysis on the management
participants credit practices of the
management selected
B. Profile of practices of businesses in
the business the selected Tuguegarao City
businesses in
C. Credit
Tuguegarao City
management
practices
D. Problems
encountered
by
participants
in the
implementatio
n of the
practices
E. Suggestions
or
recommendatio
ns to improve
or enhance
credit
management
practices
FEEDBACK
This paradigm shows how the researchers conducted the
study, the input: profile of the participants, profile of
the business, credit management practices, Problems
encountered by participants in the implementation of the
72
practices, and suggestions or recommendations to improve or
enhance credit and bad debts management practices. The
process was the in-depth analysis of credit management
practices of the selected businesses in Tuguegarao City.
For the output was the assessed credit management practices
of the selected businesses in Tuguegarao City.
Statement of the Problem
This study assessed the extent of implementation of
the credit management practices used by the selected
businesses in Tuguegarao City.
Specifically, it sought to provide answer to the
following questions:
1. What is the profile of the participants in terms of:
1.1 sex;
1.2 age;
1.3 civil status;
1.4 highest educational attainment;
2. What is the profile of the business in terms of:
2.1 form of business organization;
73
2.2 nature of the business;
2.3 years of operation;
2.4 number of employees;
3. To what extent do the participants implement credit
management practices in terms of:
3.1 credit granting;
3.2 credit monitoring;
3.3 collection process;
3.4 dealing with bad debts;
4. Is there a significant difference between the extent of
the implementation of credit management practices when
grouped by profile variables?
5. What are the problems encountered by the participants
in the implementation of the credit management
practices?
6. What are the participants’ suggestions or
recommendations to improve or enhance credit management
practices?
74
Hypothesis
At 0.05 significance level the following hypothesis
was tested.
1. There is no significant relationship between the extent
of the implementation of credit management practices
and profile of credit managers or business owners and
the profile of the business.
Significance of the Study
The result of the study was beneficial to the
following:
Selected businesses. The result of this study was able
to help the selected businesses determine the areas for
improvement in their credit management practices.
Credit managers or Business owners. The credit
management practices determined in this study helped the
credit managers or business owners to know what practices
they can use for effective management. This helped them
learn other techniques used by various companies and
incorporate it in their company.
75
Financial management students. The results of the
study helped the students learn what are commonly used
credit management practices. Through gaining this
knowledge, they may have an idea on how to efficiently use
these in their future jobs.
Future entrepreneurs. The results of the study helped
the future entrepreneurs learn the extent of the
implementation of credit management practices used by
small businesses in Tuguegarao City. This can serve as a
basis on how they can manage their company’s credit
department in the future.
Future researchers. This helped them know the extent
of the implementation of credit management practices used
by small businesses in Tuguegarao City and can serve as
basis of their study.
Researchers. The result of this study answered their
queries and contributed to the existing body of knowledge.
Scope and Delimitation of the Study
76
This study focused on determining the extent of
implementation of credit management practices used by
selected businesses in the following categories: credit
granting, credit monitoring, collection process, and
dealing with bad debts. The participants of the study were
businesses existing for at least 5 years, granting credit
to 40% - 50% of their customers on a regular basis in
their operations, whose credit managers or business owners
were at least 20 years old, and had at least 1 year of
experience in managing credit. The business participants
of the study were credit engaged selected businesses and
there were 25 participants.
The data collection was done for two months from
November 2021 to December 2021. The researchers made use
of quantitative research.
Definition of Terms
77
The terms are defined based on how they were used in
the study.
Bad Debts. These are uncollectible repayments of
credit, result of bad credit management.
Credit. It pertains to credit granted whether to
individual or business to purchase goods or services on
account, which is used by the selected small
businesses on a regular basis on their operations.
Credit Granting. A category of credit management
practices that deals with assessing the customers and
preparing the necessary documents and follow procedures
before granting credit to a customer.
Credit Management Practices. Strategies implemented by
small businesses to manage the credit of their customers.
These are also strategies implemented by small businesses
to avoid bad debts, or deal with bad debts.
Credit Monitoring. A category of credit management
practices that deals with updating, reviewing, and
following the status of the credit granted to the customers
and the necessary information needed.
78
Collection Process. A category of credit management
practices that deals with reminding and collecting payments
from customers.
Dealing with Bad Debts. A category of credit
management practices that is concerned with actions in
response when a bad debt occurs.
Selected Business. A privately owned corporation,
partnership, or sole proprietorship that has 50 employees
at most, who grants credit to 40% - 50% of their customers
in a regular basis of their operation.
79
Chapter 2
METHODS
This chapter presents the research design, participants
of the study, instrumentation, data gathering procedures
and data analysis.
Research Design
The descriptive survey research design is used. This
is the appropriate method for this study because it
described the profile of the participants; the profile of
the business; the extent of the implementation of credit
management practices of the participants; the extent of the
implementation of credit management practices when grouped
according to profile variables; the problems encountered by
the participants in their implementation; the suggestions
and recommendations by the participants to improve or
enhance credit management practices; and it also described
if there is a significant relationship between the extent
of the implementation of credit management practices and
profile of credit manager or business owner of the selected
businesses in Tuguegarao City.
80
Participants of the study
The participants of the study were selected businesses
existing for at least 5 years, granting credit to 40% -
50% of their customers on a regular basis in their
operations, whose credit managers or business owners were
at least 20 years old, and had at least 1 year of
experience in managing credit. The business participants
of the study were credit engaged selected businesses in
Tuguegarao City and purposive sampling was used to select
the 25 participants.
Instrumentation
To gather the data needed, the researchers used a
self-made questionnaire. To establish the validity of the
questionnaire, the researchers sought the help of experts
to investigate the content of the questionnaire. The
questionnaire was consist of the following parts:
1. The first part was the profile of the participants
which was gathered by answering a check list.
81
2. The second part was the profile of the business which
was also gathered by answering a check list.
3. The third part was the determination of the extent of
implementation of credit management practices by using
a 5-point scale: 5 - Very Great Extent, 4 - Great
Extent, 3 - Moderate Extent, 2 - Little Extent, and 1
- Very Little Extent.
4. The fourth part was the identification of the problems
encountered by the participants in implementing their
credit management practices using a checkbox.
5. The fifth and last part of the questionnaire was a
checkbox of the suggestions or recommendations of the
participants to improve or enhance the credit
management practices used by the small businesses.
Data Gathering Procedure
To gather the needed data for the study, the researcher
did the following:
1. A letter of permission that was signed by the research
adviser was submitted to the Dean of School of Business,
Accountancy and Hospitality Management.
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2. Upon approval, the researcher presented the letter
approved by the School Dean to the Credit Managers or
Business Owners of Selected Small Businesses in
Tuguegarao City and presented a letter of consent before
administering the questionnaire to them.
3. Administration of the questionnaire was done personally.
4. The response of the participants in the questionnaire
were collected and recorded for statistical analysis.
Data Analysis
The researchers applied the following techniques and
statistical tools to analyze and interpret the data
gathered:
1. Frequency count and percentage distribution. This was
used to determine the profile of the participants in
terms of: sex, age, civil status, and highest
educational attainment; the profile of the business in
terms of: form of business organization, nature of the
business, years of operation, and number of employees;
the credit practices used by the selected small
businesses as well as the problems encountered by the
83
participants in the implementation of the credit
management practices.
2. Weighted mean. This was used to determine the extent of
implementation of the credit and bad debts management
practices. To further understand the weighted mean, the
following rubrics was used:
SCALE VERBAL DESCRIPTION

3.
1.00 - 1.79 Very Little Extent
1.80 - 2.59 Little Extent
2.60 - 3.39 Moderate Extent
3.40 - 4.19 Great Extent
4.20 - 5.00 Very Great Extent
Analysis of the variance (ANOVA) – this was used to show if
there was a significant difference on the participants’
extent of implementation of the credit management
practices when grouped by the profile variable.
4. Frequency count and rank distribution – this was used to
determine the problems encountered by the participants,
as well as the suggestions or recommendations that will
enhance or improve the credit and bad debts management
practices.
84
Chapter 3
RESULTS AND DISCUSSION
This chapter discusses the presentation of data
analysis and findings from the survey. A total of 25
questionnaires were completed by the participants of the
study composed of Credit Managers or Business Owners of
Selected Businesses in Tuguegarao City.
The responses gathered from the survey have been
analyzed by the statistician using the embedded tool from
the SPSS tool. The findings discussed were according to
the sections of the questionnaire: First, the profile of
the participants; second, the profile of the business;
third, the extent of implementation of credit management
practices; fourth, the problems encountered by the
participants in the implementation; lastly, the
recommendations or suggestions of the participants to
improve or enhance the credit management practices.
85
I. Profile of the Participants
1.1 Sex
Table 1. Frequency and Percentage Distribution of
Participants when Grouped According to Sex
Sex Frequency Percentage (%)

Male 16 64.00
Female 9 36.00
Total 25 100.00
Table 1 presents the frequency and percentage
distribution of participants when grouped according to
sex. It is shown that 16 of the participants which is
equivalent to 64% are male while the remaining 9 or 36%
are female. This means that the participants are dominated
by male.
1.2 Age
Participants when Grouped According to Age
Age Frequency Percentage (%)

30 years old and below 15 60.00
31-40 years old 10 40.00
Total 25 100.00
Table 2 indicates the frequency and percentage
distribution of participants when grouped according to age.
86
15 or 60% of the participants are 30 years old and below
while the remaining 10 or 40% of the participants are 31-40
years old. This indicates that majority of the participants
are 30 years old and below.
1.3 Civil Status
Participants when Grouped According to Civil Status
Civil Status Frequency Percentage (%)

Single 12 48.00
Married 13 52.00
Total 25 100.00
Table 3 shows the frequency and percentage
civil status. 12 or 48% of the participants are single and
13 or 52% of them are married. This shows that majority of
the participants are married.
1.4 Highest Educational Attainment
Participants when Grouped According to Highest Educational
Attainment
Highest Educational Frequency Percentage (%)

Attainment
College Degree 23 92.00
87
Masteral Graduate 2 8.00
Total 25 100.00
Table 4 displays the frequency and percentage
highest educational attainment. 23 or 92% of the
participants’ highest educational attainment is college
degree while 2 or 8% of them are masteral graduate. In
short, majority of the participants are college graduate.
II. Profile of the Business
2.1 Form of Business
Table 5. Frequency and Percentage Distribution of the
Business Participants when Grouped According to Form of
Business
Form of Business Frequency Percentage (%)

Sole Proprietorship 5 20.00
Corporation 20 80.00
Total 25 100.00
Table 5 presents the frequency and percentage
distribution of business participants when grouped
according to form of business. 5 or 20% of the business
participants are sole proprietorship businesses while 20 or
80% are corporations. This means that majority of the
88
business participants have corporation as form of their
business.
2.2 Nature of the Business
Table 6. Frequency and Percentage Distribution of the
Business Participants when Grouped According to Nature of
Business
Nature of the Frequency Percentage (%)

Business
Merchandising 8 32.00
Manufacturing 2 8.00
Service 15 60.00
Total 25 100.00
Table 6 displays the frequency and percentage
nature of the business. 8 or 32% of the business
participants are merchandising while 2 or 8% are
manufacturing while the remaining 15 or 60% are service
businesses. This shows that majority of the participants
have service businesses.
2.3 Years in operation
89
Table 7. Frequency and Percentage Distribution of Business
Participants when Grouped According to Years in Operation
Years in Operation Frequency Percentage (%)

5-10 years 13 52.00
11-15 years 2 8.00
16 years and above 10 40.00
Total 25 100.00
Table 7 reflects the frequency and percentage
distribution of business participants when grouped
according to years in operation. 13 or 52% of the
participants have been operating for 5-10 years while 2 or
8% has been in operation for 11-15 years and the remaining
10 or 40% have been around for 16 years and above. In
short, majority of the participants have been in operation
for 5-10 years.
2.4 Number of Employees
Participants when Grouped According to Number of Employees
Number of Frequency Percentage (%)

Employees
Less than 10 14 56.00
10-19 2 8.00
20-29 8 32.00
40-50 1 4.00
Total 25 100.00 90
Table 8 shows frequency and percentage distribution of
business participants when grouped according to number of
employees. 14 or 56% of the participants have less than 10
employees while 2 or 8% have 10-19 employees. 8 or 32% have
20-29 employees and the remaining 1 or 4% have 40-50
employees. This indicates that majority of the participants
have less than 10 employees.
III. Extent of Implementation of Credit Management
Practices
3.1 Credit Granting
Table 9. Weighted Mean and Qualitative Description of the
Participants’ Extent of Implementation of Credit
Management Practices in terms of Credit Granting
Credit Granting Mean Descriptive

Interpretation
Evaluate the 4.4 Very Great

creditworthiness of Extent
potential customers
Make credit scoring models 4.08 Great extent

for risk assessments
Conduct risk assessments 4.12 Great extent
Approve and reject 4.4 Very Great

applications based on extent
available data
91
Negotiate the terms of the 4.48 Very Great

loan with new clients extent
State terms and conditions 4.64 Very Great

clearly on business extent
documentation
Have a credit policy and 4.60 Very Great

terms of trade in place extent
Category Mean 4.39 Very Great Ex-

tent
Table 9 presents the weighted mean and descriptive
interpretation of the participants’ credit management
practices in terms of credit granting. Among the seven
practices enumerated, “State terms and conditions clearly
on business documentation” got the highest mean followed by
“Have a credit policy and terms of trade in place” and
“Negotiate the terms of the loan with new clients” while
“Make credit scoring models for risk assessments” got the
lowest mean.
It is seen on this table that the evaluation of
participants in credit granting weigh between “Very Great
Extent” and “Great Extent”, resulting the category mean for
credit granting to be 4.39 and it is interpreted as “Very
Great Extent”. This implies that most of the practices
under credit granting are implemented to a very great
extent which means that it is implemented and followed most
of the time. This conveys that the selected businesses are
92
very conservative in granting credit since they look into
many things; they qualify the customer first. A sound
review of the financial position of the customer and
understanding of their business model is the first step in
ensuring that the company does not end up selling to a
customer who ends up seriously delinquent or in default.
The credit standards for the evaluation of borrowers
are based on the 5 C’s of credit specifically: character,
capacity, capital, collateral, and conditions. The result
affirms the information from the article of Assignment
Point (2021) that stated credit management involves
screening of customers and only those who are credit worthy
are allowed to do business.
3.2 Credit Monitoring
Table 10. Weighted Mean and Descriptive Description of the
Management Practices in terms of Credit Monitoring.
Credit Monitoring Mean Descriptive

Interpretation
Calculate and set loan interest 4.32 Very Great

rates Extent
93
Ensure all loans and lending 4.52 Very Great

procedures comply with extent
regulations
Maintain records of all company 4.80 Very Great

loans extent
Monitor loan payments and bad 4.64 Very Great

debts extent
Review and update the company’s 4.44 Very Great

credit policy extent
Provide the right information on 4.80 Very Great

quotes, invoices, and statements extent
Make sure that systems are up to 4.80 Very Great

date extent

tent
interpretation of the participants’ extent of
implementation credit management practices in terms of
credit monitoring. “Provide the right information on quotes,
invoices, and statements”, “Make sure that systems are up to
date”, and “Maintain records of all company loans” got he
highest mean of 4.80 while “Calculate and set loan interest
rates” got the lowest mean.
The participants deemed all the practices to be
implemented at “Very Great Extent”. The category mean
which is 4.62 for credit monitoring is interpreted as
“Very Great Extent”. This means that most of the practices
under credit monitoring are always followed and
94
implemented. Credit monitoring is one of the most
important tasks when it comes to credit management
practices. This involves organizing and reviewing the
details of all the documents up to the company’s credit
policy and ultimately, to providing the correct
information for invoices and evaluating updated
information.
Moody’s Analytics (2018) stressed that A good
monitoring program will quickly identify any red flags
that would suggest the borrower’s financial health is
starting to deteriorate. Being able to detect these early
warning signals is critical.
3.3 Collection Process
Management Practices in terms of Collection Process.
Collection Process Mean Descriptive

Interpretation
Periodically remind the 4.76 Very Great

customer of their due dates Extent
using various communication
channels
Send invoices quickly 4.76 Very Great
95
extent
Find out whether customers 4.52 Very Great

operate a monthly payment extent
run
Follow up with phone calls 4.64 Very Great

extent
Offer multiple payment 4.44 Very Great

options extent
Avoid overextended credit 4.40 Very Great

extent
Chase payment immediately a 4.04 Great extent

debt is overdue

tent
interpretation of the participants’ extent of
implementation of credit management practices in terms of
collection process. Majority of the practices under the
collection process is shown to be implemented with “Very
Great Extent” except for one which is “Chase payment
immediately a debt is overdue” that got a mean of 3.57
which is interpreted as “Great Extent”.
The category mean of 4.51 is interpreted as “Very
Great Extent”. This shows that the participants use good
credit management practices under collection process. This
implies that participants do a great job at handling,
communicating, and collecting debts from their customers.
96
Collection process does not only focus on the
collection proper but also with the communication between
the borrower and the company. The company’s records of the
bad debts will also depend on how well these practices are
implemented because the better these are followed, the
lower the possible cases of bad debts to occur.
eCollect (2021) stated that 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. The aim of such
credit collection management is to help debtors gain
control over their outcome without the need of further
falling into debt.
3.4 Dealing with Bad debts
Management Practices in terms of Dealing with Bad Debts.
Dealing with Bad Debts Mean Descriptive

Interpretation
Estimate percentage of 4.08 Great Extent

doubtful accounts
97
Maintain communications and 4.48 Very Great

statements extent
Update Customer’s location 4.48 Very Great

extent
Prioritize collections 4.52 Very Great

extent
Use collection tools (i.e. 4.04 Great extent

converting debts into
loans)
Seek the help of a 3.68 Great extent

collection agency through
outsourcing
Restrict granting of credit 4.32 Very Great

of the customer (Add to extent
blacklist)

tent
interpretation of the participants’ credit management
practices in terms of dealing with bad debts. Majority of
the practices under dealing with bad debts got “Very Great
Extent” with the exception of 3 which are all rated as
“Great Extent”. These practices are: “Use collection tools
(i.e. converting debts into loans)” which garnered a mean
of 4.04 followed by “Estimate percentage of doubtful
accounts” with the mean of 4.08. The remaining one had the
lowest mean of 3.68 which is “Seek the help of a
collection agency through outsourcing”.
98
The category mean of 4.23 is interpreted as “Very
Great Extent”. This means that the businesses implement
the practices very well however since it had a mean nearly
dropping to the value of great extent, it can be said that
the businesses don’t give much emphasis of this category.
Ibarra’s (2012) focused on the bad debts of small
businesses in Philippines where it was emphasized that
majority of SMEs neither practice the GAAP methods of
recording bad debts known as the allowance method nor
record bad debts expense. Most of business owners does not
know of the implication of bad debt in the company’s
performance, it is usually written off.
3.5 Summary Table
Table 13. Summary Table on the Extent of Implementation of
Credit Management Practices by the Participants
Credit Management Mean Descriptive

Practices Interpretation
Credit Granting 4.39 Very Great Extent
Credit Monitoring 4.62 Very Great Extent
Collection Process 4.51 Very Great Extent
Dealing with Bad Debts 4.23 Very Great Extent

99
Overall Mean 4.44 Very Great
Extent
It is shown in the Table 13, among the credit
management practices, credit monitoring got the highest
category mean which is 4.62 followed by collection process
with the mean of 4.51. Credit granting had the mean of 4.39
and dealing with bad debts had the lowest mean which is
4.23. All the credit management practices under the
different categories are all interpreted as “Very Great
Extent”. The overall mean for the credit management
practices is 4.44 with the descriptive interpretation of
“Very Great Extent”.
The evaluation on the extent of implementation of
credit management practices of selected businesses in
Tuguegarao City shows that credit managers or business
owners are having a difficulty in dealing with bad debts
as it had the lowest mean. Though interpreted as “Very
Great Extent”, the participants need to improve on their
credit management practices related to this category as
its mean is close to dropping to “Great Extent”.
All categories: credit granting, credit monitoring,
collection process, and dealing with bad debts are all
100
important however, credit monitoring and collection process
are the most important things to be implemented to avoid
bad debts, as also shown in the findings above.
IV. Significant Difference on Participants’ Extent of
Implementation of Credit Management Practices When
Grouped According to Profile Variables
Table 14. Analysis of Variance on the Significant
Difference on Participants’ Extent of Implementation of
Credit Management Practices When Grouped According to Sex
Credit Sex Mean Standard F- Probab Decisio

Manageme Deviation ratio ility n at
nt Value 0.05
Practice level
s
Credit Male 4.2232 1.15702 Accept

Granting
1.349 .257 Ho
Female 4.6825 .28372
Credit Male 4.4732 .84067 Accept

Monitori 1.845 .188 Ho
ng Female 4.8730 .33077
Collecti Male 4.4643 .55082 Accept

on .346 .562 Ho
Process Female 4.5873 .39412
Dealing Male 4.1518 .83212 Accept

with Bad .454 .507 Ho
Debts Female 4.3651 .60234
Table 14 presents the analysis of variance on the
significant difference on participants’ extent of
101
according to sex. As presented in the table, the computed
probability values are all greater than 0.05 level of
significance. This reveals that there is no significant
difference on participants’ extent of implementation of
credit management practices when grouped according to sex.
This means that whether the credit manager or business
owner is male or female, the extent of implementation of
credit management practices remains the same.
Credit Management Practices When Grouped According to Age
Credit Age Mean Standard F- Probab Decisi

Manageme Deviation ratio ility on at
nt Value 0.05
Practice level
s
30
and 4.2286 1.17530
Credit
below
1.052 .316
Granting Accept
51 Ho
and 4.6286 .42698
above
30
Credit and 4.6381 .61769
Monitori Accept
below .031 .863
ng Ho
31-40 4.5857 .88436
102
30
Collecti and 4.4381 .55713
on Accept
below .752 .395
Process Ho
31-40 4.6143 .38715
30
Dealing and 4.2476 .77585
with Bad Accept
below .023 .880
Debts Ho
31-40 4.2000 .75353
Table 15 shows the analysis of variance on the
according to age. As shown in the table, the computed
probability values are all greater than 0.05 level of
significance hence the null hypothesis is accepted.
Difference on Participants’ Implementation of Credit
Management Practices When Grouped According to Civil
Status
Credit Civil Mean Stand F- Probabil Decisio

Manageme Status ard rati ity n at
nt Deviat o Value 0.05
ion
Practice level
s
Credit Single 4.1190 1.31755

Grantin 1.903 .181
Accept
g Married 4.6374 .31198
Ho
Credit Single 4.3214 .92607 4.472 .046
103
Monitor Married Reject

4.8901 .28063
ing Ho
Collect Single 4.4167 .61959

ion .788 .384
Accept
Process Married 4.5934 .34918
Ho
Dealing Single 3.8929 .80381

with
5.463 .028 Reject
Bad Married
4.5385 .56591 Ho
Debts
Table 16 displays the significant difference on
participants extent of implementation of credit management
practices when grouped according to civil status. Since
the probability values for credit monitoring and dealing
with bad debts were less than 0.05, the null hypothesis
was rejected. The table shows that participants who are
single garnered lower mean than the participants who are
married. It implies that married people have better
performance when monitoring credit and dealing with bad
debts for they had more experiences in different
situations and context than single people.
According to Shapiro (2007) Relationships, ideas,
feelings, and behaviors involving money came from life
experiences, family origin, and one’s social and
historical context. Some couples chose to hold joint or
separate bank accounts, and others chose a partial pooling
method, where still others chose to specialize in
104
financial management roles as opposed to joint management
(Addo & Sassler, 2010; Archuleta, 2008).
Credit Management Practices When Grouped According to
Educational Attainment
Credit Highest Mean Standar F- Proba Decisio

Managemen Educatio d ratio bilit n at
t nal Deviati y 0.05
Practices Attainme on Value level
nt
College
4.3727 .99697
Credit Graduate
Grantin .076 .785 Accept
g Masteral Ho
4.5714 .00000
Graduate
College
4.5839 .74095
Credit Graduate
Monitor .607 .444 Accept
ing Masteral Ho
5.0000 .00000
Graduate
College
4.5031 .51664
Collect Graduate
ion .034 .856 Accept
Process Masteral Ho
4.5714 .00000
Graduate
College
Dealing 4.1863 .76983
Graduate
with Accept
.905 .351
Bad Ho
Masteral
Debts 4.7143 .00000
Graduate
Table 17 represents the analysis of variance on the

105
according to highest educational attainment. As shown in
the table, the computed probability values are more than
0.05 level of significance in level of working patterns
hence, the null hypothesis is accepted. This implies that
regardless of educational attainment, the extent of
implementation of credit management practices remains the
same.
Credit Management Practices When Grouped According to Form
of Business
Credit Form of Mean Standar F- Proba Decisio

Managemen Business d ratio bilit n at
t Deviati y 0.05
Practices on Value level
Sole
Credit Propriet 3.3429 1.75138
orship Reject
Grantin 10.407 .004 Ho
g Corporat
ion 4.6500 .38633
Sole
Propriet 4.3143 .93895
Credit Accept
orship
Monitor 1.115 .302 Ho
ing Corporat
ion 4.6929 .66082
Collect Sole 3.8857 .57499 16.136 .001

ion Propriet
Process orship Reject
106
Corporat Ho
ion 4.6643 .33511
Sole
Dealing Propriet 3.7429 .79154
with orship Accept
Bad 2.808 .107 Ho
Debts Corporat
ion 4.3500 .70972
Table 18 reflects the analysis of significant
difference on participants’ extent of implementation of
credit management practices when grouped according to form
of business. The computed probability values for credit
granting and collection process were less than 0.05, hence
the null hypothesis was rejected. This means that there is
a significant difference on the participants’ extent of
implementation when grouped according to form of business.
The table shows that under credit granting and
collection process, "Sole Proprietorship" always gets the
lowest mean. This implies that sole proprietorship
businesses have a difficulty in implementing the practices
on the mentioned categories compared to corporations.
Wilson & Summers (2003) mentioned in their study that
they found evidence that firm size affects credit
extension choices directly by setting limits on the
possibilities for economies of scale, but it also impacts
indirectly by affecting the firm's access to finance and
107
its bargaining strength vis-à-vis suppliers. The dominant
position of larger customers in bargaining with small
suppliers constrains the impact of other factors on the
firm's choice of credit terms. Small firms are also under
pressure to conform to industry norms, although lack of
resources can be a limiting factor. Constrained firms may
make use of two-part terms in an attempt to improve their
cashflow.
Credit Management Practices When Grouped According to
Nature of the Business
Credit Nature of the Mean Standard F- Prob Decisi

Manageme Business Deviatio rati abil on at
nt n o ity 0.05
Practice Valu level
s e
Merchandising 4.8393 .23458

Credit
Granti Manufacturing 3.0714 2.32335 3.381 .052 Accept
ng Ho
Service 4.3238 .88635

Credit
Monito Manufacturing 4.1429 1.21218 .774 .473 Accept
ring Ho
Service 4.5714 .80087
Collec Merchandising 4.8571 .22908 4.467 .024

tion
Proces Manufacturing 4.0000 1.01015 Reject
s Ho
Service 4.3905 .44678
108

Dealin
g with Accept
Manufacturing 3.6429 .90914 2.144 .141
Bad Ho
Debts Service 4.0952 .83241
As depicted on Table 19, the analysis of the variance
when participants were categorized according to nature of
the business, the computed probability values are all
greater than 0.05, except for collection process which got
the probability value of .024. This implies that there is
a significant difference on the participants’ extent of
implementation when grouped according to nature of
business.
It was observed that manufacturing businesses had the
lowest mean while merchandising businesses had the highest
mean in the collection process. This implies that
manufacturing businesses does not implement their
collection process the same way as merchandising and
service businesses implements theirs.
CMCS emphasized that The size of a manufacturing
company only plays a small part in how a debt collection
agency handles receivables. The challenges that face these
types of companies are similar no matter how big or small
they are. Global competition, health care costs, labor,

109
and energy creates extreme pressure to always have a
positive cash flow. Any disturbance in cash flow can
disrupt the company's operations and cause even more
pressure to collect outstanding debts. Without a proven
debt collection agency on retainer, a manufacturing
company could quickly go under when cash flow gets
disrupted.
Management Practices When Grouped According to Years in
Operation
Credit Years in Mean Stand F- Probab Decisi

Manageme Operation ard rati ility on at
nt Devia o Value 0.05
Practice tion level
s
5-10 years 4.5824 .30562

Credit
Grantin 1.503 .244 Accept
16 years
g 5.0000 .00000 Ho
and above
5-10 years 4.3886 .95611

Credit
Monitor .871 .432 Accept
16 years
ing 4.7582 .40568 Ho
and above
5-10 years 4.3857 1.02586

Collect
ion 1.713 .203 Accept
16 years
Process 4.6171 .71870 Ho
and above
Dealing 5-10 years 5.0000 .00000 .487 .621
110
with 16 years Accept

Bad and above 4.3429 .62886 Ho
Debts
Table 20 shows the analysis of the variance when
participants were sorted by the years in operation, the
computed probability values based on the years in
operation are all less than the 0.05. This indicates that
the hypothesis is accepted. When participants are
categorized according to the number of employees, there is
no significant variation in the extent of implementation
of credit management practices.
Management Practices When Grouped According to Number of
Employees
Credit Number of Mean Standard F- Probabi Decisi

Managemen Employees Deviatio ratio lity on at
t n Value 0.05
Practices level
Less than
4.6837 .30268
10
Credit Accept
1.726 .192
Granting 10-19 4.7143 .40406 Ho
20-29 3.7857 1.52338
Less than
4.3886 .95611
Credit 10
Accept
Monitori 1.882 .164
10-19 4.8980 .27122 Ho
ng
20-29 4.4286 .80812
111
Less than Accept

4.4286 .
Collecti 10 Ho
on 2.829 .063
10-19 4.6171 .71870
Process
20-29 4.6633 .28355
Less than
4.1786 .66897
Dealing 10
Reject
with Bad 3.484 .034
10-19 4.1429 . Ho
Debts
20-29 4.5086 .49501
Table 21 presents the analysis of variance on the
significant difference on participants’ implementation of
credit management practices when grouped according to
number of employees. Dealing with bad debts which had the
probability value of .034, where the null hypothesis was
rejected. This means that there is a significant
difference on the participants’ extent of implementation
when grouped according to number of employees.
It was observed that in dealing with bad debts, the
higher the number of employees, the higher the value of
the mean. This means that the more employees a business
have, the better the practices are being implemented.
Since dealing with bad debts is a complex process, a
limited number of staff won’t be able to handle such
complexities thus proving that a higher number of
employees gives better efficiency.
112
Hakel (2005) stated that the unfortunate, and
avoidable, result is unnecessary bad debt. It's not that
staff lack the will to do the job; they lack the time,
energy, and know how. And the reason, in large part, is
the complexity of the financial assistance identification
and application process.
V. Problems Encountered by the Participants in
Implementing Their Credit Management Practice
Table 22. Frequency and Rank Distribution of Problems
Encountered by the Participants in Implementing their
Credit Management Practices.
Problems Frequency Rank

Customer makes many excuses 22 1st
Difficulty in communicating 17 2.5th
Unexpected failure of 17 2.5th
business
Pausing of collection 16 4th
activities due to unforeseen
circumstances (such as
pandemic, etc.)
Customer Bankruptcy 12 5th

Difficulty in communicating 11 6.5th
Defaulting borrowers 11 6.5th
Inability to reach their 10

customers due to a lack of 8th
updated contact information
Inconsistent call reminders 8 9th
Inadequate documents during 7 10th
113
verification of debt
Lack of automation 5 11th
Lack of system update 4 12.5th
Difficulty in abiding by 4 12.5th
collection laws and
regulations
Language barrier 3 14th
Table 22 shows the frequency and rank distribution of
problems encountered by the participants in implementing
their credit management practices. Out of the 15 enumerated
problems, “Customer makes many excuses” ranked 1st with the
frequency of 22 followed by 2 problems that tied with same
frequency of 17, making them rank 2.5th, these are:
“Difficulty in communicating” and “Unexpected failure of
business“. Ranking last is “language barrier”. The result
implies even though credit monitoring and collection
process were rated to be very high extent, the selected
businesses still encounter problems on communication
however, the problem is not on language barrier, but of
something else.
Higginson, Jacques, & Rudisuli (2018) emphasized that
Many shops are still organized by stage of delinquency, and
many still rely mainly on the phone channel to contact
customers. While risk segmentation may be used in the first
few weeks of delinquency, as a means of identifying
114
customers to whom a live agent will be assigned, thereafter
additional segmentation is rarely applied. Contact channels
and treatments, furthermore, are adopted without the
necessary evaluation. Brute-force dialing is the norm,
leading many customers actively to ignore phone calls. To a
lack of sophistication, other challenges can be added—
including consumer-protection regulations and the
prevalence of debt-settlement companies determined to
enlist long-term delinquent customers. Clearly, lenders
need to invest in smarter and more effective collections
operations.
VI. Recommendations or Suggestions to Improve or Enhance

Table 23. Frequency and Rank Distribution of

Recommendations or Suggestions to Improve or Enhance
115
Recommendations or Frequency Rank

Suggestions
Remind the customer 23 1st
before a payment is due
Send demand letters to 20 2nd
delinquent borrowers
Document Policies and 16 4.5th

Procedures
Map and track accounts 16
receivables 4.5th
Thank the customer for 15 6th
payment
Develop a Keen Business 13 7th
Sense and Trust Your
Instincts
Explain and outline any 12 9th
decision and its impact
on the stakeholders
involved in the decision
Automate Systems 12 9th
Personnel training 12 9th
Take a Holistic Approach 11
to Managing the A/R 11.5th
Portfolio
Accept credit card 11 11.5th
payments
Develop a Risk Rating 10 13th
System
Add a PAY NOW button to 8 14.5th
emails and invoices
Know when to refer the 8 14.5th
debt to a collections
agency
Table 23 presents the frequency and rank distribution
of recommendations or suggestions to improve or enhance
credit management practices by the participants. “Remind
the customer before a payment is due” ranked 1st with the
116
frequency of 23. At 2nd with the frequency of 20 is: “Send
demand letters to delinquent borrowers. Two problems ranked
4th with the frequency of 16, and these are: “Document
Policies and Procedures” and “Map and track accounts
receivables”. Ranking last are “Add a PAY NOW button to
emails and invoices” and “Know when to refer the debt to a
collections agency”.
The result implies that constant communication with
the customers is recommended to be the most important of
all when it comes to credit management practices while the
data also implies that the participants weakly recommend
outsourcing through collections agency and adding payment
button in emails which conveys that the selected business
prefer other modes of collection.
117
Chapter 4
SUMMARY, CONCLUSIONS, and RECOMMENDATIONS
This chapter summarizes the findings, conclusions and
recommendations drawn from the study.
Summary of Findings
1. Profile of the Participants
1.1 Sex: The participants are dominated by male.
1.2 Age: Majority of the participants are 30 years old
and below.
1.3 Civil Status: Majority of the participants are
married.
118
1.4 Highest Educational Attainment: Majority of the
participants are college graduate.
2. Profile of Business
2.1 Form of Business: Majority of the participants have
corporation as their form of business.
2.2 Nature of the Business: Majority of the participants
are service businesses.
2.3 Years in Operation: Majority of the participants
have been operating for 5-10 years.
2.4 Number of Employees: Majority of the participants
have less than 10 employees.
3. Extent of Implementation of Credit Management
Practices
The credit management practices on credit granting,
credit monitoring, collection process, and dealing with
bad debts are all implemented to a very great extent.
4. Significant difference between the extent of
implementation of credit management practices when
grouped by profile variables.
There is no significant difference to the extent of
according to sex, age, and educational attainment however,
119
there is a significant difference when the participants
are grouped according to civil status.
There is a significant difference to the extent of
implementation of the credit management practices when
grouped according to form of business, nature of the
business, and number of employees. There is no significant
difference when the business participants are grouped
according to years in operation.
5. Problems encountered by the participants in
implementing credit management practices
The top 3 problems encountered by the participants
are: Ranked 1st is “Customers makes many excuses”
Followed by “Difficulty in communicating” and
“Unexpected failure of business” on rank 2.5th.
6. Suggestions or recommendations by the participants to
improve or enhance credit management practices
The top 3 suggestions or recommendations by the
participants are: “Remind the customer before a payment
is due” which ranked 1st followed by “Send demand letters
to delinquent borrowers”. Two suggestions tied for 4.5th
and these are: “Document policies and procedures” and
“Map and track accounts receivables”.
120
Conclusions
In the light of the findings of the study, the
following conclusions were drawn:
1. Despite being relatively young businesses, they have
good credit management practices on the following
categories: credit granting, credit monitoring,
collection process, and dealing with and debts.
2. Dealing with bad debts was the category where all
businesses had difficulty in implementing.
3. The selected businesses are very adept in monitoring
their customers’ credit.
Recommendations
Based on the findings and conclusions of this study,
the following recommendations are made:
1. The credit managers or business owners may explore more
practices on dealing with bad debts for a better extent
of implementation.
2. The credit managers or business owners may consider
giving training to their employees especially when
implementing credit management practices on dealing with
bad debts.
3. The selected businesses may continue doing and using the
practices that works best for their business and that

121
brings the best results that really helped and improved
their business.
4. The future researchers may think of other profile
variables that may have a significant relationship on
the implementation of credit management practices.
5. The future researchers may conduct a similar study where
the employees and customers are included as participants
to provide data that will serve as corroborating
evidence to support the findings of the study.
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https://opentextbc.ca/principlesofaccountingv2opensta
x/chapter/distinguish-between-merchandising-
manufacturing-and-service-organizations/
Corporate Finance Institute. 5 Cs of Credit. Retrieved from
https://corporatefinanceinstitute.com/resources/knowl
edge/credit/5-cs-of-credit/
Live Oak Bank. The 5 C’s of Credit. Retrieved from
https://www.liveoakbank.com/wine-and-craft-beverage-
resources/the-5-cs-of-credit/?
fbclid=IwAR14PLMresVbdG5fbZo8kEMP-
K9lkhsgZbG_Ce9GuZwfayHQ7nvulnZRZGk
Nexa Collections. Common Problems Faced during Debt
Collection. Retrieved from
https://nexacollect.com/debt-recovery/common-
collection-problems/
133
OECD.org. Enterprises by business size. Retrieved from
https://data.oecd.org/entrepreneur/enterprises-by-
business-size.htm
Moody’s Analytics (2018). Redefining loan monitoring and
early warning signal detection through an integrated
solution. Retrieved from
https://www.moodysanalytics.com/articles/2018/redefin
ing-loan-monitoring
eCollect (2021). Credit collection. Retrieved from
https://ecollect.org/wiki/credit-collection/
CMCS. Manufacturing Debt Collection. Retrieved from
https://cmcs.com/manufacturing-debt-collection
APPENDICES
LETTER TO THE DEPARTMENT DEAN
November 15, 2021
DR. CHARITO M. GUILLERMO

SBAHM Dean
Mabini St., Tuguegarao City, Cagayan
134
Dear Madam:
Christian greetings!
We are conducting a research study for the partial fulfillment of the requirements for the
degree Bachelor of Science in Business Administration Major in Financial Management,
The study is entitled “CREDIT MANAGEMENT PRACTICES OF SMALL
BUSINESSES IN TUGUEGARAO CITY”. The participants of this study are Credit
Managers or Business Owners of Small Businesses.
In this connection, we would like to ask permission from your good office to
administer our survey questionnaire virtually to the participants of the study. Your
unceasing support to the success and completion of the study will highly be
appreciated.
Thank you and may God Bless You!
Respectfully yours,
Kim A. Capistrano Kalehla H. Golino Rachelle C. Eugenio Lynie Kaye B. San Juan
Researcher Researcher Researcher Researcher
Noted by: Approved by:
MR. RUFO TUDDAO DR. CHARITO GUILLERMO, CPA

Research Adviser Dean, SBAHM
LETTER TO THE PARTICIPANTS
Dear Participant,
Christian Greetings!
We, the researchers, are asking for your support in our
study entitled “CREDIT MANAGEMENT PRACTICES OF SMALL
BUSINESSES IN TUGUEGARAO CITY”. We are to seek for your
opinion and insights about the extent of implementation of
135
Credit Management Practices that small businesses use. This

questionnaire contains statements to be answered by
choosing the answer that fits your perspective. Rest
assured that your personal information, as well as your
answers will be treated with utmost confidentiality. Please
fill out the information that are needed, honestly. Thank
you very much for your cooperation.
Sincerely,
Kim A. Capistrano Kalehla H. Golino
Rachelle C. Eugenio Lynie Kaye B. San Juan

Researchers
Noted by:
Mr. Rufo Tuddao

Research Adviser
Participant’s Consent:__________________
Signature
CREDIT MANAGEMENT PRACTICES OF SMALL BUSINESS IN

TUGUEGARAO CITY
Questionnaire For The Participants
Part I: Profile of the Participants
136
Directions: Please put a check mark on the item that

corresponds to your answer.
Sex: __Male __ Female
Age:
__30 years old and below 31-40 years old
41-50 years old 51 years old and above
Civil Status:
__Single __Married __ Legally Separated __Widow/Widower
Highest Educational Attainment:
___College Degree ___Masteral Graduate

___Doctoral Graduate
Part II: Profile of the Business
Directions: Please put a check mark on the item that

corresponds to your answer.
Name of the Business (Optional):_________________________
Form of Organization:
__Sole Proprietorship __Partnership __Corporation
Nature of the Business:
__Merchandising Manufacturing Service
Years in Operation:
5-10 years 11-15 years _16 years and above
Number of employees:
__Less than 10 10-19 20-29 30-39 40-50
137
Part III: Extent of Implementation of Credit

Management Practices
Directions: Please indicate the level of your implementation

on credit management practices using the scale below:
SCALE VERBAL DESCRIPTION
5 Very Great Extent
4 Great Extent
3 Moderate Extent
2 Little Extent
1 Very Little Extent
Credit Granting 5 4 3 2 1
1. Evaluate the
creditworthiness of
potential customers
2. Make credit scoring

models for risk assessments
3. Conduct risk assessments
4. Approve and reject

applications based on
available data
138
Credit Granting 5 4 3 2 1
1. Negotiate the terms of

the loan
Credit with new clients
Monitoring 5 4 3 2 1
2. State terms and

8. Calculate and set loan
conditions clearly on
interest rates
business documentation
9. Ensure all loans and
3. Have a credit policy and
lending procedures comply
terms of trade in place
with regulations
Others (Please Specify):_____
10. Maintain records of all
company loans
______________________________
11. Monitor loan payments
______________________________
and bad debts
12. Review and update the

company’s credit policy
13. Provide the right

information on quotes,
invoices, and statements
Credit Monitoring 5 4 3 2 1
14. Make sure that systems are

up to date
______________________________
_______________________________
139
Collection Process 5 4 3 2 1
4. Periodically remind the

customer of their due dates
using various communication
channels
5. Send invoices quickly
6. Find out whether customers

operate a monthly payment run
7. Follow up with phone calls
8. Offer multiple payment

options
9. Avoid overextended credit
10. Chase payment immediately a

debt is overdue
Dealing with bad

Others (Please debts
Specify):_____ 5 4 3 2 1
11. Estimate percentage of

______________________________
doubtful accounts
_______________________________
12. Maintain communications and
statements
13. Update Customer’s location
14. Prioritize collections
15. Use collection tools (i.e.

converting debts into loans)
16. Seek the help of a

collection agency through
outsourcing
17. Restrict granting of credit

of the customer (Add to
blacklist)

140
______________________________
_______________________________
Part IV: Problems Encountered
Directions: Please put a check mark on one or more of the

following problems encountered while implementing credit
management practices.
Problems
1. Lack of automation
2. Difficulty in communicating
3. Inconsistent call reminders
4. Lack of system update
5. Customer is untraceable
6. Customer makes many excuses
7. Difficulty in abiding by collection laws and

regulations
8. Difficulty in training staff
9. Language barrier
10. Inadequate documents during verification of

debt
11. Pausing of collection activities due to

unforeseen circumstances (such as pandemic, etc.)
12. Inability to reach their customers due to a

lack of updated contact information
13. Customer Bankruptcy
14. Defaulting borrowers
15. Unexpected failure of business
Others (Please Specify):________________________________
141
________________________________________________________
Part V: Recommendations or Suggestions to Improve or Enhance

Directions: Please check one or more of the boxes before the

following practices that you think will help to enhance or
improve the implementation of credit management practices.
Recommendations or Suggestions
1. Document Policies and Procedures
2. Develop a Risk Rating System
3. Explain and outline any decision and its impact

on the stakeholders involved in the decision
4. Automate Systems
5. Personnel training
6. Take a Holistic Approach to Managing the A/R

Portfolio
7. Develop a Keen Business Sense and Trust Your

Instincts
8. Tighten your Terms & Conditions with the

appropriate indemnity clauses
9. Remind the customer before a payment is due
10. Accept credit card payments
11. Add a PAY NOW button to emails and invoices
12. Map and track accounts receivables
13. Thank the customer for payment
14. Know when to refer the debt to a collections

agency
142
15. Send demand letters to delinquent borrowers
Others (Please Specify):________________________________
________________________________________________________
Thank you for your precious time and effort for answering
the questionnaire.
- The Researchers
CURRICULUM
VITAE
NAME: KIM A. CAPISTRANO
DATE OF BIRTH: JUNE 6, 2000
PLACE OF BIRTH: CAUAYAN CITY, ISABELA
PARENTS: ANGELITO M. CAPISTRANO

MA. LOURDES M. AGUAS
HOME ADDRESS: #25 F.N.Dy BOULEVARD, BARANGAY SAN FERMIN,
CAUAYAN CITY, ISABELA, 3305
EDUCATIONAL BACKGROUND
PRIMARY: CAUAYAN SOUTH CENTRAL SCHOOL

MABINI ST., CAUAYAN CITY, ISABELA
2006-2012
SECONDARY: CAUAYAN CITY NATIONAL HIGH SCHOOL

TURAYONG, CAUAYAN CITY, ISABELA
JUNIOR HIGH SCHOOL
2012-2016
ST. PAUL UNIVERSITY PHILIPPINES
MABINI ST., UGAC NORTE, TUGUEGARAO
143
CITY, CAGAYAN
SENIOR HIGH SCHOOL
2016-2018
TERTIARY: ST. PAUL UNIVERSITY PHILIPPINES
MABINI ST., UGAC SUR, TUGUEGARAO CITY,
CAGAYAN
2018-2022
CURRICULUM VITAE
NAME: RACHELLE C. EUGENIO

DATE OF BIRTH: AUGUST 17, 1999
PLACE OF BIRTH: DUGAYUNG AMULUNG,
CAGAYAN
PARENT: CECILE C. EUGENIO
HOME ADDRESS: #11 BLUE ZIRCON ST. SAN GABRIEL CITYHOMES,
TUGUEGARAO CITY, CAGAYAN 3500
PRIMARY: SAN GABRIEL ELEMENTARY SCHOOL
MAYON EXTENTION ST. SAN GABRIEL,
TUGUEGARAO CITY
2006-2012
SECONDARY: CAGAYAN NATIONAL HIGH SCHOOL
TAFT STREET, TUGUEGARAO CITY
JUNIOR HIGH SCHOOL
2012-2016
UNIVERSITY OF SAINT LOUIS TUGUEGARAO
144
MABINI ST., UGAC SUR, TUGUEGARAO CITY

SENIOR HIGH SCHOOL
2016-2018
UGAC SUR, TUGUEGARAO CITY
2018-2022
CURRICULUM VITAE
NAME: KALEHLA H. GOLINO
DATE OF BIRTH: SEPTEMBER 05, 1999
PLACE OF BIRTH: TUGUEGARAO CITY,
CAGAYAN
PARENTS: MER MARIO G. GOLINO
MA. LOURDES H. GOLINO
HOME ADDRESS: 07 BANAUE ST. SAN GABRIEL VILLAGE, TUGUEGARAO
CITY, CAGAYAN 3500
PRIMARY: ST. PAUL UNIVERSITY PHILIPPINES

TUGUEGARAO CITY, CAGAYAN
2005 - 2012
SECONDARY: ST. PAUL UNIVERSITY PHILIPPINES
2012 - 2018
145

2018 - 2022
CURRICULUM VITAE
NAME: LYNIE KAYE B. SAN JUAN
DATE OF BIRTH: February 25, 2000
PLACE OF BIRTH: TUGUEGARAO CITY,
CAGAYAN
PARENTS: LYMAN O. SAN JUAN
JENIFER B. SAN JUAN
HOME ADDRESS: #390 MAHARLIKA HIGHWAY CAGGAY, TUGUEGARAO
CITY, CAGAYAN, 3500
PRIMARY: UNIVERSITY OF CAGAYAN VALLEY

BALZAIN HIGHWAY, TUGUEBARAO CITY
2006-2012
SECONDARY: UNIVERSITY OF CAGAYAN VALLEY
BALZAIN HIGHWAY, TUGUEBARAO CITY
JUNIOR HIGH SCHOOL
146
2012-2016
ST. PAUL UNIVERSITY PHILIPPINES
UGAR SUR, TUGUEGARAO CITY
SENIOR HIGH SCHOOL
2017-2018
MABINI ST., UGAR SUR, TUGUEGARAO CITY
2018-2022
147

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St.

Paul University Philippines

CREDIT MANAGEMENT PRACTICES

OF SELECTED BUSINESSES IN TUGUEGARAO CITY

Presented to the Faculty of School of Business,

St. Paul University Philippines

of the Requirements for the Degree

Bachelor of Science in Business Administration Major in

Lynie Kaye B. San Juan

In partial fulfillment of the degree of Bachelor of Science

in Business Administration major in Financial Management,

this thesis entitled “Credit Management Practices od

Selected Businesses in Tuguegarao City” has been prepared

by Kim A. Capistrano, Rachelle C. Eugenio, Kalehla H.

Golino, and Lynie Kay B. San Juan, who are hereby

recommend for oral examination.

MR. RUFO TUDDAO, MA

Approved by the tribunal oral examination with a

MS.SHIRLEY ENRIQUEZ MS.MARJORIE BAMBALAN

DR. CHARITO GUILLERMO, CPA

Accepted and approved in partial fulfillment of Bachelor of

Science in Business Administration major in Financial

DR.JUVIE BACANI, MBA DR. CHARITO GUILLERMO

This study reports on the “Credit Management Practices

of Selected Businesses in Tuguegarao City.” This research

utilizes the descriptive survey method in gathering the

data. A total of twenty-five (25) credit managers or

business owners of credit engaged selected businesses were

the participants of the study. The main data collection of

the study was survey questionnaire.

Most of the participants were male, who are 30 years

old and below, married and college graduate. The business

participants were mostly corporation, service business, had

been operating for 5-10 years and have less than 10

employees. The study looked into the participants’ extent

of implementation of their credit management practices on

credit granting, credit monitoring, collection process and

participants implement all practices on all categories to a

very great extent, and it was also revealed there is a

significant difference to the extent of implementation of

the participants when they were grouped according to civil

status, form of business, nature of the business and number

of employees. The results also showed that the main problem

encountered by the participants were mostly on

communication and the recommendation of the participants

focused on reminders to customers.

One of the recommendations was that the selected

businesses may continue doing and using the practices that

results that really helped and improved their business.

Another is that the credit managers or business owners may

explore more practices on dealing with bad debts for a

better extent of implementation. The conclusions that the

researchers came up were despite being relatively young

businesses, they have good credit management practices on

the following categories: credit granting, credit

monitoring, collection process, and dealing with and debts;

businesses had difficulty in implementing.

In the completion of this paper, the researchers would

like to express their gratitude to the following:

- Sir Rufo Tuddao, for guiding and helping us to finish

- Ma’am Cristie Suyu, for assisting and helping us when

we needed advice on our questionnaire;

- To the participants of this study, for giving their