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Monitoring And Control Organization Credit and Collection Risk Index

To operate the credit and collection operations in the company is required to implement an operating system of methods and procedures within the organizational structure of the company. This operation should have the majority interest of those who run the organization and above all, responsible for managing Credit and Charges as credit management and recovery has been upgraded to a professional and ethical responsibilities to their own, giving an image of modernization, importance and high performance within the company.

9.1. ORGANIZATIONAL UNIT OPERATING
From organizational point of view of the credit process prior to the collection, but all the operations of these functions are complementary and interlinked by a comprehensive process that allows them together to a single function, hence born homogeneous operations that must be a single unit operation. (Principle category).

For this reason the combination of both activities in a single task force is recommended to handle them, ie directing credit and collections under the responsibility of one person and organizational structure already defined from the start of activities.

Considering the inherent risk factor is given credit for companies that have decided to implement a credit system as an alternative to increasing sales, but the recovery is performed by another specialist firm, a move that is interpreted as demand greater accountability of who develops this role, but in any case the supplementary charge is still made even if the other organization other than the company.

Depending on the importance of the activity, responsible for implementing the credit and collections functions, occupies a key position in the firm, which is increasing the responsibility of both to help increase sales and to allow recovery of capital through a cash payment.

9.2. DESIGN OF THE STRUCTURAL ACTION OF THE DEPT. Credit & Collection
Regardless of the size of the organizational structure of the company is the wholesaler, retailer, distributor representative, the first things you will ever make the person or persons responsible, will be to implement a work plan identifying the following General: Set

1. general policies on the coordination of the operational management of credit and collection.
2. design a system that is appropriate to the needs of the company even if it does not have the necessary structure.
3. elaborate and print forms, appropriate to the activities that the company plans to develop monitoring and control. Request
4. staff deemed necessary to operationalize and implement the system.
5. establish interconnection with other major and minor areas available to the company, such as Sales, Warehousing, Accounting, Records, Box, etc. Finance.
   

Dent ro administrative criteria, credit and collections should produce earnings or profits because it allows the interaction of two complementary functions such as increase sales and ensure future profits through ROI.

But every function that complements an organization must have goals coming from the purpose or nature by which to materialize the objectives.

9.3. OBJECTIVES FOR THE CREATION OF THE RECEIVABLES AND COLLECTIONS OPERATE
The priority objectives must necessarily be based on the Material Resources Human and conditions available to the company if you implement a system of credits and collections.

As far as possible be taken into account:

1. All purpose will be to increase sales through the credit in their sales systems should consider the creation of credit and collections function.
2. Its purpose is to increase sales by credit and capital recovery through the collection.
3. must conform to the socio-economic and political where the company operates, to allow the flow of credit as an act of commercial reward and financial gain.
4. must be counted a number of staff required and trained (not scheduled) to accomplish his assigned duties.
5. should implement a communication flow between the functions of sales, accounting, finance, stores, and management, having responsibility and hierarchy in the credit and collection decisions and relate to each other.
6. constitute a means integrated with other parts of the company, considering that the credit and collection concerns the entire staff for the important role that the organization currently has.
   

Once set the goals, we facilitate the design structure organic to its operation that meets the needs of the company.

This structure will allow management bodies have an efficient and accurate timely reporting.

We must not forget that for the collection to fulfill its purpose, the communication must be timely so that the information reaches the decision means when this is required.

is also necessary to note that when you restructure a credit bureau and collection should be emphasized that this structure varies from one company to another, from one business type to another, although there are certain core functions that are common to all.

therefore should not make the mistake of design department literally the structuring of credit and similar charges by another company, even if this could mean lower costs and apparently work a minimum.

9.4. LOCATION OF THE ROLE OF RECEIVABLES AND COLLECTIONS IN THE CORPORATE STRUCTURE
This depends on the interest to put the entrepreneur or executive officer to execute this function.

Regardless of this, we can say that its location within the organizational structure may be linear or support. It can also refer that this decision will depend on the size of the organization (SME).

If linear, then its location shall be within the financial, sales or control, dependence on these functions get the homogenization of the complementary roles.

support If it were then its location will depend on the management, the same exercise direct control and supervise the activities identified.

In either case, always considered a dependent or independent staff advice from legal counsel and / or a specialist in the field.

then propose some models of organizational structure, hierarchy and location of Credit and Collections department in the organization of a firm of average capacity.

9.5. RELATIONSHIP OF THE DEPT. CREDIT AND COLLECTIONS TO OTHER AGENCIES
The credit and collections department can work efficiently only through the cooperation of other departments, but their relationship is close and continuing with the departments, Sales, Finance and Accounting. Such cooperation can and must take the positive form of a harmonious and whole.

The least the credit department and charges due to the sales department is to notify immediately the denial of credit to a new customer or the withdrawal of an existing customer with a brief explanation of the reasons for doing so, the notice must give the chief credit and collections to sales .

it may transmit to the client willing seller, in order to avoid inconvenience to visit.

addition to matters related to finance is important to have accurate information in a program to specify the amount of money to be recovered through charges. Accounting

should act as information provider control and accounting records for revenue, expenditures and balances of accounts receivable.

9.6. SPECIFIC DUTIES OF THE HEAD OF CREDIT AND COLLECTION
The most common specific functions of a Credit and Collections department are:

a) Granting of Credits : grant loans to customers who wish to purchase by this method, under conditions which are set by the company, taking into account the analysis of it using the information gathered, trying as far as possible subject to existing regulations.

b) Study of the State Finance and Information attached: is recommended economic and financial information provided to customer to get a better position in the decision to grant credit. For legal persons is indispensable to analyze financial statements, allowing us to consider it as a good credit or in extreme cases, disapprove.

c) Effective Management of Collection : The collection efforts should be undertaken with clients to display a little hard on your payments, you must take into account the reason for such delay and the Chief Credit should consider measures to be taken in case of further delay (negotiation).

These steps are very important, and give good results for recovery of debt recorded in the documents expired.

d) Reports to Management : must submit reports to General Manager, relating to the appropriations requested, amounts, whether approved or disapproved, and the number of clients that request, complementing this, the report to be spending every month to moving accounts, which are in the pipeline in the section collection, and analysis of these in terms of backwardness.

e) Control of their staff : As Head of Credit Department and Collections, is obligated to supervise the staff in charge, enforcing the rules and regulations established by the company on this issue.

f) Determination of Bad Debts : In any business, the risk of lending to poor caused the birth of debts (Portfolio Heavy) avoiding any internal control and implemented, and is the responsibility of the Head of Credit and collections based on their criteria and experience, to set those customers to whom it is futile exercise any collection action by considering them bad debtors.

g) Tonnage Documents: One of the foundations of internal control within Collections department, is to practice tonnages of documents that allow us to establish the accuracy of the figures in the accounts of each customer, checking cards that are carried in the accounting department.

We can summarize the tonnage of the following documents:

1. bill
portfolio of letters of debit memos
of protested bills of bad checks
6. of documents power of judicial manager
   

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And Credit Limits

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:

• 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.
  

This information is obtained from the credit application that the applicant provide to the company after verification.

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:

1. The client requests additional credit or surpasses the limit set by the company (it is advisable to check the guarantees)
2. Through the exchange of information You can see how much change the customer's financial position.
3. The customer does not make their payments on time (check the delay)
4. The economic conditions dictate that decisions are taken regarding the removal and / or extension of credit lines to the merchant.
5. When in the credibility of the client.
   

In short, the credit limit is usually summarized as the following:

1. Depending on the value of collateral
2. Depending on the ability to pay
3. responsibility in fulfilling its obligations
4. moral or economic solvency
5. business experience and / or activity
   

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Factors

Part of the risk measurement are the assessment of risk factors not being an issue of order allows us to have substantial discretion detail later.

Once collected media reports of official or unofficial, must reach a conclusion on the status and conditions of the prospective client in regard to his character, ability and capital, in addition to analyzing the collateral aspects and conditions economic environment, forming the five Cs of credit factors. Because the essence of trade credit is to reach a decision on granting the credit or not, whether the information obtained is adequate, valued and reflected carefully analyzed more healthy and rational judgments on the role that is performing. This will highlight the experience of loan officer.

6.1.
CHARACTER This is an important factor, because each credit transaction involves a promise to pay. This factor is referred to a moral view that has to do with the effort made by the debtor to honor his debt to the possibility of excuse to comply with this obligation. A view of moral and mental character that identifies the customer when buying a financial commitment and implicitly accepts the payment thereof.

believe that Honesty, Integrity, Fairness, Responsibility and trust are fundamental qualities character, without neglecting the habits that reflect their behavior in society, as the trial of the character is based on evidence whose confirmation is determined by the research techniques and analysis of the accuracy of references as per its documentation.

Given that credit is inconceivable without the confidence given by the applicant, the question in this regard will be, will pay?

6.2.
CAPACITY Capacity is a subjective assessment of the possibilities offered to pay the customer. This related to his history as a debtor and their behavior to cope with their debts, in addition to that, physical observations or restricting their business and their methods and business customs. We believe that customers can not always measure their level of indebtedness and can hardly manage a payment power that goes with your willingness to pay because they are not accustomed to working under a pattern of expenses or requirements. In the case of a natural person will be your income, profession, age, job stability and the company where he worked, etc..

capacity is also measured by the level of education, training, experience, prestige, the ability to use them in your favor and keep your credit from its creditors. Here the question is: Can You Afford?

6.3. THE CAPITAL
This factor is measured by the position and overall financial soundness of the business, subject to an analysis of reasons or financial ratios, with special attention to tangible net worth of the company (Assets, Investments and other resources). Objective is the security that a debtor represented by the exposure of their property, that pay well in the long term, if the character or the ability to fail.

The capital is the guarantee that a creditor can take as a basis for the debtor to meet its debt payments if it is misused. A serious and professional work will be executed when it comes to analyzing financial statements. In a company

capital is reflected in the Financial Statements for the formation thereof, in the proper valuation of Fixed Assets in the early negotiations of their inventories and, according to the type of firm, tradable goods that have the partners.

not forget that a misinterpretation of the financial statements substantially affect the reduction and credit decision as stated Indacochea who says "If inflation adjustments are made, any statement deserves no faith in technical or scientific analysis", So same legislation on the submission of audited financial statements, requires a reassessment analysis fixed assets, changes in equity, cash flow situation etc.

An analysis of the financial statements will help the loan officer to make objective decisions. If the business does not have to reach this information, then it is advisable to develop an analytical framework with the information you have. Here the question will be formulated much can you afford?.

Current Ratio = Current Assets / Current Liabilities

= 708/540 = 1.31 times

6.4. THE COLLATERAL
is represented by assets, mortgages, guarantees or collateral, the entrepreneur accessory can offer as collateral to further secure the payment of the obligation to contract.

This is important to consider the actual implementation capacity that may have the assets or warranty made by the merchant. We also believe that the collateral did not alter the condition of risk, a credit granted on the basis of assurances retains the status of risk, this risk is always kept until the client pays.

then discuss in greater interest in a separate chapter all matters concerning the collateral was considered an option gravitating to secure lending.

6.5. ENVIRONMENTAL CONDITIONS
Manifest the effect on the company by economic trends or unforeseen events in political, economic, moral or social development that affect the client's ability to meet its payment obligations or its inability to handle favor its own generating resources. These being major factors that determine the delinquency rate of our customer base.
also are actions brought by the client that can alter a whole program set appropriations. Within the risk

are actions triggered by the same client that can alter a whole program set appropriations.

Credit risk within the effects of variables are considered, and must be taken into account when granting credit.

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credit risk assessment methodology to select and rank

To select and classify customers must understand and understand what the evidence to be evaluated. This should be the relevant and key, so as to determine the client's classification practices.

These characteristics or qualities of the client will be tailored to the specific objectives of the credit evaluator. For example, if the claim is requested to finance a project, the main features or aspects assessment are considered "net generation of foreign exchange", "degree of decentralization, tax generation and job creation" and so on.

In the case of selecting a natural person, the main qualities to be considered are income, employment, residence, marital status, age, References, your payment history and reputation. Each premise will determine a grade in their evaluation and selected according to the method of classification is assigned a value. The result will guide the conclusion of giving you credit.

5.1. PROCEDURE USE OF RATING FORMS
When using forms of qualification, the loan officer in the appropriate column recorded their views on the credit quality. These columns can be objectively: good fair or poor. They can also be given numerical ratings, 1.2 or 3. only suggests a division into three parts, as classification can be more confusing to forecast what might contribute to the outcome. The description of the general classification standards suggested is that we expose below:

GOOD : can have a range of categories between 17 and 20 or 8 to 10 were assigned to those customers who meet all requirements for gift be credit. The difference in rank is defined according to the credit limit to be eligible and policies established by the institution.

These clients usually have good credit and references are good, so they are always approved credit are extended or renewed.

OK : Consider the range between 12 and 16 or 6 to 8 taking into account the qualities that indicate that credit should be paid only after abnormal difficulties or delays as a result of persistent efforts for recovery.

for filing a protest or older who can doubt the payment, but generally are problems that have happened and not out of sight but they are a matter of observation.

POOR: consider those qualities that suggest that credit will not be canceled even when allocating efforts to recover the investment provided through hire purchase.
This type of customer to prove not only short-term problems with regard to credit risk, most likely at higher risk that there will not pay.

The qualities and characteristics that are not project a restricted model, but rather, must adapt to the needs of the evaluator and the specific characteristics of the type of credit requested. The analyst should try to consider the qualities separately, selectively and priority in the evaluation process.
The objective of credit rating is the achievement of a prediction that is reflected in the best possible overall assessment, considering all the evidence available. The end result is a credit decision, after considering all the evidence and analyze it properly predicts the experience credit that is reasonably anticipated.

prediction or prognosis may not be accurate, however it is essential to make efforts in research, testing and confirmation of the qualities considered in a proposal, qualification especially when it assumes a probability of risk in granting credit.

5.2. METHODS OF QUALIFYING
Each company has its own evidence, therefore develop its own rating system that suits its evaluation system of its customer base.
However we can consider the methods applied: the percentage allocation method, the method of points and key system.

a) Percentage Method
Whereas a degree, determined by a percentage to each aspect, feature or factor assessment determines the total 100%. But qualify to be eligible for credit with a higher percentage that the company considers as its policies, rules and procedures.

b) Method of Scoring
Consider a number like rating system for each factor or aspect of valuation, the maximum total could be 10, 20 or 100 to qualify for the granting of credit line when more than half or more of the score set.

c) Method of Key
Identifies and qualifies customers by establishing a code or key ranges according to the factor considered by the company. It also establishes a standard of confidentiality of the wing Dad categorization difficulty that for definition.