Registered author(s):

 Rafaelita Mercado Aldaba ()

The bank survey showed that the top reasons for turning down financial requests were
the firms` poor credit history, insufficient collateral, and insufficient sales, income or
cash flow, unstable business type, and poor business plan.

Miranda, Gregorio S. - Philippine eLib

Essentials of money, credit and banking. #7

by Miranda, Gregorio S.; [Manila]: L & G Business House, 1985.

Subject: Money -- Philippines; Credit -- Philippines; Banks and banking -- Philippines.

Credits and collections : theory and practice .

by Miranda, Gregorio S.; Manila: National Book Store, 1980.

Subject: Credit; Collecting of accounts.

Credits and collections : theory and practice .#10

by Miranda, Gregorio S.; Manila: National Book Store.

Subject: Credit policy x1 Collection.

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Credit Management

Glen Bullivant

Gower Publishing, Ltd., 2010 - Business & Economics - 735 pages

0 Reviews

The best single-volume guide for anyone responsible for managing credit, risk and customers.
Previously published as Credit Management Handbook, the new edition, with a new editor, has
been revised to reflect changes in practice and technology and is the set text for the Institute
of Credit Management (ICM) examinations.

Search inside

Foreign

2015

 Foulis, Angus

([email protected])

(Bank of England)

 Nelson, Benjamin

([email protected])

(Bank of England)
  Tanaka, Misa

([email protected])

(Bank of England)

Registered author(s):

 Angus Keith Foulis

 Misa Tanaka

Abstract
We construct an overlapping generations macroeconomic model with which to study the
causes, consequences and remedies to ‘credit traps’ — prolonged periods of stagnant
real activity accompanied by low productivity, financial sector undercapitalisation, and
the misallocation of credit. In our model, credit traps arise when shocks to bank equity
capital tighten banks’ borrowing constraints, causing them to allocate credit to easily
collateralisable but low productivity projects. Low productivity weakens bank capital
generation, reinforcing tight borrowing constraints, sustaining the credit trap steady
state. We use the model to study policy options, both ex ante(avoiding credit traps) and
ex post (escaping them). Ex ante, restrictions on bank leverage can help to enhance
the economy’s resilience to the shocks that can cause credit traps. Further, a
policymaker focused on maximising the economy’s resilience to credit traps would set
leverage countercyclically, allowing an expansion of leverage in minor downturns and
reducing leverage in upswings. However, ex post, relaxing a leverage cap will not help
escape the trap. Instead, a range of unconventional policies are needed. We study
publicly intermediated lending, discount window lending, and recapitalisation, and
compare the efficacy of these policies under different conditions.

Registered author(s):

 Gertjan W. Vlieghe 20

Abstract
I develop a model for monetary policy analysis that features significant feedback from
asset prices to macroeconomic quantities. The feedback is caused by credit market
imperfections, which dynamically affect how efficiently labour and capital are being
used in aggregate. I then analyse what implications this mechanism has for monetary
policy. The paper offers three insights. First, the monetary transmission mechanism
works not only via nominal rigidites but also via a reallocation of productive resources
away from the most productive agents. Second, following an adverse productivity shock
there is a dynamic trade-off between the immediate fall in output, which is an effcient
response to the productivity fall, and the fall in output thereafter, which is caused by a
reallocation of resources away from the most productive agents. The more the initial
output fall is dampened with a temporary rise in inflation, the more the adverse future
effects of the reallocation of resources are mitigated. Third, in a full welfare-based
analysis of optimal monetary policy I show that it is optimal to have some inflation
variability, even if the only shocks in the economy are productivity shocks. The optimal
variability of inflation is small, but the costs of stabilising inflation too aggressively can
be large.

Posted on October 14, 2015 08:43:00 PM

By Imee Charlee C. Delavin, Reporter business mirror

CIC begins hunt for credit bureaus

1 2 Google +0 0

THE Credit Information Corp. (CIC) is now accepting applications for firms seeking
to be accredited as special accessing entities (SAE) or credit bureaus for the
envisioned national credit information system.
“The CIC is now accepting applications for accreditation to establish and operate a special accessing
entity described as a duly accredited private corporation engaged primarily in the business of
providing credit reports, ratings and other similar credit information products and services,” the state-
controlled firm said in a notice published in a newspaper yesterday.

CIC said all applications should be submitted on or before Nov. 14, 5:00 p.m., with forms available at
the CIC office in Makati.

Documents will be opened at 2:00 p.m on Nov. 16. Queries should be directed to the CIC’s Web site at
www.creditinfo.gov.ph, the notice stated.

The move is in line with the Credit Information System Act (CISA) or Republic Act No. 9510, and
Securities and Exchange Commission (SEC) Memorandum Circular No. 7, which laid down the rules for
the accreditation of these firms.

The SEC memorandum said entities seeking to establish credit bureaus in the country should have a
minimum paid-up capital stock of P50 million and has the ability to operate a successful credit bureau.

The applicant should likewise use updated technology, have a good governance structure and risk
management framework, among others.

CIC President and CEO Jaime P. Garchitorena earlier said that the firm is looking to accredit credit
bureaus by yearend.

He earlier noted that CIC had been conducting orientations and technical trainings the past two years
on setting up credit bureaus “to assist lending institutions in their compliance with the law.”

Under the CISA, lending institutions need to forward both the positive and negative credit information
of their borrowers to CIC.

These “submitting entities” will similarly be able to access the credit database or get the services of
credit bureaus to establish the creditworthiness of their borrowers.

Last August, Mr. Garchitorena said the CIC met with eight prospective applicants which would access
the CIC’s data and establish a credit bureau in the country.

Mr. Garchitorena did not name the prospective applicants but he disclosed it includes five foreign firms
and three local companies with joint venture partners from abroad.

Once approved, the companies will be considered special accessing entities which could tap credit data
from the CIC.

The CIC aims to have at most five fully operational credit bureaus by yearend and launch its credit
data system, which will provide access to over three million records.

By 2016, Mr. Garchitorena had said that they aim to scale up CIC to 12 million records.

When to consider
customer credit to
boost sales
Offering credit terms to your customers can help increase sales and profits
By Henry Ong | Jun 17, 2013 (ENTREPRENUER PHILIPPINES)
The use of credit cards and other automated payment systems that allow the customer to
conveniently make purchases on credit makes it much easier to sell your goods and
services. In particular, offering payment terms such as zero percent interest for credit card
purchases can attract new customers, which of course can boost sales and lead to bigger
profits.
But to do good business through customer credit, it is very important to maintain a strong
cash position to finance it. So, before deciding to tie up your company\\\'s cash in
customer collectibles, it would be wise to first create a credit policy and a realistic,
doable set of procedures for giving credit and collecting payments. This will give you a
better control of your cash flow.
A credit policy is simply a set of rules and procedures that you need to apply to all
customers in every foreseeable situation. In a credit policy, you normally need to decide
on the following major credit aspects: the maximum amount of credit you are willing to
extend to a customer, the terms of payment (whether 30 days, 60 days, 90 days, or
longer), the down payment required, and the credit evaluation criteria for new customers.
You also need to include in the policy how to go about notifying customers who have past
due accounts, and how to write off account receivables that you have already considered
as bad debts or un-collectibles. When planning your credit policy, it is advisable to
consult your accountant or business advisor for insights and advice on how to best reduce
your company’s credit exposure.

The next step is to determine how much cash reserve you can afford to finance your
credit sales. This is important because your cash is part of your working capital, and you
need to always have enough cash for your inventory purchases and overhead expenses.
For this reason, over-investing in receivables may result in imbalances in your working
capital, which could force you to borrow money to finance your inventory replenishment
and operations. Your accountant can advise you on the maximum credit that you can
extend per customer.

When you sell on credit, there’s also the risk of late payments or even non-payment,
which could impact on the price of their goods and services. These should be budgeted in
the costing, perhaps as a percentage of selling price or of the average receivable balance;
the specific percentages will depend on the nature of the business. The other issue that
you need to establish is the cutoff for charging interest on late payments and how much
that interest should be. You should plan this carefully based on the historical performance
of your collection efforts or based on the advice of your business consultant.

Once you have finished writing your credit policy, you will need to methodically and
consistently implement it in your business. This process should start with an evaluation
of the risk profile of every new customer. You may need to require references,
specifically the creditors that your customer has dealt with in the past. A prospective
customer’s payment pattern history normally can provide good information about his or
her attitude in paying. Does the customer normally pay in cash or by installment? Are
there any other issues about the customer regarding his dealings with suppliers? Have
there been any legal proceedings in the past against the customer about non-payment?
Past business transactions can’t guarantee the future, of course, but the information helps
in making a fair evaluation of your customers before deciding to extend financial credit to
them. Monitoring outstanding receivables from customers is another very important
aspect of credit management. One way to do this is to compute the average collection
period per month. You can arrive at this by first computing the accounts receivable
turnover, which is your total accounts receivable balance divided by the total sales for the
month. Let’s say that your outstanding accounts receivable balance as of November 2006
is P500,000, and that your total sales for the month is P1,000,000. Then the computed
accounts receivable turnover ratio would be P500,000 divided by P1,000,000—or 0.5
times. To get your average collection period, you have to divide 30 days by this turnover
ratio. In the given example, 30 days divided by a turnover ratio of 0.5 yields an average
collection period of 60 days.

By closely monitoring your collection per month based on this computation, you’ll be
able to effectively assess your credit management performance on a regular basis. You
have a choice of doing the monitoring yourself or getting your accountant to do it. The
advantage of having an accountant to do it is that he or she will be able to substantiate the
receivable figures with a receivables aging report, which can help you identify
customers with overdue accounts and alert you early enough on who are most likely to
default.

So what do you do when you have past due accounts? Experience shows that the
likelihood of collecting receivables decreases significantly with the length of non-
payment. For an account receivable that’s 90 days past due, the probability of collecting it
is about 70 percent; after 180 days, 50 percent; and after 360 days, 23 percent. When an
account becomes past due, of course, the first thing to do is send out a polite reminder,
which can then be followed by a series of collection letters, fax, or e-mail. Sometimes
you may need to call or visit your customers personally to find out for yourself if they are
still capable of paying. In extreme cases, such as when collection of the receivable begins
to look hopeless, you may have to hire a collection agency. Usually, collection agencies
will only charge you a percentage of what it collects. At this point, of course, you would
have already written off the bad account from your books, so you can consider any
successful collection made by your agency as an “income” of your business.

You have to carefully manage credit to avoid situations like this. One way is toencourage
early payment with the aid of positive incentives to customers such as price cuts for
cash payments or discounts. On the other hand, you may also impose negative incentives,
such as charging interest for late payments or reducing the credit limit for customers who
habitually pay late.

When you have a past due account situation, it’s always best to first seek a workable
solution with your customer. By patient negotiation, you may be able to work out a
favorable repayment schedule. In the case of large past-due receivables, perhaps you can
negotiate a one-time cash payment plus some payment in kind such as inventory, a laptop
computer, a car, or some other tangible asset of the customer that’s acceptable to you.

Keep in mind that the longer the account stays overdue and the longer you fail to
resolve it with your customer, the less likely you are going to be paid.

Henry Ong, CMA, RFP, is president and COO of Business Sense Inc., a financial
advisory and consulting firm that helps small and medium businesses. Business Sense is
affiliated wit INPACT International Network of Certified Public Accountants. You may
reach him at [email protected] or www.businesssense.com.ph

Understanding credit in
5 C\\\'s
What you need to know before you borrow money
By Entrepreneur Staff | Jul 7, 2011

Funding your business is one of the major concerns of entrepreneurs, especially startup
ones. The most common solution is to get a loan or credit line from a lending institution.

Unlike in previous years wherein getting a loan is as difficult as getting a visa, most
lending institutions now offer easier terms and less stringent requirements for their loans
or credit lines to micro, small, and medium entrepreneurs. However, the basics of credit
remain the same.

To help you better understand what credit is all about, Entrepreneur Philippineslisted
down in their March 2011 issue the 5 most important C’s of credit. Lending institutions,
banks included, give out loans based on these five principles:

Capacity to Pay: How exactly will you pay back the money you borrowed? Does your
business or intended business have a promising cash flow? Do you have a record to prove
that you can pay? Records of former loans could help, and alternative sources of payment
can help prove your capacity to pay.

Capital: The amount of money you have invested in your business tells a lot about the
commitment and risk you’ve been willing to take to ensure its success. A business with
your own assets invested is more convincing than a business that is heavily dependent on
borrowed money.
Conditions: What are you going to use the money for? Is it for expansion? Upgrading of
equipment? Adding inventory? Is the business still sound? Is your industry still
profitable, or is it losing demand? In a nutshell, will the money the bank lends you make
money?

Character: This is subjective but it is still important. Have you made a good impression
with your lender? Have you come across as trustworthy? Do you have a prior good
working relationship with the bank? You may need to present references, and even your
resume, to help determine if you’re good for the loan, and if you have the experience or
the know-how to manage your business.

Collateral: This is a pledge assuring your lender that whatever happens, they will get
back their money. It can be in the form of an asset—the common use for the word
“collateral”—or a guarantee from someone who signs a form, which will hold that person
accountable for your loan in case you fail to make payment (called the “co-maker” of
your loan).

Hiring a collection
agency
Before taking legal action against clients with overdue accounts,
consider hiring a collection agency.
By Mari-An Santos | Oct 14, 2013

Handling your business' finances can be a headache. But it's inevitable, if you want to
ensure the smooth flow of business. What do you do when you've given notice of overdue
account and already sent letters requesting a client to settle the debt?
 When all else fails, you can heed the help of the justice system. But, before you take the
long and costly road to legal action, you may consider employing a collection agency to
handle it. The collection agency takes on the task of collecting debts for you. This is their
core competency, so you might have one less headache if you choose to outsource
collection to them.

But when should you decide to contact a collection agency? According to Emmanuel
Tuazon, First Vice President of PNB's Consumer Banking Sector, they employ the
services of a collection agency "to augment collection efforts for difficult accounts or
those who you might need to do personal visits or skip-tracing. For cards, we may begin
as early as the 90-day past due dates."

GETTING TO KNOW AN AGENCY

There are so many notions as to what a collection agency does and how it goes about
achieving its goal. Ernesto Sanchez of Nobility Collection Agency, Inc., enumerates the
services usually offered by agencies such as theirs:

1. They send out a demand letter to the debtors, followed up by a

series of communications.
2. They provide copies of the letters mentioned above to the
collectors for personal follow-ups.
3. They can provide the client with the credit standing of the debtor,
such as, but not limited to, its history of bouncing checks, broken
promises, extending the payment beyond the terms of the purchase
order.
4. They investigate with the different government agencies to check
whether the debtor has properties which can be acquired by the client
if they can get a court ruling to do so.
5. They go after the corporate officers if the principal debtor has run
away.
6. They can also perform other tasks requested by the client.
 Sanchez says "a reputable collection agency has a complete team of collection personnel
doing various collection tactics, such as sending out demand letters, and phone follow-
ups by telecollectors. Sometimes, it employs motorized collectors and investigators who
report to the company periodically."
He explains that they "send investigators to those who are reported to have moved out
without giving the forwarding address. Inquiries are made from different informants until
the new address is finally located." He also points out that in case they are not able to
successfully collect from the debtor, they have a 'No collection, No commission'
arrangement. This way, you know that a collection agency will really strive hard to meet
the objective.
CRITERIA FOR CHOOSING
Tuazon says that one consideration in choosing an agency is the location of your debtor,
as "agencies have predefined coverage areas of operations." He cites other factors you
should consider in a collection agency:
1. Relative experience in recovery and the kinds of collectibles they usually handle
2. Kind of collection activity standards which the company uses or follows.
3. Company's resources: number of collectors, support logistics that they have, area
of operation and if they have sub-offices
4. Fees: Do you pay them after collection is resolved? Is it on commission basis or is
there a fixed rate?
It's important to obtain all of these information before you finally decide if the cost
outweighs the headaches and stress you would otherwise need to endure in order to
collect debts.

Access to credit, red tape

impede SMEs’ trade gains
 News

 Top News
by BusinessMirror - November 23, 2015
0 218

I
n Photo: Trade and Industry Assistant Secretary Rafaelita M. Aldaba recognizes participants in the
“Global Value Chains, Industrial Policy and SME Integration in GVCs: Transformation Strategies for
More Inclusive and Sustainable Growth,” a conference held in Makati City that aims to provide a
venue for sharing of knowledge and discussions on several issues, which can serve as vital inputs to
government policy-making and industry-development activities.

By Catherine N. Pillas & Genivi Factao

THE participation of local small and medium enterprises

(SME) in supply-chain trade is among the lowest in Asean,
a situation that can be remedied through increased
financial access, better infrastructure and reforms in the
ease of doing business, according to the Asian
Development Bank (ADB).
Dr. Ganeshan Wignaraja, advisor at the ADB Economic
Research and Regional Cooperation, said the Philippine
SMEs’ participation rate in value-chain trade is just at
20.1 percent.

This is based on the preliminary results of the survey

done for Wignaraja’s study, titled “Factors Affecting Entry
into the Supply Chain Trade: An Analysis of Firms in
Southeast Asia.”

In Thailand, 29.5 percent of the SME base is present in

the value-chain trade; in Malaysia, 46.2 percent; Vietnam,
21.4 percent; and India, 11.5 percent. Indonesia’s
engagement rate is the lowest, as only 6.3 percent of
SMEs in the country are able to enter the global value
chain of larger firms.

Value-chain trade refers to activities that are part of a

larger firm’s production network. The survey was done
with a total sample of 5,900 firms across the five
economies.

In terms of the size of enterprises, larger firms in the

Philippines are able to penetrate the value-chain trade
more, with 51.1 percent of all large companies taking part
in the global value chain.

Access to credit

A key constraint affecting the participation rate of SMEs,

Wignaraja said, is access to credit.
“I think this is a particular problem in this country. The
credit gap in Asia affects 9 million firms across the
region…in the Philippines the interest rate is very high…
credit is a problem. A policy implication for me is how do
we involve the banking sector in financing firms to
become more competitive?” he said.

Credit gap is the difference between formal credit

provided to SMEs and total estimated potential need for
formal credit, Wignaraja said.

For the Philippines, the credit gap is estimated at $2

billion, or roughly $59,000 credit value per enterprise.

To respond to the gaps in the financial system, Wignaraja

recommended the introduction of better credit rating and
databases, expansion of partial credit guarantees,
introduction of innovative schemes to expand collateral
and scaling up of microfinance and have it linked to the
financial system.

Other factors hindering better participation of SMEs are

infrastructure and ease of doing business,
citing a World Bank-International Finance Corp. study.

“The problem is, it takes 34 days and 16 procedures to

set up a business according to the World Bank, and a
second problem is that even if infrastructure spending is
growing, from 2.1 percent of GDP in 2012, from around
1.4 percent in 2008, the real issue is to do well and have
world class infrastructure, it has to be at least 3-percent
to 3.5-percent GDP,” recommended Wignaraja, citing that
China spends at least 6 percent, while India has doubled
its infrastructure spending.

Addressing these problems, Wignaraja said, is significant,

as SMEs contribute 63 percent to total employment in the
Philippines, and currently contribute around 35.7 percent
of GDP.

FTA utilization

In other countries, Assistant Secretary for Industry

Development and Trade Policy Rafaelita M. Aldaba said
SMEs’ share in total employment is at 75 percent.

Aldaba said the final results of a nationwide survey

polling the awareness and utilization of manufacturing
micro, small and medium enterprise (MSME), numbering
to around 1,000 firms, of the country’s various free-trade
agreements (FTAs) will be released in the first quarter of
2016.

“This covers NCR [National Capital Region], Calabarzon

[Cavite, Laguna, Batangas, Rizal, Quezon], Central Luzon,
Davao, Cebu and Iloilo. The preliminary result on
awareness is around 50 percent,” Aldaba said on the
sidelines of the Board of Investments’s Global Value
Chains Conference, held on Monday.
The trade official said that according to preliminary
results, lack of information has been cited as the primary
reason for the low awareness rating, as well as the
complexity of the FTA regulations.

For the utilization, Aldaba cited a previous study of the

Philippine Institute of Development Studies, which pegs
the utilization rate at 30 percent.

The trade official said this rating is comparable to other

Asean members, so the Philippines is not necessarily a
laggard. Aldaba said according to the SME Development
Plan of the government, they are aiming for MSME
contribution to GDP to increase from around 35 percent to
40 percent from 2011 to 2016.

SME credit gap

The ADB said the Philippines still needs to improve the

financial system to close the $2-billion credit gap for
SMEs. The unmet credit could increase, depending on the
robustness of SMEs. “It [credit gap] could go higher,
depending on where SMEs would be. SMEs have an
important role in Asean integration and the Philippine
growth to maintain the 6-percent plus GDP growth,” he
said.

“The government has to improve, by privatizing

government banks and further opening up the banking
sector by allowing entry of more foreign banks so that we
have more financing options. And then, scale up the
microfinance. They must also adopt innovative scheme to
improve collection, have better credit rating and
guarantee system,” he told the BusinessMirror.

He also stressed the need to foster stock- and bond-

market development and ensure adequate
macroprudential regulation and capacity. “Banks and
nonbanks must increase lending to SMEs. With the Asean
integration, we will have more business opportunities that
need financing,” he said.