Credit

Credit involves the purchasing and receiving of good without immediate payment
-enables a purchaser to acquire goods, even when cash is not currently available
“Buying on credit can increase a company’s volume of sales”
BUT WHY?
An increase in sales may or may not happen when you start selling on credit. If your
competitors are not offering credit terms, then you will gain sales by offering credit terms,
because your customers will buy from you instead of having to pay cash from your competitors.
Parties involved in credit letters transactions:
• Applicant- is a party that arranges for the letter of credit to be issue
• Beneficiary- is the party named in the letter of credit in whose favor the letter of credit is
issued.
• Issuing or Opening Bank- is the applicant’s bank that issues or opens the letter of credit
in favor of the beneficiary and substitutes its creditworthiness for that of the applicant.
• Advising Bank- may be named in the letter of credit to advice the beneficiary that the
letter of credit was issued. The role of the advising bank is limited to establish apparent
authenticity of the credit, which it advices.
• Paying Bank- a bank nominated in the letter of credit that makes payment to the
beneficiary.
• Confirming bank- substitutes its creditworthiness for that of the issuing bank.
Types of credit letters:
• Applications for credit- consumer applications are usually made by filling out an
application blank to provide personal information (home and business address, name of
banks, account numbers, list of other charge accounts, list of references)
• Inquiries about credit worthiness- when they determine an applicant credit standing, on
the basis of the rating, the store or bank decides whether to grant or not grant the credit.
(it should be CONFIDENTIAL)
• Responses about credit worthiness- Some companies have their own form on responding.
It should be limit to hard facts:
• Amounts owed
• Amounts due
• Maximum credit allowed dates of accounts opening
 • Dates of accounts last sales
• Degree of promptness in payment
“state only objective facts to avoid LIBEL SUIT”
• Letters granting credit- the acceptance letter should:
• Approve the credit
• Welcome the customer and express appreciation
• Explain credit terms and privileges
• Establish good will and encourage further sales
• Letters refusing credit- a letter refusing credit should:
• Give the customer a reason
• Try to encourage the business on a cash basis
• Have a positive and “you-oriented tone”
• Suggest the customer to reapply for credit in the future

COLLECTION LETTER
A collection letter is written to get the money from the customers.
Perform two functions:
1.) to get the money
2.) to retain the customer’s goodwill
“A uniform collection policy can’t be applied to all customers”
COLLECTION LETTERS SHOULD BE:
• Persuasive rather than forceful
• Firm rather than demanding
• Tactful rather than sarcastic
• “you- oriented”
• Courteous, considerate
• Concerned about the customer’s best interest
COLLECTION LETTERS 3 STAGES:
 • Reminder Stage- it is presumed that that the customer has failed to pay off the bill by
mistake. This is just a reminder so don’t insist on payment and keep the tone mild.
• Inquiry-appealing stage- refer to the contractual obligations and the need to meet them in
time.
• Warning-threat stage- as far as possible, this is avoided but when there is no any other
way, this is the last option for any business person to collect his money

Summary