CC 13-15

• Collection Program Objectives


  • To reduce the amount of bad debt losses while controlling collection costs
  • To reduce the company's investment in accounts receivable
• Forces of Collection


  • Salesmen
  • House Collectors
  • Attorneys (Legal Counsel)
  • Collection Agency
  • Government
• BSP Circular 454 Series of 2004

  Unfair Collection Practices
• SEC Memorandum Circular 18 s. 2019


  Prohibition on Unfair Debt Collection Practices of Financing Companies and Lending Companies
• Prohibited Unfair Debt Collection Practices


  • Use of profane language, insult or obscenities to intimidate you or put you to shame
  • Informing family, friends, or colleagues that you are in debt
• Basic Collection Approaches


  • Education
  • Persuasion
  • Problem Solving Assistance
  • Coercion (last resort)
• Stages of Collection


  • Preliminary stage- usually involves the sending of monthly statements
  • Reminder stage – reminder is sent to customer several days after due date
  • Follow-up stage – where successive action are undertaken at regularly spaced interval
  • Drastic stage – this stage is only resorted to if the company is ready to lose the customer (Collection is through an attorney or collection agency)
• Tools and Aids in Collecting

  • Statement of Account
  • SMS
  • Telephone
  • Third party letters
  • Letters
  • Notice or Reminder
• General Types of Debtors

  • The Up-to-Date
  • The Changed Circumstance
  • The Occasional Delinquent
  • The Habitual Delinquent
  • The Premeditated Delinquent
• Problem Account


  One in which there is a major breakdown in the repayment agreement resulting in an undue delay in collection, or in which it appears legal action may be required to effect collection, or in which there appears to be a potential loss
• Remedial Account Management


  The art of preventing the occurrence of, and bringing about prompt and satisfactory conclusion to problem account situations
• Objectives of Remedial Account Management

  • To nurse a substandard or doubtful account back to health
  • To regularize credit and document deficiencies
  • To strengthen weaknesses of the credit extension by way of additional collateral, security or guaranty
  • To locate missing customers (Skip tracing)
  • To anticipate debtor's defenses
• Requisites for Effective Remedial Management

  • Specific unit (ODA)
  • Adequate Manpower (QST)
  • Policies, systems and procedure (CP)
• Remedial Process


  • Account Review - Determine weaknesses & cause of problem
  • Capability Analysis - Evaluate alternatives available, Possible support (internal, external)
  • Strategy Formulation - What ought to be done, Approvals/time frame, Commitment/determination
  • Strategy Implementation – Monitoring, Revision/s, Timing, Record arrangements, Reports
• Remedial Measures


  • Loan Restructuring - change in the principal terms and conditions of the loan
  • Compromise Settlement - Covers lump sum payment
  • Off-setting/Linkage - provision by the borrower of services and/or goods as loan settlement
  • Strengthen Collateral Credit Position - securing of additional collateral to secure the loan
  • Assumption of Mortgage - Involves the assumption of mortgage by a third party
  • Foreclosure - mortgaged property is sold upon default
• Causes of Lending Problems


  • Loan Packaging
  • Customer-Related Factors
  • Related Factors
• Early Warning Signals of Weakened Accounts

  • Violation of Loan Agreement Provisions
  • Internal Problems
  • Financial
  • Non-financial Indicators
• Credit Review


  An integral part of a total system for managing the credit portfolio. The overriding concern is to help develop correct credit practices and procedures to minimize credit risks.
• Primary Goals of Credit Review

  • Assess the management of credit risks
  • Identify areas in the credit operation that need improvement and recommend corrective action
  • Instill awareness adherence to credit standards and practices
  • Provide inputs for credit policy formulation
  • Provide feedback on the overall credit risk assessment
• Scope of Credit Review

  • Portfolio Quality - principally evaluated using a quantitative assessment of the portfolio mix and past due rate
  • Process Quality - assessment of the procedures in the marketing and administration of accounts based on established credit policies and procedures
• Process Quality Aspects of Credit Review

  • Target Market - review determines if the account solicitation activities are systematically undertaken
  • Credit Initiation and Analysis - review will focus on the quality of evaluation and analysis of credit risks
  • Loan Documentation and Disbursement - verification of the appropriateness, adequacy and completeness of loan documentation, as well as compliance to all pre-release conditions
  • Credit Administration and Documents Management - review validates the effectiveness of the credit monitoring and supervision and support system
  • Problem Recognition - review assesses the ability to anticipate adverse factors affecting credit risk and detects potential problem accounts
• Organizational Aspects of Credit Review


  • Organization and Deployment - aspect of the review establishes the appropriateness of the organizational set-up
  • Coaching and Training - review determines the availability and effectiveness of training programs and other coaching tools
• Loan Recovery Aspects of Credit Review

  • Remedial Management - shows the action plan as well as results of recovery measures on distressed accounts
  • Normal Management - evaluation of the processes in the administration of problem accounts