7. VALUABLE RISK INDICES
addition to the factors above, to analyze the risk, you should be aware that:
a) A company selling to a market demand for their products greater than their supply capacity, customers may choose to apply for credit much effectively than if otherwise.
b) When more efficient the role of credit in their policies, methods and procedures, more extensive and variable is the level of risk in terms of payment security.
c) There are cases in which the seller makes a certain promotion and are forced to seek asylum requests with poor risk or regular, so that their product is known in the market. Often it happens that the losses for this reason, if any passed as promotion and advertising costs.
d) Goods that is maintained in frozen stocks or immobilizing working capital and also increase the costs of storage may have a value punished. In this case, the company with different procedures that try to sell, merchandise even below replacement cost if applicable. Another alternative is giving the credit at attractive prices or long terms.
8. CUSTOMER CREDIT LIMIT AND THE WHOLESALE AND RETAIL DEALERS
The next step of the lending process is to identify the limit of credit. This limit is assigned only when all the factors and information have been considered and analyzed.
The credit limit is the figure representing the approximate amount that the creditor is the maximum debt that an applicant wishes to acquire at a given time honoring their obligation and paying promptly.
believe that there is confusion as to what is really the limit of credit, as should be determined and its critical level, once fixed.
The following points raised an alternative to setting the credit limit.
8.1. DETERMINATION OF CREDIT LIMIT
This limit is not considered as absolute but as an alert in handling the account.
can also be reviewed and changed freely according to circumstances and the discretion of granting the loan and will undoubtedly be the most profitable for the company.
At least one must be sure that the limits assigned to a client does not interfere the continuity of sales and profits that accrue to a particular customer, for the interest and attention to be paid on credit accounts.
methods for determining the limit, even if they are inaccurate and sometimes arbitrary grounds expansion or restrictions differ in the case of client (individuals) and businesses (legal persons), so it will be considered separately.
8.1.1. Customer
Once the application is approved, the loan officer should ask: How much can you pay on time?
To determine this limit is not taken as a standard formula, but is the experience and criteria for bond amounts that some customers have been able to keep.
However
can identify some common factors:
8.1.2. To wholesalers and retailers
Apart from considerations of personality and situation of the applicant, must take into account other aspects, to determine the limit of credit to the merchant, since the fact that a customer maintains good performance within a given credit, not mean you can show a different behavior when their obligations are greater than those that normally can handle.
Under the circumstances we recommend using the following methods:
a) much as the Merchant Requests: Although it may be regarded as an empirical method is to give the dealer, as much credit as you want, provided and when the pay according to the agreement, and be assured that broadly cover the guarantees requested.
While the payment is appropriate, this formula is very convenient and should be continued while the client poses a minimal risk and should be reduced or restricted in any event when it happens otherwise.
b) As much as I Grant Competition : is wise to always check the most recent credit higher from other suppliers in the same line in order to set the initial limit will be granted to the new customer.
But this has its drawbacks as credit policies a company in relation to another may not necessarily coincide with delivery volumes of the same or similar.
It is therefore advisable to conduct a preliminary investigation of the referrals received if the new account shows a substantial profit.
c) On the Value of Stocks : The determination of the approximate value of stocks of goods, investigated directly or indirectly, is an element of appreciation of the importance and often the strength of the business enterprise under investigation to determine your credit limit.
is often assumed that these goods are in stock eventually serve as collateral for future loans, such as the Warrant of the merchandise for the company that extends credit.
d) Purchases of Season : can calculate an average monthly purchases of season and out of season, for clients whose business is seasonal.
here will be useful own records that the organization is to analyze the information it needs from a customer whose orders are seasonal or demanding certain times of the year.
e) Amount Allocated According Gradual Experience: Another very common and practical procedure is to start by the granting of a reduced amount of credit and then raise it as the experience to record the merchant over a given period. (May be a year). This procedure is well suited for start-ups by providing credit and / or small businesses with limited capital.
is recommended that the aforementioned methods complement each other as trade in general is not stable, but patterns of behavior in situations of changing economic conditions in the dynamics of the trade.
8.2. CREDIT LIMIT REVIEW
Credit A decision should never be considered absolute or final since the unstable dynamics of the business will periodically review the boundaries in accordance with the actions taken and circumstances presented.
However, it should review a credit limit if:
addition to the factors above, to analyze the risk, you should be aware that:
a) A company selling to a market demand for their products greater than their supply capacity, customers may choose to apply for credit much effectively than if otherwise.
b) When more efficient the role of credit in their policies, methods and procedures, more extensive and variable is the level of risk in terms of payment security.
c) There are cases in which the seller makes a certain promotion and are forced to seek asylum requests with poor risk or regular, so that their product is known in the market. Often it happens that the losses for this reason, if any passed as promotion and advertising costs.
d) Goods that is maintained in frozen stocks or immobilizing working capital and also increase the costs of storage may have a value punished. In this case, the company with different procedures that try to sell, merchandise even below replacement cost if applicable. Another alternative is giving the credit at attractive prices or long terms.
8. CUSTOMER CREDIT LIMIT AND THE WHOLESALE AND RETAIL DEALERS
The next step of the lending process is to identify the limit of credit. This limit is assigned only when all the factors and information have been considered and analyzed.
The credit limit is the figure representing the approximate amount that the creditor is the maximum debt that an applicant wishes to acquire at a given time honoring their obligation and paying promptly.
believe that there is confusion as to what is really the limit of credit, as should be determined and its critical level, once fixed.
The following points raised an alternative to setting the credit limit.
8.1. DETERMINATION OF CREDIT LIMIT
This limit is not considered as absolute but as an alert in handling the account.
can also be reviewed and changed freely according to circumstances and the discretion of granting the loan and will undoubtedly be the most profitable for the company.
At least one must be sure that the limits assigned to a client does not interfere the continuity of sales and profits that accrue to a particular customer, for the interest and attention to be paid on credit accounts.
methods for determining the limit, even if they are inaccurate and sometimes arbitrary grounds expansion or restrictions differ in the case of client (individuals) and businesses (legal persons), so it will be considered separately.
8.1.1. Customer
Once the application is approved, the loan officer should ask: How much can you pay on time?
To determine this limit is not taken as a standard formula, but is the experience and criteria for bond amounts that some customers have been able to keep.
However
can identify some common factors:
- household income in relation to the number of its components.
- Other debts that decrease the margin of total revenue.
- Standard client's life.
- amount set by the customer.
- Other data subject to revision.
8.1.2. To wholesalers and retailers
Apart from considerations of personality and situation of the applicant, must take into account other aspects, to determine the limit of credit to the merchant, since the fact that a customer maintains good performance within a given credit, not mean you can show a different behavior when their obligations are greater than those that normally can handle.
Under the circumstances we recommend using the following methods:
a) much as the Merchant Requests: Although it may be regarded as an empirical method is to give the dealer, as much credit as you want, provided and when the pay according to the agreement, and be assured that broadly cover the guarantees requested.
While the payment is appropriate, this formula is very convenient and should be continued while the client poses a minimal risk and should be reduced or restricted in any event when it happens otherwise.
b) As much as I Grant Competition : is wise to always check the most recent credit higher from other suppliers in the same line in order to set the initial limit will be granted to the new customer.
But this has its drawbacks as credit policies a company in relation to another may not necessarily coincide with delivery volumes of the same or similar.
It is therefore advisable to conduct a preliminary investigation of the referrals received if the new account shows a substantial profit.
c) On the Value of Stocks : The determination of the approximate value of stocks of goods, investigated directly or indirectly, is an element of appreciation of the importance and often the strength of the business enterprise under investigation to determine your credit limit.
is often assumed that these goods are in stock eventually serve as collateral for future loans, such as the Warrant of the merchandise for the company that extends credit.
d) Purchases of Season : can calculate an average monthly purchases of season and out of season, for clients whose business is seasonal.
here will be useful own records that the organization is to analyze the information it needs from a customer whose orders are seasonal or demanding certain times of the year.
e) Amount Allocated According Gradual Experience: Another very common and practical procedure is to start by the granting of a reduced amount of credit and then raise it as the experience to record the merchant over a given period. (May be a year). This procedure is well suited for start-ups by providing credit and / or small businesses with limited capital.
is recommended that the aforementioned methods complement each other as trade in general is not stable, but patterns of behavior in situations of changing economic conditions in the dynamics of the trade.
8.2. CREDIT LIMIT REVIEW
Credit A decision should never be considered absolute or final since the unstable dynamics of the business will periodically review the boundaries in accordance with the actions taken and circumstances presented.
However, it should review a credit limit if:
- The client requests additional credit or surpasses the limit set by the company (it is advisable to check the guarantees)
- Through the exchange of information You can see how much change the customer's financial position.
- The customer does not make their payments on time (check the delay)
- The economic conditions dictate that decisions are taken regarding the removal and / or extension of credit lines to the merchant.
- When in the credibility of the client.
- Depending on the value of collateral
- Depending on the ability to pay
- responsibility in fulfilling its obligations
- moral or economic solvency
- business experience and / or activity
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