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CHAPTER 1 OVERVIEW OF THE CREDIT MANAGEMENT - Coggle Diagram
CHAPTER 1 OVERVIEW OF THE CREDIT MANAGEMENT
INTRODUCTION :star:
AR :star: A legally enforceable claim for payment to a business
CM :star: The process to make sure the customers will pay
for the products delivered or services provided
COLLECTION
PROCESS
:check: Resolution of disputes or queries
:check: The initiation of collection procedures
:check: Observes the reception and logging of payment (outstanding invoices)
:check: Qualifying the extension of credit
CM :star: Relates to managing AR of a company
OVERVIEW OF
THE CREDIT MANAGEMENT
Credit rating :lock: an assessment of borrower's credit history + their assets and liabilities
Proof credit rating :lock: difficult to obtain credit, if obtained, higher IR
Process of CM :lock: accurately assessing the credit worthinesss
CREDIT HISTORY
Includes :warning: borrowing, repayment
credit cards, bank and car loans, mortgages, etc
Include :warning:
listed late payments, defaults on loans, bancruptcy
open accounts, any credit cards accounts and loans applied-for
A report :warning: related to how an individual managed credit
THE IMPORTANCE
OF CREDIT MANAGEMENT :fire:
:fire: Actions are taken on past due debt may
affect customer relations
:fire: Risk of extending credit = late
:fire: Risk of not extending credit = losing sales
:fire: Amount in AR x receive interest
:fire:
Cash flow
is important to keep running business
3 IMPORTANT STEPS IN
CM PROCESS
:hotsprings: Monitoring amounts that not yet due
:hotsprings: Collecting the outstanding balance
:hotsprings: Reviewing credit worthiness & deciding to extend credit or not
Reasons why customers haven't paid :red_cross:
:red_cross: Unorganized systems
:red_cross: Inability to pay in short term
:red_cross: How the firm practice their cash management
:red_cross: Long term financial problems
3 DIFFERENT PERSPECTIVE
ON THE IMPORTANCE OF CM
2) BANKING INDUSTRY
:heavy_check_mark: Higher risk, higher amount of reserves to maintain solvency and stability
:heavy_check_mark: Loans & Investment
3) INTERNATIONAL FINANCIAL MANAGEMENT
The growth of international trade -liberalization
:heavy_check_mark: Emergence of multinational companies
:heavy_check_mark: Increase in lending internationally
:heavy_check_mark: Increases export goods and services
1) INDIVIDUAL
:heavy_check_mark: Entrpeneurship
:heavy_check_mark: Utility service
:heavy_check_mark: Employment
:heavy_check_mark: Transportation
:heavy_check_mark: Shelter
FACTORS AFFECTING CREDIT MANAGEMENT :forbidden:
Affecting Financial Management :forbidden:
:forbidden: The state of the economy
:forbidden: Securities exchanges
:forbidden: Government regulations
:forbidden: Borrowing costs
Credit Risk Factors :forbidden:
:forbidden: Income
:forbidden: Interest rate (fixed rate of interest vs floating rates of interest
:forbidden: Economy
:forbidden: Outstanding debts
:forbidden: Credit history
:warning: THE ROLE OF CREDIT MANAGER
:warning: Initiating legal or other recovery actions against customers who are deliquent
:warning: Setting credit-rating criteria and ensuring compliance with corporate credit policy
:warning: Enforcing the "stop list" of supply of goods and services to customers
:warning: Monitoring the AR portfolio for trends and warning signs
:warning: Obtaining security interest where necessary such as LOC or personal guarantees
:warning: Ensuring an adequate Allowance for Doubtful Accounts is kept by the company
:warning: Determine credit ceilings
:warning: Maintaining strong cash flows through efficient collections
:warning: Controlling bad debt exposures & expenses
THE CREDIT MANAGER'S CHARACTERISTICS :ballot_box_with_check:
2) Qualifications :ballot_box_with_check:
:ballot_box_with_check: Bachelor's degree in finance, economics, accounting or business
:ballot_box_with_check: at least 5 years of experience in financial role
:ballot_box_with_check: auditor, financial analyst or loan officer
3) Essential skills :ballot_box_with_check:
:ballot_box_with_check: Excellent communication skills
:ballot_box_with_check: Possess strong analytical & mathematical skills
1) Job duties :ballot_box_with_check:
:ballot_box_with_check: Monitors repayment progress and leading collections initiatives for delinquent accounts
:ballot_box_with_check: Approval decision entirely rest in their hands
:ballot_box_with_check: Credit managers in charge of the entire lending process
4) Work environment :ballot_box_with_check:
:ballot_box_with_check: employed in a full-time capacity
:ballot_box_with_check: average > 40 hours worked per week
:<3: ADVANTAGES OF HAVING GOOD CREDIT
:<3: People with bad credit will have higher IR,
as protection for lender if the borrower defaults on loan
:<3: Poor credit - denial of an application,
very high IR on carried balances
:<3: Poor credit difficult for
:<3: To open a bank account
:<3: Rent a home, get a good rate on a car loan
:<3: Good credit will clear the way in a variety of situations
:<3: Good credit score
:<3: Allowing for more flexibiity
:<3: Rewarded : A waiver of annual fees,
etc
:<3: HIgher balance limits
:<3: Good credit records used for
:<3: The better someone's credit, the easier many routine task
:<3: Establishing utility accounts to purchase a home