L5-8

Question 1

It refers to a document which evidence the existence of credit transaction to establish the rights and responsibilities of the parties to the transaction.

Answer 1

Credit Instrument

Question 2

It described as an acknowledgement of a debt by the buyer, in favor of the seller for merchandise.

Answer 2

Trade Acceptance

Question 3

It is executed by the maker who, as is logical to expect, is the debtor who promises that he will pay seller the amount owed at certain determinable time.

Answer 3

Promissory notes

Question 4

It is an unconditional order in writing addressed by one person to whom it is addressed to pay the demand at a fixed future time a certain amount of money to specific person.

Answer 4

Bill of Exchange

Question 5

a kind of bill of exchange that is legally defined as one wherein the drawer and the drawee reside in two different countries.

Answer 5

Foreign Bill

Question 6

A kind of bill of exchange wherein the parties both reside in the same country.

Answer 6

Domestic Bill

Question 7

It is also called as another form of credit instrument whereby through its use, holders thereof are able to purchase goods and services on credit against payment in the future.

Answer 7

Credit Card

Question 8

It is a letter used by a bank authorizing a designated individual firm or corporation to draw on it up to the total amount for which the credit is established.

Answer 8

Letter of credit

Question 9

A type of letter of credit that cannot be cancelled or revoked at any time after its issuance or better expiration.

Answer 9

Irrevocable letter of credit

Question 10

It also known as “Book Credit”

Answer 10

Open Book Account

Question 11

A type of letter of credit that could be revoked under such condition.

Answer 11

Revocable letter of credit

Question 12

It is a written account of goods shipped by any person, signed by the agent of the owner of the vessel, or by its master, acknowledging receipts of the goods and promising to deliver them safe at the port directed, damages of the sea excepted.

Answer 12

Bill of Lading

Question 13

Three important purposes are served by a bill of lading. (reading purposes)

Answer 13

1. It conveys title to the merchandise.
2. It is a receipt of acknowledgement of the goods signed by the carrier.
3. It serves as a contract of transportation between the shipper and the carrier.

Question 14

It is a document that is frequently used to protect the bank when it becomes necessary to release the goods in order that the borrower may utilize or dispose of them. Also defined as a “receipt given” by an importer who has loaned money upon importer’s goods.

Answer 14

Trust Receipts

Question 15

It is a “written acknowledgement” by a warehouseman that holds certain goods, identified by the receipt, for the person to whom the writing is issued.

Answer 15

Warehouse Receipts

Question 16

Obligation to Deliver (reading purposes)

Answer 16

A warehouseman, in the absence of some lawful excuse provided by the warehouse receipts law, is bound to deliver the goods upon a demand made either by the holder of a receipts for the goods or by the depositor, if such demand is accompanied with.

Question 17

Liability for Misdelivery (reading purposes)

Answer 17

Where a warehouseman delivers the goods to one who is not in fact lawfully entitled to the possession of them.

Question 18

It is the most commonly known legal instrument for secured borrowing in business either individual or corporate form.

Answer 18

Mortgage

Question 19

Those are personal property that are movable.

Answer 19

Chattel Mortgage

Question 20

Those are property like land, building, machinery and factories which are immovable.

Answer 20

Mortgage on Real Property

Question 21

It refers to mortgage by a corporation used as collateral security for a loan of a fixed amount.

Answer 21

Close – end mortgage

Question 21

This is type of mortgage, a corporation may issue bonds in whatever number it may deem proper under the circumstance.

Answer 21

Open – end mortgage

Question 22

It is a “bailment of goods” by a debtor to his creditor to be kept till the debt is discharge.

Answer 22

Pledge

Question 23

Object of Pledge (reading purposes)

Answer 23

All movable which are within the commerce of man may be pledged, provided they are susceptible of possession.

Question 24

Essential requisites to Pledge and Mortgage (reading purposes)

Answer 24

1. That they be constituted to secure the fulfilment of a principal obligation. 2. That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged. 3. That the person constituting the pledge or mortgage have the free disposal of their property.

Question 25

The time element, which involves the determination as to when payment shall be made

Answer 25

Commonly known as bill on “terms”.

Question 26

It measure the or specify the credit period when payment will be made.

Answer 26

Term

Question 27

The nature of the commodity generally circumscribe the terms of sales such as: Cash Basis, Instalment basis, Deferred payment

Answer 27

Commodity as Factor

Question 28

In a number of instances, the seller recognizes the distant location of the buyer and make concession in the matter of terms.

Answer 28

Geographic Consideration

Question 29

Term will only effect after the said “R.O.G’ which means

Answer 29

“Receipt on Goods”

Question 30

The “regular terms” of trade usually apply to shipments of order received for delivery at once. Receive an order in advance which are to be shipped at a certain date.

Answer 30

Seasonal Dating

Question 31

It tender partial payment from time to time in accordance with the agreement between sellers and buyers.

Answer 31

Terms in Retail Trade

Question 32

It refers to the customers having doubtful character or capacity to pay.

Answer 32

Standing of Customer

Question 33

It refers to the goods delivered to the buyer only when the seller obtains receipts of funds corresponding to value of goods ordered.

Answer 33

Cash Terms

Question 34

It applies to transaction in which the seller receives the cash payment as a condition to deliver goods.

Answer 34

Cash before Delivery (CBD)

Question 35

It refers to the willingness of the seller to deliver goods to their valuable customers even in the absence of promise to pay

Answer 35

Cash on Delivery (COD)

Question 36

Frequency of purchase or other circumstances may make necessary for certain special treatment of individual cases.

Answer 36

End of the Month (EOM)

Question 37

It refers to the bonus offered to induce the earlier payment of the bill. And it reduces the credit risk of the seller and enables to have earlier possession of funds.

Answer 37

Discounts

Question 38

It is the price paid for the early payment of funds. It arises where the terms allows the buyer to pay on certain date, net, or prior thereto less discounts.

Answer 38

Cash Discount

Question 39

The discount may be an allowance offered at the end of the given period for the purchase in excess of its stipulated amounts. It is distinctly an elements of price.

Answer 39

Trade Discount

Question 40

It is tasked and responsibility around the gathering of all credit information about the applicant and assembling them in such a way that they could be help in properly guiding in their assessment and analysis for the purpose of establishing credit rating.

Answer 40

Credit Department

Question 41

It is a man who occupies a very important position in the structure of credit economy and yet is little known and least talked about outside the world in which he lives.

Answer 41

Credit Manager

Question 42

Importance of Credit Management (reading purposes)

Answer 42

There is hardly any business concern today which is not engaged in the grant of credit of one type or another. However, briefly pointed out, granting credit is one thing and collection is another.

Question 43

This tasked is perform by the bank’s credit investigator who has, as his main objective, the verification as well as evaluation of the applicant’s character, credit standing, and integrity through the process of data gathering of all essential facts.

Answer 43

Credit Investigation

Question 44

Whether the investigation is routine matter or a special case and the purpose is general or specific.

Answer 44

Purposes and types of investigation

Question 45

Whether the policy is a conservative or liberal one, and whether it requires a comprehensive investigation of cases, or representative sampling would suffice.

Answer 45

Company Credit Policy

Question 46

Whether the client is new or an established one. A past–due account or valued one.

Answer 46

Client Classification

Question 47

Whether the amount is big or small.

Answer 47

Amount involved

Question 48

The scope depends on such factors since the report must be finished on the date it is needed by the requesting bank.

Answer 48

Time and resource constraints

Question 49

It covers the complete business records such as the date of incorporation, type of business organization, record of registration with the proper authorities, the names of incorporators and the summary of operating records.

Answer 49

Company’s background / History

Question 50

The investigator also takes into account the requirements common in the following types of business organization: (reading purposes)

Answer 50

a. Single Proprietorship – sees to it that the owner has the capacity to enter into a lawful contract. b. Partnership – the first fact to be ascertained is whether it is general or limited partnership. c. Corporation – it is the most complicated form of business organization and moreover classified into various types: - Most common types of Corporation o Public and Private Corporation o Stock and Non Stock o Domestic and Foreign

Question 51

Herein is represented in summary form a breakdown of the financial statement of the company, reflecting its latest financial condition and the result of operation for the past three or five years.

Answer 51

Financial Condition

Question 52

The credit investigator concentrates on the size and degree of fluctuation on borrowings as well as the nature of the security pledged to secure the loan.

Answer 52

Dealings with the Government Lending Agencies

Question 53

Has there been any previous relationship established in the past?

Answer 53

Bank’s experience with the subject

Question 54

From the Credit Management Association of the Philippines (CMAP) data on court cases could be gathered information about the subject’s involvement in, not only collection and other civil cases, but also criminal cases as well.

Answer 54

Court Cases

Question 55

Generally, the scope of credit investigation covers and includes the following: (reading purposes)

Answer 55

I. Company’s background / History II. Financial Condition III. Dealings with the Government Lending Agencies IV. Bank’s experience with the subject V. Court Cases

Question 56

It has been described as a “Decision in Advance”. It evolves from an unwritten set of standards, sometimes very nebulous, to more specific criteria covering the condition under which loans are made.

Answer 56

Credit Policy

Question 57

How Bank Loan Policy is formulated? (reading purposes)

Answer 57

* As generally observed, common practice among banking institution, the actual preparation of policy statement usually carried out by the president or senior loan and credit officer. * It also includes to types of loans and basis upon which loan application may be considered. * Kinds of securities that are considered acceptable by the credit granting institution.

Question 58

Specific guidelines for particular types of categories of bank credit such as: (reading purposes)

Answer 58

1. Agricultural Credit 2. Commercial Loans 3. Industrial Loans 4. Real Estate loans 5. Consumer Loan 6. Term Loan

Question 59

It adopt a system of gathering and putting every information about customer and application into a folder which is filed in proper order.

Answer 59

Credit File

Question 60

After adopting a credit policy, the business enterprise must decide just what are its credit terms, credit periods and credit limits:

Answer 60

Scope of Credit Policy

Question 61

It is a condition under which credit is granted. it includes time when payment has made and discounts if any, that will be allowed for prompted payment.

Answer 61

Credit terms

Question 62

It is the length of time within which customer is expected to remit in partial or full.

Answer 62

Credit Period

Question 63

It is used as the maxima of credit or the value that a customer can obtain from the firm.

Answer 63

Credit Limit

Question 64

Advantages of Credit Limits (reading purposes)

Answer 64

* It is their general use in the nature of danger signals of granting credit. * By and Large, the principal purpose and advantage of credit limits is to serve as a guide to credit management and control. * It serve as a check against reckless buying spree.

Question 65

It is the maximum amount of credit which may be permitted to remain outstanding on account.

Answer 65

Quantitative Credit limit

Question 66

It impose certain requirement which a borrower or prospective debtor must comply before he could grant credit.

Answer 66

Temporal Credit limit

Question 67

It is a complex process known as credit checking or credit granting. It involves a thorough study and understanding of financial facts recorded in the balance sheet, income statement, trial balance and separate schedules.

Answer 67

Financial analysis

Question 68

It is the basis of the credit decision.

Answer 68

Credit Analysis

Question 69

It is the gathering of available information about the applicant.

Answer 69

Credit Information

Question 70

Principal Sources of Information A. Internal Sources (reading purposes)

Answer 70

1. Debtor’s previous record with the business firm 2. Credit man’s personal knowledge of debtor’s character and reputation. 3. Personal Contacts with debtor. 4. Analysis of debtor’s financial statement 5. Audits or surveys of the business.

Question 71

Principal Sources of Information B. External Sources (reading purposes)

Answer 71

1. Mercantile Agencies 2. Trade References 3. Banks 4. Newspaper clippings 5. Court cases 6. Report from competitors of the borrower.

Question 72

It is initially started when a prospective borrower applies for a loan.

Answer 72

Personal Interviews

Question 73

An interview with the seeker of credit may be followed by conducting an actual observation or visitation to plant, equipment and other asset which are offered as collateral security.

Answer 73

Ocular Inspection

Question 74

It may be described as any representation of financial data from accounting records.

Answer 74

Financial Statement

Question 75

Three fundamental of Financial Statement (reading purposes)

Answer 75

1. Balance Sheet – which depicts the financial condition of the business firm at the end of a specified period. 2. Income Statement (Profit – Loss) – statement which summarizes the financial operation over a period of time. 3. Reconciliation of the capital accounts and summary changes. (Statement of Changes in Owner’s Equity)

Question 76

It is in favored position, if properly instructed, too collect an immense wealth of information about the applicant which perhaps is scarcely available elsewhere.

Answer 76

Salesman as Sources of Credit

Question 77

This is due to the observation that research men engaged in the collection of needed information enjoy a certain latitude of freedom from any bias or prejudice.

Answer 77

Market Sales Department

Question 78

It may be described simply as that company which gathers and distributes information about the credit position of individuals, firm, and corporation.

Answer 78

Credit Agencies

Question 79

Types of Credit rating Agencies (reading purposes)

Answer 79

a. Agencies that provide credit information with regard to businessmen and companies. b. Agencies that provide credit information with regard to individual purchaser.

Question 80

It is composed of more than 200 member – companies from the banking and trade, manufacturing, financing and insurance communities.

Answer 80

Credit Management Association of the Philippines (CMAP)

Question 81

Three Main Themes of CMAP (reading purposes)

Answer 81

1. To inculcate credit consciousness. 2. To place the credit men as a professional. 3. To infuse credit discipline

Question 82

Services offered by CMAP (reading purposes)

Answer 82

* Quarterly survey of Credit and Collection Bureau * Listing of Overdue Account * Listing of Court Cases * Listing of Return Checks. * Listing of Corporation and Partnership * Ledger Interchange

Question 83

The foundation upon which the system of credit rests has been indicated earlier. The bases of credit which are intertwined with credit analysis and evaluation.

Answer 83

Bases of Credit

Question 84

willingness to discharge financial obligation

Answer 84

Character

Question 85

ability to conduct business efficiency, effectively and profitably.

Answer 85

Capacity

Question 86

refers to capital goods that are used in the further production of more goods.

Answer 86

Capital

Question 87

refers to compensating consideration purposely intended to shield the interest from bad debts.

Answer 87

Collateral

Question 88

it is the stability of the country which pertains to the risk of exchange must also be taken into account.

Answer 88

Currency

Question 89

which is by far is the principal C of credit represents a good moral risk

Answer 89

Confidence

Question 90

it is also another bases of credit, relationship between the credit and the debtor

Answer 90

Connection

Question 91

It emphasizes a firm’s financial performance and its asset position as a specified dated. The main trust of this approach is on capacity.

Answer 91

Inward Approach

Question 92

It emphasize on industry conditions, plans, forecast, and general outlook.

Answer 92

Outward Approach

Question 93

Sound credit management principles revolve around the three E’s such as:

Answer 93

1. Estimation 2. Enforcement 3. Evaluation

Question 94

All available resources of credit information must be tapped and utilized so that a proper estimation of the credit risk can be obtained.

Answer 94

Estimation

Question 95

Collection records must be kept and maintained and should indicate when notices were sent;

Answer 95

Enforcement

Question 96

Sound credit management principles dictate the result must be evaluated against company policies and procedures.

Answer 96

Evaluation

Question 97

It refers to dishonest firms and individuals are known by various names and employ various tricks. A big-time syndicate, who victimize business firms involving large sums of money.

Answer 97

Credit Fraud