Credit selection It involves the decision whether to extend credit to a customer and how much credit to extend It has the dimensions of credit analysis and credit standard A credit applicant's creditworthiness can be assessed using the five Cs of credit-character, capacity, capital collateral and conditions-see page 618 of text Character and capacity are the two basic requirements for extending credit to a customer
Credit Selection ◼ It involves the decision whether to extend credit to a customer and how much credit to extend. ◼ It has the dimensions of credit analysis and credit standard ◼ A credit applicant’s creditworthiness can be assessed using the five C’s of credit – character, capacity, capital, collateral and conditions – see page 618 of text. ◼ Character and capacity are the two basic requirements for extending credit to a customer
Credit analvsis It involves the collection and evaluation of credit information on credit applicants to determine while they can meet the firms credit standard a The evaluation of credit applicants Line of credit is the maximum amount a credit customer can owe at any one time a Credit scoring involves ranking an applicant's overall credit strength on the basis of key financial and credit characteristics- see example on page 621 of the text
Credit Analysis ◼ It involves the collection and evaluation of credit information on credit applicants to determine while they can meet the firm’s credit standard ◼ The evaluation of credit applicants. ◼ Line of credit is the maximum amount a credit customer can owe at any one time. ◼ Credit scoring involves ranking an applicant’s overall credit strength on the basis of key financial and credit characteristics – see example on page 621 of the text
Credit information sources a Common for applicant to fill out an application orm Additional information can be obtained from various sources financial statements credit bureaus, eg dun bradstreet Credit reference association of australia applicant's bank
Credit Information Sources ◼ Common for applicant to fill out an application form. ◼ Additional information can be obtained from various sources: ◼ financial statements ◼ credit bureaus, eg Dun & Bradstreet ◼ Credit Reference Association of Australia ◼ applicant’s bank
Credit standards The minimum requirements for extending credit to a customer a The impact of varying credit standards on key variables- sales volume. investment in accounts receivables and bad debts -must be examined Table on page 623 of text a Very high standards will lead to virtually no bad debts but will probably result in lost sales
Credit Standards ◼ The minimum requirements for extending credit to a customer. ◼ The impact of varying credit standards on key variables – sales volume, investment in accounts receivables and bad debts – must be examined. ◼ Table on page 623 of text. ◼ Very high standards will lead to virtually no bad debts but will probably result in lost sales