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CREDIT ANALYSIS AND LENDING

MANAGEMENT
Chap 8: Credit Administration Collection Methods and
Procedures

Outline:
Understand the role of cash collections and how to
manage collections ;
The role of cash collections ;
Describe cash collections and management processes
and plan to improve cash collections ;
Managing problem loans and debt

Objectives of Good Collection


Practice
Reduce operating expenses
Reduce bad debts
Retain customer goodwill
Aid the sales effort

Reasons for Non payment


1)
2)
3)
4)
5)
6)
7)

Debtor misunderstood terms


Disputed Amount
Careless or inefficient customer
Small amount involved and customer ignore
Slow by habit and nature
Poor financial management
Could pay but must be forced

Factors affecting a collection policy


Capital

Class of
custome
rs

Collectio
n Policy

Type of
goods

Competiti
on

Important Ingredients in a Collection Policy


Coordination
of credit &
Collection
Policies
Flexibility

Legal
Considerations

Prompt
response to
missed
payments

Cost
Effective
Persistenc
e

A general collection system: Four


stages

The
impersonal
routine
stage

The
impersonal
appeals
stage

The
personalized
appeals stage

The
drastic/legal
action stage

General collection system


Stage

Collection devices

Debtors involved

Impersonal routine

Statement
Reminder letter

Honestly overlooked
Careless/procrastinating

Impersonal appeals

Telephone
Registered letter/reminder

Honestly overlooked
Disputed account

Personalized appeals

Personal collector
Telephone
Letters to employer etc

Eventually insolvent
Fraud
Accident /misfortune

Drastic/legal action

Repossession
Attorney/suit
Collection agency
Wage assignment

Eventually insolvent
Fraud
Accident /misfortune

Automated collection system


Organize collection efforts

Handle routine
communications

Analyze delinquency

Monitor customer payment


pattern

Evaluate Collection
Personnel

Conduct collection calls

Group Activity
1) Mamat is a good pay master. He has served the loan
for 10 years. In 2015, he missed out 2 months
payment.
How to approach this type of customer?

Group Activity
Gather in your group of 5 (assignment group).
Each group will be assigned one case as below slides.
You have to discuss in a group and present your solution.

Group Activity
2) Rashid is General Manager in a public listed company.
His monthly earning is RM20,000. However, Rashid often
pay the loan after the due date.
As an loan officer in a bank, what kind of approach
should you take for this problem?

Group Activity
3) Sam is a general worker in a factory. He is working
overtime to support his expenses. Sam is not paying his
instalment for 3 months.
What kind of action to be taken by the bank?

Group Activity
4) Barry is running his automobile business. His business
is profitable. In 2008, during recession, Barrys business
faced problems. Barry unable to pay remaining balance
of his business loans.
What should you do as a credit collector?

Group Activity
5) Maniam is a professional basketball player. Last 6
month, he met an accident and broke his arm. He has
recover from the sickness, however, from that event, his
performance is not up to the standard. His Cheetah
Warrior Club want to terminate his service term in 3
months time. He met the bank manager to discuss his
loan.
As a bank manager, what is your action on this case?

THE END