CREDIT AND COLLECTION CREDITOR - Creditor is an entity or

person that lends money or

INTRODUCTION: extends credit to another party.
(Connotes Trust).
What is CREDIT? DEBTOR - Debtor is an entity or
person that owes money to another
- The power or ability to obtain party. (The capacity and willingness
goods or services in exchange for a to pay).
promise to pay for them later.
- Buy something now and pay for WHO GIVES CREDIT?
later.
- From LATIN word CREDO – Creditor could be a:
meaning to believe, to trust. - Banks
- Means securing something of - Credit Union –institutions based
value, whether tangible or on foundations of not-for-profit,
intangible, in return for a promise cooperative and member-owned
to pay at some determined future ideologies.
date. - Any business selling a product or
- Creates Obligation and rights to services ( i.e. auto loans)
both debtor and creditor. - The government ( i.e. Student
- Transaction involving the transfer Loans)
of goods, services, funds, property - Credit Card companies ( backed
or rights thereby creating an up by credit union) i.e. Visa,
obligation on the part of those who Mastercard etc.
receive them, that must be
complied in the future ( creditor ITEMS THAT ARE BEING LEND /
and debtor) CREDIT

CREDIT DISTINGUISHING FROM GOODS – Groceries, appliances,

DEBT medicines, hardware
SERVICES – Car Repair, Beauty
CREDIT Parlors, Electricity.
- POWER FUNDS – Cash Loans from
- power of a person to obtain pawnshop, banks, lending
goods, or services without the institutions, friend.
requirement of paying for them PROPERTY – Car ( Rent a Car),
immediately upon delivery. beach house ( real Property)
RIGHTS – Possessions ( e.g Stocks,
DEBT bonds, commercial papers, Loan
- OBLIGATION receivables).
- Amount / any remaining
portion of the original amount. Basic elements of credit

Creditor and debtor - It is the ability to obtain a thing of

value.
- a promise to pay.
- definite sum of money
- payable on demand or future - Credit , at times, encourages
time. speculations.
- Credit also tends to contribute to
CHAPTER 2 extravagance and carelessness on
the part of people who obtain it.
The use of credit Because of credit, many
entrepreneurs resort to over-
- The use of credit is the life-blood expansion.
of business.
- Business entities and individuals - Owing to the observation of
find credit a distinct convenience. business can be expanded or
- The customer was able to obtain contracted rapidly through the use
the desired goods even at a time of credit, businessmen are not
when they suffer from a lack of susceptible but eventually
cash or purchasing power. succumb to an air of confidence or
pessimism.
ADVANTAGES OF CREDIT
The cost of using credit
- Credit facilitates and contributes
to the increase in wealth by making Interest – charge paid in terms of
funds available for productive percent and quoted on an annual
purposes. basis for the use of credit.
- Credit saves time and expense by
providing a safer and more - Interest is a price which
convenient means of completing is affected by competitions.
transactions.
- Credit help expand the purchasing Operating Expenses – Cost of daily
power of every member of then operation, investigation and
business community-from producer collection of payment.
to ultimate consumer. Risk –Uncertainty of payment
- Credit enables immediate resulting to losses represent an
consumption of goods thereby added cost of doing business.
providing for an increase in
material well-being. CLASSES AND KIND OF CREDIT
- Credit help expand economic
opportunities through education, 1. PERSONAL / CONSUMER CREDIT
job training and job creation. A. Charge Account (Open-
- Credit spreads progress to various Book Credit, Open-Charge Account,
sectors of the economy. 30-Day Credit)
- credit makes possible the birth of - facilitated using credit
new industries. card.
- credits helps buying become more
convenient for customer.

DISADVANTAGES OF CREDIT
 6. EXPORT CREDIT
ADVANTAGE OF CHARGE ACCOUNT -Letter of Credit
under PERSONAL / CONSUMER -Documentary Bills
Credit -Open Account
7. PUBLIC CREDIT
1. It is a very convenient way -Loans Extended to
of shopping. government whether at the
2. It eliminates the national, provincial or municipal
inconvenience as well as the level.
danger of carrying too much
money. PERSONAL LOANS
3. Charge Account enables
customer to buy goods only at the -Promissory Note –is a written
time they want them. promise that the amount borrowed
4. Charge account enables will be repaid on a certain date.
consumers to obtain goods even -Signature or Character Loan-
before they have the money. borrowing of a person by his
5. Charge accounts provide a signature alone (with good credit
valuable means of reference in standing).
many business transactions. -Co-Signer – Responsible for paying
the debt should the borrower fail to
DISADVANTAGE OF CHARGE pay. (Co-Maker)
ACCOUNT under PERSONAL / -Collateral – anything used as
CONSUMER Credit security for a loan.
-Secured Loan- a loan backed by
1. Installment Credit security.
2. MERCANTILE / COMMERCIAL / -Endorser- becomes responsible
TRADE CREDIT only after the lender has used all
-is granted by manufacture, other means of collecting payment.
wholesalers, and jobbers as an
incident of sale. CHAPTER 3
3. BANK CREDIT – Agricultural
Loans, Industrial Loans, Salary The nature of credit
Loans, Automotive Loans, Deposits
collateral Loans, Interbank call ON BORROWER’S VIEWPOINT -
Loans represent both as a power and as a
4. INVESTMENT CREDIT obligation.
-Type of credit required by CREDITOR’S VIEWPOINT - signifies
businesses and the government to the existence of a legal and moral
finance the construction and right and a expectation of the
operation of certain projects. fulfillment of a promise.
ECONOMIST VIEWPOINT - the
5. AGRICULTURAL CREDIT exchange of actual reality against
-Loans used to finance the future probabilities.
production and marketing of
agricultural products.
LEGALISTIC VIEWPOINT - creates
legal right in favor of the creditor A. CREDIT OF GENERAL
against the debtor. ACCEPTABILITY
-forms of credit which all
persons within a country are willing
HOW CREDIT AFFECTS PRICES to take in payment for goods and
services.
-Credit the use of money and -Known as credit money or
therefore increases the rapidly with bank notes.
which money is used
-Increases and decreases in credit B. CREDIT OF LIMITED
affects prices similar to increases ACCEPTABILITY
and decreases in supply of money. -issued under conditions that
make them acceptable means of
IMPACT OF CREDIT UPON THE payment only within a restricted
CREDITOR AND DEBTOR field.
1.Promissory Note
RISE IN VALUE OF MONEY – Harm 2.Bill of exchange
the Debtor 3.Bank Credit
FALL IN THE VALUE OF MONEY – 4.Open Book Account
Harm the Creditor C. ACCORDING TO FORM
1. DIRECT LOAN- Exact
THE CREDIT CONTRACT amount as contained in the PN is
given to borrower; interest
Characteristics: collected at maturity or
1. A bi-partite contract periodically.
-two parties are involved thus 2. DISCOUNTED LOAN-
is viewed from two points: Interest is collected in advance and
a. Creditor-gives the right to balance is given to borrower.
collect or compel the debtor to 3. OVERDRAFT LOAN- the
perform his obligation. bank honor a check issued by the
b. Debtor-it stresses his duty depositor with a negative balance
to fulfill his promise account.
2. A pecuniary contract D. AS TO TYPE OF USER
-final settlement of 1. CONSUMER OR PERSONAL
transaction in terms of money CREDIT
3. Creates a legal obligation -Extended to individual; short
- creditor acquires a right of term and non-self liquidating.
recourse against the debtor upon a. RETAIL CREDIT –either
default of payment. charge or installment credit.
4. Has the fiduciary element 2. MERCANTILE OR
-contract is based on trust. COMMERCIAL CREDIT
5. Based on personal factors -Extended to businessmen to
-based on credit standing finance the purchase of
inventories.
CLASSIFICATION OF CREDIT
 -Short-term and is self
liquidating.
3. BANK CREDIT
-Loans extended to
businessmen for working capital
purposes.

4. INVESTMENT CREDIT CHAPTER 4

-Long term funds obtained by
businessmen via intermediary Four Common Forms of Credit
financial institution.
-Used to obtain fixed capital Revolving Credit - This form of
-funds are from savings and credit allows you to borrow money
no transfer of goods. up to a certain amount.

PERSONAL LOANS - is a line of credit that you can

borrow from freely but that has a
AS TO MATURITY cap, known as a credit limit, on
1. Unsecured Loan how much can be used at any
2. Secured Loan given time.

AS TO USE
A. AGRICUTURAL CREDIT Revolving Credit
-Intended for the acquisition
of farm implement used in This form of credit allows you to
the production and borrow money up to a certain
marketing of the product. amount. The lending institution
B. COMMERCIAL CREDIT sets a credit limit, or the most you
(Mercantile Credit) can borrow. In revolving credit, the
-Finance the production & borrower revolves the balance by
distribution of commodities rolling from month to month until it
either by wholesale or retail, is paid in full. Interest charges
in storage or in transit to typically occur for any revolving
foreign or domestic market. balance. As the money is paid
C. INDUSTRIAL CREDIT back, the difference between the
-To finance the needs of maximum credit limit and the
industries; long term current balance is available to be
D. EXPORT CREDIT borrowed. This is the most common
-Needed when sales are form of credit issued by credit
made in foreign markets. cards, such as Visa, MasterCard,
E. REAL ESTATE CREDIT and store and gas cards. Credit
-Secured for constructions, cards are considered unsecure
acquisitions, expansion or credit because there is no collateral
improvement of real securing the amount borrowed.
estate properties.
 the set monthly payments.
Common forms of installment
credit agreements are home
mortgages and auto loans.
Installment credit is also typically
secure. Secure credit requires
security for the lender. The
Charge Cards- This form of credit is borrower must provide collateral,
often mistaken to be the same as a something of value pledge in order
revolving credit card. to guarantee loan repayment. If the
borrower fails to repay, or defaults
Charge Cards on the loan, the lender may
confiscate the collateral. A home is
This form of credit is often an example of collateral on a
mistaken to be the same as a mortgage, and a vehicle on an auto
revolving credit card. However, the loan. If the borrower were to
major difference between a credit default, the home or vehicle would
card and a charge card is the credit be repossessed.
card can carry a balance, whereas
the charge card must be paid in full Non-Installment or Service Credit
each month. If the balance is not
paid on time and in full, penalty This form of credit allows the
fees will be added. American borrower to pay for a service,
Express is an example of a well- membership, etc. at a later date.
known charge card. This form of Generally, payment is due the
credit is advantageous against month following the service, and
accumulating credit card debt. unpaid balances will incur a fee,
interest, and/or penalty charges.
Installment Credit. ... Continued non-payment will result
Non-Installment or Service Credit. in service cancellation and can be
reported to the credit bureau,
Installment Credit affecting your credit score. Service
or non-installment agreements are
Installment credit involves a set very common in our everyday life.
amount borrowed, a set monthly Cell phone, gas and electricity,
payment and a set timeframe of water and garbage are all
repayment. Interest charges are examples of service credit.
pre-determined and calculated into