2. SOURCES OF CREDIT
INFORMATION
◦ Personal Interviews
◦ Personal References
◦ Credit Reporting Agencies
◦ Credit Bureaus
◦ Banks
3. CREDIT MANAGEMENT
To arrive at a sound judgment of
customers, a credit manager must know:
◦ Whether the owners or managers concerned
are honest and intend to repay their debt;
◦ Whether the history of the concern shows
satisfactory progress;
◦ Whether current operations and financial
position of the concern are sound.
4. COLLECTION OF POLICIES
AND PRACTICES
CAUSE OF DELINQUENT ACCOUNTS
◦ From the point of view of collection problems there
are several types of debtors such as:
1. The debtor who misunderstands the credit terms
2. The careless debtor
3. The debtor who ignores small bits
4. The debtor who is good but temporarily out of funds
5. The chronic slow debtor
6. The unethical unfair debtor
7. The insolvent debtor
8. The dishonest debtor
5. IMPORTANCE OF A PROMPT
COLLECTION POLICY
ADVANTAGES OF PROMPT COURTEOUS
COLLECTION POLICIES
1. Requires less working capital tied up in
receivables.
2. Reduces the losses from bad debts.
3. Decreases the probability of expensive legal
action.
4. Reduces costs of correspondence, bookkeeping
and collections.
5. Discourages poor risks from customers.
6. Reduces loss of sales which often occurs when a
delinquent customer believes he will be refused
further credit and so buys elsewhere.
6. PRINCIPLES OF A SOUND
COLLECTION POLICY
The following principles may serve as bases
when formulating collection policies:
1. The creditor should inform the debtor in precise, clear
words, the terms of credit.
2. The creditor should enforce the credit terms.
3. When an account becomes overdue, the collection
machinery should be started at once.
4. It is useless to undertake prompt collection action
unless the follow-up steps are just as prompt.
5. The regularity and timing of the successive steps in
the collection procedure are as important as parts of
an effective collection policy as promptness in
following up the initial action.
7. COLLECTION METHODS
AND PROCEDURES
STATEMENTS
◦ The first step in any collection system always
consists of mailing a statement to all debtors
as a reminder that their obligations are due
and payment is expected.
8. COLLECTION METHODS
AND PROCEDURES
COLLECTION LETTERS
◦ The most commonly used method after the
account has passed the “statement stage”.
◦ If written appropriately, the collection letter is
one of the most flexible collection instruments
adaptable to practically any situation that is
collectible short of legal action.
9. COLLECTION METHODS
AND PROCEDURES
THE PERSONAL CALL
◦ Next to the collection letter, the personal call
is probably the most common method of
collecting overdue accounts.
◦ Manufacturers and wholesalers rely upon their
salesmen to make the necessary collections
from customers in their respective territories.
10. COLLECTION METHODS
AND PROCEDURES
THE USE OF TELEPHONES
◦ The telephone is a cheaper, quicker
substitute for personal collector.
◦ The disadvantage in using the telephone is that
money cannot be paid by phone. The debtor,
therefore may promise to make payment and
then later change his mind.
11. COLLECTION METHODS
AND PROCEDURES
THE USE OF REGISTERED MAIL
◦ If the collection letters sent to the debtor by
regular mail are not answered, a registered
letter may be used effectively.
◦ By requesting a return receipt, the creditor is
informed when the message has reached the
debtor.
12. COLLECTION METHODS
AND PROCEDURES
ATTORNEYS AND COLLECTION
AGENCIES
◦ After all the means have been exhausted, and the
creditor is ready to cut his business relations with the
delinquent debtor, a letter is sent to the debtor
threatening to place his account in the hands of an
attorney or collection agency unless payment is made
within a specified time.
