SAS #7-FIN 012.docx
SAS #7-FIN 012.docx
SAS #7-FIN 012.docx
Productivity Tip:
Challenges come and go just like people, choose who you want to face different challenges with
A. LESSON PREVIEW/REVIEW
Introduction (2 mins)
Hello! Welcome to another session for credit and collection, I hope you are all doing well. We are now
on module 7, see how time flies really fast. Soon you will finish this module and say that you passed
credit and collection! But first, let’s have a recap on what we had discussed in your last module.
In our last 2 sessions, we had our quiz and a performance task in the form of a case study. For today,
we will talk about the credit department and how they function, their duties and responsibilities.
B.MAIN LESSON
A credit department is one of the first departments which will become needed as revenue grows and credit is
extended to clients new and old. The types of transactions specific to your company will determine how
rigorous your company needs to be in the development of its credit department
The credit department tends to remain fairly consistent in size and scope during changing business conditions,
whether the economic conditions are good or bad, due to an increased support role when sales volumes
increase, as well as increased support needed when delinquencies increase.
o Maximizing sales,
o Accelerating cash inflow,
o Minimizing bad debt losses,
o Reviewing and approving new accounts,
o Developing and updating credit and collection policies,
o Establishing appropriate credit limits and terms of sale for new and active customers,
o Creating new or more appropriate payment terms [terms of sale],
o Placing accounts on credit hold, and releasing orders from credit hold,
o Managing the collection function,
o Maintaining current information in the credit file on each active customer,
o Documenting credit decisions and actions,
o Performing financial analysis on customer financial statements,
o Researching and resolving disputes and deductions that would otherwise delay or prevent payment of
accounts receivable,
o Communicating with other departments within the company including order entry, sales and shipping,
o Management reporting, and
o Safeguarding the company's investment in accounts receivable.
LO 2: RECOGNIZE THE NEED FOR A SYSTEM WHICH WILL ENSURE CLOSE COLLABORATION
BETWEEN THE GRANT OF CREDIT AND ITS COLLECTION
Although there may be variations among companies, the control and administration functions can usually be
classified into two types of operations: centralization and decentralization. The question of whether to
centralize or decentralize the credit function is faced by companies with geographically and culturally diverse
operating units. It remains important as corporations continue to reengineer their business processes to
leverage their technology.
In a centralized structure, the credit function is controlled and administered from a principal or central location.
In a decentralized structure, the credit function may report to a principal location (headquarters) with credit
personnel located at remote offices.
Centralized
A centralized department services credit operations that are based entirely at a company’s main headquarters.
It is the responsibility of the credit manager and staff to approve credit terms on most orders. Credit
professionals may find themselves questioned by sales staff or even upper management if they decline an
application to grant terms on an important or significant order. An increasing number of credit departments are
using automated options that approve credit lines for perceived low-risk customers or low-amount credit
requests as long as they meet certain pre-established criteria. This, in theory, allows credit managers and staff
to focus on the most important customers and situations. A centralized credit system may be modified in
certain respects. In some companies, for example, most of the credit functions are carried on at headquarters,
but collections offices are located in the field to work directly with customers, secure payments and make
adjustments.
headquarters and also reports to the division head (the principle is the same for subsidiary or branch
operations). While authority in credit and collection is provided by the executive-level credit manager, in all
other respects middle management establishes the procedures to which the credit professional must conform.
Figure 3-2 illustrates a decentralized operation under which the middle-level credit manager has a dual
reporting role requiring close cooperation between the top-level credit executive and the division general
manager.
Benefits of Centralization
• Economies of Scale.
When separate divisions serve common customers, a centralized credit office can mean a reduction in
operating costs and a more efficient income stream, along with enhanced customer service.
Benefits of Decentralization
Close proximity to customers can enhance a credit professional’s relationship with marginal customers
and lead to developing a better rapport with customers having a sizable dollar exposure. Being on site with
other business functions promotes a better understanding of business goals and fosters the exchange of
information about market and customer needs. It also enhances communication among departments and
reduces the number of interdepartmental conflicts.
Credit can integrate its objectives with those of sales and marketing into divisional goals. Also,
decisions made at a local level can be implemented immediately without going through additional levels of
review.
Activity 2: Skill-building Activities (with answer key) (18 mins + 2 mins checking)
2. What are the special characteristics and abilities to look for when selecting personnel?
1. If you are to organize your own credit department, how will you design it? What will be the
components of your credit department? You may draw or make a flowchart on how you will do it.
C. LESSON WRAP-UP
Activity 4: Thinking about Learning (5 mins)
In this part of the module, we will track your progress on how well you are doing in this subject module.
You can highlight the number of modules that you have already finished.
2. How does this topic help you understand how a credit department works?
FAQs:
1. What kind of credit operation is more advisable: the centralized or the decentralized credit operation?
- In the Centralized credit, departments are entirely based in the company’s main headquarters
meaning if you want to be granted a credit there is only one office that you need to go to while, Decentralized
credit departments are not housed in the headquarters, but report to the headquarters from a remote office or
offices meaning there are other offices of outlets that you can go to to have your credit application granted. It
is more likely to have a decentralized credit department because you can have more customers because you
can expand to different places.
KEY TO CORRECTIONS
Answer on Activity 2
1. List and discuss the benefits of a centralized credit operation.
*possible answers
• Economies of Scale.
When separate divisions serve common customers, a centralized credit office can mean a reduction in
operating costs and a more efficient income stream, along with enhanced customer service.
2. What are the special characteristics and abilities to look for when selecting personnel?
- Answers will come from the students learning on the topic
Answer on Activity 3
1. If you are to organize your own credit department, how will you design it? What will be the components of
your credit department? You may draw or make a flow chart on how you will do it.
**Answers will depend on how the student portrays their own credit department
Close proximity to customers can enhance a credit professional’s relationship with marginal customers
and lead to developing a better rapport with customers having a sizable dollar exposure. Being on-site with
other business functions promotes a better understanding of business goals and fosters the exchange of
information about market and customer needs. It also enhances communication among departments and
reduces the number of interdepartmental conflicts.
Credit can integrate its objectives with those of sales and marketing into divisional goals. Also,
decisions made at a local level can be implemented immediately without going through additional levels of
review.