, New Era University

VANTAGE EDUCATION MANAGEMENT

(Distance Education)
9 Central Avenue, New Era, Quezon City, 1107, Philippines

Subject : Credit and Collection FM 11-06

Term : 1st Semester, 2018 – 2019
Professor : Elizabeth T. Banan
E-Mail Add. : [email protected]

Topic: CREDIT INVESTIGATION Procedure and Reports

Week: No. 08
Introduction

After all, lending money is risky business-profitable, yes, but risky nonetheless. In
an effort to reduce that risk, banks and loan companies hire a Credit Investigator, to
perform credit checks on each loan applicant. If you're a Credit Investigator, you
might work for a company that offers credit through retailers.

A credit investigation is a procedure undertaken by a financial institution to vet a

potential client's ability to pay back a loan. Failure to pass this procedure means
disapproval of a loan.

Credit Investigation Process

Personal Data Verification 

Have the client and his place of residence be investigated by a third party credit
investigator. Check the validity of the information that the client provided in the
application form. 
  
Loandex / Negative Data Bank / Negative File Information System
Check the existing bank loans of the client through Loandex to determine if he / she
is overly leveraged. Negative findings with previous loans, current accounts, credit
cards and court cases can also be viewed from the negative file information system.
This report will determine the character of the client. 
  
Bank Checking
It is important to check and verify the existence of bank deposits of the borrower
with other banks. In this way, you will be able to determine his / her cash flow and what
type of depositor he / she is. 
  
Business verification 
to be qualified for a commercial loan, one must have a source of income or
business. You need to know the kind of business you are going to finance and its
capacity to operate for long term to ensure that the money that will be lent will be repaid.
You also need to know the legality of the business by verifying it with DTI if sole
proprietorship or with SEC if partnership or corporation. 
  
Trade Verification
Another way of determining the character of the borrower and the stability of the
business is through trade verification. Interview with the customers and suppliers is
important to know the average volume of client’s business and what kind of payer he /
she is. 
  
Employment Verification
This applies to clients who are also employed. It is important to check your client's
employment income as this will further strengthen his / her ability to repay the loan. 
  
Rental Verification
For a client with leasing business, the rental income and existence of tenants must be
verified since this is also source of repayment. 
  
Court Case Verification
If a client has a court case found in the negative data, its extent and status must be
verified with the concerned regional trial court. If the case is criminal or still unsettled,
then decision must immediately be made if you will still pursue the credit application
process or not. The type of character of the client is reflected on this report. 
  
Others
There are other possible credit investigation processes that can be done to determine
the worthiness of the client. 

The Credit Application

The necessary components:

1. Date
2. Your company name, subsidiary, division or business unit that the prospective
new account request is for. (Important for multi-divisional companies)
3. Customer bill to name, street, city, state, zip
4. Customer ship to name, street, city, state, zip
5. Owners name (can be an individual, group or another company)
6. Telephone number
7. Legal characteristic -- sole ownership, partnership, corporation or other
8. Type of business -- example: distributor, retailer, wholesaler
9. Your salesperson's name
10. Bank references: name, address, phone number, officer, type of account
11. Trade references: name, address, phone number
12. Year business started
13. Other customers your company sells in the marketing region
14. Does the subject rent or own premises
15. Include a statement asking for sales and use tax exemption (resale certificate) to
be mailed with the application
16. (For proprietorship) ask for the owner's social security # and a "signature/date
block" asking their permission to order a personal credit bureau report
 17. Request a blank copy of the customer's purchase order (front & back). See
"Customer Purchase Order" section

The optional components:

1. How much credit is requested

2. Listed in Dun & Bradstreet or other credit reporting agency
3. Buying group affiliation
4. Home telephone number
5. Branch operations and listing
6. Contact name: buyer and accounts payable manager
7. Salesperson's comments: competitive brands; condition of business
(exterior/interior); condition of inventory; promotional practices, location- rural,
suburb, city; description of premises
8. Credit application number (for tracking purposes)
9. Fax number

Credit References

1. by the subject: (UCC1, letter of credit, guarantee, etc.)

Any NSF checks Information you want from a reference:

1. Verification of subject name and address

2. Highest amount of credit extended to the subject
3. How long have they been dealing with the subject
4. Amount currently owed
5. Amount past due
6. Payment trend of the subject
7. Date of last purchase (especially valuable when calling a supplier in your same
product line)
8. Terms by which the customer is being sold *
9. Is the supplier secured
IN THE FIELD OF INVESTIGATION

1. MAKE IT A HABIT BEFORE GOING OUT TO THE FIELD OF INVESTIGATION

TO CHECK INTERNAL RECORDS THOROUGHLY FOR ANY INFORMATION
ON THE SUBJECT OF THE INVESTIGATION. CHECK CREDIT FILES, COURT
CASES RECORDS, CURRENT ACCOUNTS RECORDS, SIGNATURE
CONTROL RECORDS, CENTRAL LIABILITY FILES, ETC. CHECK WITH THE
“CREDIT INDEX” AT THE OFFICE OF THE ASSOCIATION OF BANK CREDIT
INVESTIGATORS FOR POSsible pertinent credit and personal references.
2. DURING THE PROCESS OF INVESTIGATION, ASKING FOR REFERENCES
FROM BANKS, COMMERCIAL FIRMS AND FROM INDIVIDUALS WHO
HAPPENED TO HAVE COME ACROSS THE NAME/S OF THE SUBJECT OF
INVESTIGATION WOULD BE A GOOD SOURCE FOR POSSIBLE LEADS TO
PERTINENT INFORMATION AND NEEDED FACTS ABOUT THE SUBJECTS
OF INVESTIGATION.

3. IF ANY DEROGATORY INFORMATION IS RECEIVED, FOLLOW IT THROUGH

IMMEDIATELY AND THOROUGHLY. GET CONFIRMATION OR DENIAL OF
THE REPORT AS MUCH AS POSSIBLE.

4. IN THE PROCESS OF INVESTIGATION, YOUR ANALYTICAL MIND SHOULD

NOT ONLY BE FOCUSED ON FUNDAMENTAL MATTERS ABOUT THE
SUBJECT, ENDEAVOR TO BE MORE CONCERNED ABOUT IT, IN
ESTABLISHING FACTUAL RESULTS THROUGH A RIGID SCRUTINY OF
EVENTS AS THE INFORMATION ARE GATHERED.

5. REPORTING BANK OR COMPANY’S EXPERIENCE IN CREDIT DEALINGS

WITH THE SUBJECT OF THE INQUIRY, DO NOT BE CONTENT WITH THE
STANDARD STATEMENT “EXPERIENCE SATISFACTORY”. AS MUCH AS
POSSIBLE, ENDEAVOR TO OBTAIN A MORE MEANINGFUL INSIGHT INTO
THE CREDIT WORTHINESS OF THE SUBJECT OF THE INQUIRY. THIS CAN
BE DONE BY ASKING PERTINENT QUESTIONS ON THE CREDIT
RELATIONSHIP.

6. WHEN CONDUCTING CREDIT CHECKINGS ON INSURANCE COMPANIES,

ASIDE FROM THE ROUTINE CREDIT INVESTIGATION PROCEDURES,
CHECK THE CREDIT STANDING AND FINANCIAL STABILITY OF THE
INSURANCE COMPANY WITH THE OFFICE OF THE INSURANCE
COMMISSIONER AND CHECK ALSO WITH THREE OR FOUR LOCAL
INSURANCE COMPANIES WITH WHOM THE SAID INSURANCE COMPANY
MAINTAINS REINSURANCE TREATY AGREEMENT RELATIONSHIP.
CONSULT THE LIST OF INSURANCE COMPANIES WHO ARE BLACKLISTED
BY THE OFFICE OF THE SHERIFF OF THE CITIES AND THE DEPARTMENT
OF JUSTICE OF THE PHILIPPINES.
 7. IN GETTING FINANCIAL STATEMENTS OF INDIVIDUAL OR COMMERCIAL
FIRMS OTHER THAN INSURANCE COMPANIES FROM OUTSIDE SOURCES,
THE FOLLOWING SHOULD BE OBTAINED: TOTAL CURRENT ASSETS,
TOTAL ASSETS, TOTAL LIABILITIES, NET WORTH, GROSS INCOME OR
GROSS INCOME ON SALES AND NET PROFIT.
8. CHECKINGS CONDUCTED IN REPLY TO A CAPABLE INQUIRY: OBTAIN A
STATEMENT FROM THE CURRENT BANKER/S OR CREDIT COMPANIES,
WHETHER A CREDIT RELATIONSHIP MAY BE RECOMMENDED BY THEM
AND UNDER WHAT TERMS, SUCH AS CREDIT LIMIT, TERMS, SECURITY,
ETC.
9. IN CASE OF RE-CHECKS, THE INVESTIGATION REQUIRES GREATER
ATTENTION TO DETAILS. OBTAIN EXPLANATION ON REDUCTION OF LINE,
CANCELLATION OF LINE, INCREASE IN LINE, INCREASE IN COLLATERAL
VALUE, DECREASE IN COLLATERAL VALUE AND ADDED GUARANTORS.
10. ANY CHANGE IN PREVIOUS TERMS OF RELATIONSHIP SHOULD BE
SATISFACTORILY EXPLAINED. THE INVESTIGATOR’S INQUIRING MIND
AND RESPECT FOR DETAILS WILL BE EVIDENT BY HIS HANDLING OF
THESE MATTERS. FOR THIS REASON, ONLY MORE SKILLED
INVESTIGATORS ARE ASSIGNED.

PREPARATION OF REPORT

IN PREPARING THE CREDIT INVESTIGATION REPORT AND OTHER

INVESTIGATION REPORTS, INDICATE THE NAME OF OR QUOTE THE
PERSON FROM WHOM THE INFORMATION WAS OBTAINED. USE QUOTATION
MARKS IN NARRATING THE INFORMATION GATHERED.

2. INFORMATION GATHERED FROM BANKS AND IN TRADE SHOULD BE

ARRANGED IN THE FOLLOWING ORDER:

A. BANKS WHO REPORTED CURRENT DEALINGS SHOULD BE REPORTED

AHEAD OF THOSE BANKS WHO REPORTED PAST DEALINGS, FOLLOWED BY
THOSE BANKS WHO REPORTED NO DEALINGS.
B. COMMERCIAL FIRMS IN TRADE WHO REPORTED CURRENT DEALINGS
SHOULD BE REPORTED AHEAD OF THOSE WHO REPORTED PAST
DEALINGS, FOLLOWED BY THOSE WHO REPORTED NO DEALINGS.

3. IN CONDUCTING CREDIT CHECKINGS ON A BUSINESS FIRM TOGETHER WITH

THE NAME/S OF THE FIRM’S PRINCIPAL/S, PREPARE A COMBINED CREDIT
INVESTIGATION REPORT ON THE FIRM AND PRINCIPAL/S. THE CREDIT
INVESTIGATION REPORT SHOULD BE PREPARED IN A MANNER THAT
INFORMATION ABOUT THE FIRM SHOULD BE REPORTED AHEAD OF THESE
INFORMATION ABOUT THE PRINCIPAL/S IN THE ORDER INDICATED IN NO. 2
ABOVE.

4. EVERY REPORT SHOULD INDICATE, BY WAY OF A FOOTNOTE, ALL

RELATIONSHIP, IF ANY, THE SUBJECT OF INQUIRY HAS WITH THIS BANK; THE
ORIGIN AND THE BASIS OF INVESTIGATION CONDUCTED; AND, IN THE CASE OF
OTHER REPORTS WITH A DIFFERENT NATURE OF INVESTIGATION, SUCH
REPORTS SHOULD INDICATE LIKEWISE, FOOTNOTE DISCLOSING PERTINENT
DATA.

5.  IN REPORTING, USE CREDIT LANGUAGE FOR PROPER TONE. AVOID HIGH
SOUNDING ENGLISH; IT HAS NO PLACE IN CREDIT REPORT. BE BRIEF BUT
COMPLETE.

6. BEAR IN MIND ALWAYS: YOUR CREDIT REPORT IS AN IMPORTANT BASIS OF

A CREDIT DECISION, EITHER HERE OR ABROAD.

ACTIVITIES:

1. Give 5 examples of credit investigation of any financial institutionS.

References:
• http://finance.lycos.com
• Credit and Collection by Gregorio S. Miranda, Latest Edition
• Fundamentals of Credit and Collection by Mercedes Euleterio
• www.wikepedia.com
• www.investopedia.com

Submission:
e-mail : [email protected]
EDMODO Code : (please sign-in for discussions)
filename : Week 10 and 11
subject (Re) : Credit and Collection Management
Note:
+ 0.25 – EARLY BIRD (submitted the prior to scheduled
deadline)
No additional point – Submitted on time
– 0.25 –l

Criteria:
Contents 60%
Timeliness of submission of report/assignment 30%
Presentation/Organization 10%
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100%