Credit and Collection

An Introduction
“Making money is a
hobby that will
complement any
hobbies you have
beautifully.”
-Scott Alexander-
 The Need of Money
• Money originated in man’s rational effort to
meet the necessity of finding some medium of
exchange.
• Money is responsible for increasing
production and thus, adds to the creation of
wealth and also accelerating consumption
with the concomitant rise in the standard of
living of the people.
 Doctrines of Credit
• Damnum Emergens
– The suffering of loss by the lender, where a delay
occurred in the repayment of a loan, the lender
was entitled to exact a conventional penalty.
• Lucrum Cessans
– To have lost the chance of gain through lending
money also became a justification for the
receiving of interest.
The Growing Need and Demand of
Money
• The decline in the spiritual power of the
church and the eventual recognition of the
institution of private property.
• The demise of the barter as a method of
exchange in progressive countries of the
world.
• Justum Pretium – the doctrine of the just
price
 Basic Concepts of Credit
• Credere – “to trust”
• Credit refers to the ability to acquire
something of value, such as goods, services,
securities or money at the present time to
return for a promise to pay at some future
time.
• There are two parties involved in any credit
transaction: CREDITOR & DEBTOR
 The Development of Credit
• The credit system reflects in many ways the
degree of economic and social values and
institutions pervading in a particular society at
a given point in time.
• Credit, being a tool of development and
progress of people and society, has, from
ancient times to the present, serviced the
specific relevant needs of the economy.
• However, in several instances in the past and
in the present, credit has been improperly
used by both individual and institutional
borrowers. They have utilized their loan only
to promote their own personal interests and
welfare at the expense of real productivity and
national development.
• Rupert (not his real name) applied for a salary
loan from SSS. At that time, he was qualified
to borrow up to Php30,000. In his application,
he said that the purpose for the loan was for
the improvement of their small
sari-sari store.
• His TRUE intention however was to buy
a
new cellphone worth Php36,000.
• As per SSS policy
– The loan shall be charged an interest rate of
10% per annum based on diminishing principal
balance, and shall be amortized over a period
of 24 months
– Interest of 10% shall continue to be charged
on the outstanding principal balance until fully
paid
– A service fee of 1% of the loan amount shall be
charged and deducted from the proceeds of
the loan.
 Other Definitions of Credit
• Credit is an entry in the books of a bank
showing obligation to a customer.
• Credit is an entry showing that the person
named has a right to demand something but
not necessarily money.
• Credit pertains to an exchange transaction.
.
• Credit is the ability to obtain goods or services
or even money against a promise to pay for
them at a later date
• Credit is a document which serves to evidence
the existence of a business transaction
anchored on trust.
 The Use of Credit
• “Lifeblood of business”
– The business which sells goods on credit confers
benefit to its customers just as it helps the
continued operation of its business.
Basic Elements of Credit
 Advantages of Credit
• Facilitates and contributes to the increase in
wealth by making funds available for
productive purposes.
• Saves time and expense by providing a safer
and more convenient means of competing
transactions.
• Helps extend the purchasing power of every
member of the business community from
producer to the ultimate consumer.
• The schedule of the payroll of Millie (not
her real name) is on the 13th and 28th of
the month.
• Her monthly net pay is around Php8,000.
• According to her, her net pay is not enough
to cover for all her expenses. She said she
uses her credit card to pay for her needs
when cash is not available but
IMMEDIATELY pays when she receives her
next pay.
• Enables immediate consumption of goods
thereby providing for an increase in material
well-being.
• Helps expand economic opportunity through
education, training and job creation.
• Spreads progress to various sectors of the
economy
• Makes possible the birth of new industries.
 Disadvantages of Credit
• Encourages speculation
• Tends to contribute to extravagance and
carelessness on the part of people who obtain
it
• Because of credit, may entrepreneurs resort to
overexpansion.
• Lisa is working in a call center as a trainer.
She has 4 credit cards. Each has about
Php50,000 credit limit.
• According to her, there are instances when
she “maxes out” her credit limits in all her
credit cards.
• When asked what she usually uses her
credit cards for, she said it was usually
splurges on bags, shoes, clothes,
accessories, and make-up.