Credit Management and Analysis - Essay Example

CREDIT ANALYSIS Credit granting may be liberal or restrictive. four situations in which a liberal policy would be advisable. Credit granting is a continuous process that involves different norms to be followed. However there are few incidents when the policy can be treated as liberal. First, there is the incident of candidate being an ex-serviceman, second if the candidate is partially handicapped, thirdly if the candidate is senior citizen and lastly if the candidate is a national beneficiary. (Lock, 115) 2.) List six questions that should be asked about a customer's method of operation. The six most relevant questions that should be asked are as follows: The approximate amount of savings per annum The approximate amount of earnings per annum The approximate amount of expenses per annum The approximate creditably of the performing job at the moment The basic formulation of credit repayment by the client The proof of residence and citizenship should also be presented. (Lock, 338) 3.) Name six information sources that are available to credit management. The six most relevant information sources that are available to credit management are social security details, bank balance details, tax return details, electricity details and telephone bills, driving license and employment certificate. (Lock, 334) 4.) Identify six specific items of information that are available from a cooperative bank source. The six specific items of information those are available from a cooperative bank source are agreement details, government registration, balance sheet details, tax return details, reserve bank registration and annual banking transactions. (Lock, 330) 5.) How might marketable securities be valued and which is preferable from the credit-grantor's standpoint It should be taken into account the relevancy of marketable securities depend on the nature of those marketable securities depending on the formulated ascertained value projected. From the credit-grantor's standpoint the best possible marketable securities would be those that are easily liquidated and low in risk. (Lock, 19) 6.) Why would you be interested in obtaining an "Aging" of your customer's accounts receivable The major advantage of a customer's accounts receivable that is ageing is that this would be one of the most applicable means of security possible. Apart from that there remains chance that if used properly this customer's accounts receivable would fetch more premium than the customer's own capacity. (Lock, 176) 7.) What is the value of "Spreading" successive balance sheets on comparison forms To ascertain the consistency of the customer over a period of time the value of "Spreading" successive balance sheets on comparison forms is one of the most advantageous instruments for the credit grantor. This is the best possible proof of the customer's credibility. (Lock, 119) 8.) What are the several advantages of setting credit lines for established customers Name three. There are several advantages of setting credit lines for established customers but the most important could be defined as mutual benefit in terms of trust obtained. The second can be treated as goodwill calculation theory that allows the client to benefit from the credit line. Thirdly it becomes important for the company to overlook few objectives as the customer is tested and proved. (Lock, 22) 9.) You hold a $30,000.00 order from a customer whose regular line of credit is $10,000.00. The customer explains that this out-of-routine order will cover their needs for the next 90 days. The customer has always been prompt and owes nothing at present. Explain why you would accept this order for triple your credit line The prime reason of granting this order to the customer is that the customer's credibility is well tested and proved. Thus it becomes obvious that the customer is to be trusted as a credit line is already established. However, with the assurance from the customer it could be enumerated safe to grant this order. (Lock, 76) 10.) Name three instances in which slow payments need not rule out the customer as an acceptable credit risk. One of the three instances in which slow payments need not rule out the customer as an acceptable credit risk is when the customer holds a credit line already. Secondly there is the goodwill of trust where the credibility of the customer is already proved. Thirdly, the nature and amount of security deposited against the credit amount that is to be considered. (Lock, 342) 11.) Other than a cash-in-hand payment or a certified check, what special arrangements might allow you to sell an otherwise "Undesirable" account Other than a cash-in-hand payment or a certified check, the special arrangements that might allow the credit company to sell an otherwise "Undesirable" account are company securities and bonds that is valued at a market price and regarded as transferable. (Lock, 291) 12.) List four methods of payment you could make available to a delinquent debtor. There are different methods of payment that a credit company could make available to a delinquent debtor. The first method is to sell off the securities that have been kept as a deposit with the company. The second method is to confiscate all tangible assets that the client holds under the allowable parameters. The third method is to confiscate all tangible assets that the client holds under the allowable parameters. The last but not the least is used in a position of mostly fraud and completely delinquent debtor. This method is to sue a file to the authorities as a complaint against inability of repayment of loan. (Lock, 189) 13.) What determines how much time and effort should be devoted to a collection effort The basic variable that the credit company would use to determine how much time and effort should be devoted to a collection effort is the nature and amount of the credit taken. In other case it would be relevant to use the methods of formulation to determine the end utility of the loan amount. (Lock, 221) 14) In Large Organizations, customer accounts are divided among credit supervisors. How might these decisions be made and what are the advantages of each It is a well formulated credit management technique to implement the use of multiple supervisors to look after the customers' accounts. The most relevant advantage would be to gear up the pace of operations that would directly influence the utility of the company. However, there are other advantages too. It would enable the company to monitor the whereabouts of operations at the same time too. (Madhav, 17) References: Lock, D; Perspective and Perceptions of Credit Management; Howard & Price; 1999 Madhav, S; Effective Measures in Management Thought Process; Management Today; Alliance Publishers. 2006, 3 (6). 17, pare 6 Read More