Credit Risk and Operations- Topics and Descriptions

Understanding, Establishing and Maintaining a Lockbox System
       Skill/Knowledge Level - Advanced
A lockbox study identifies the optimum number of lockbox sites for a business to have while recognizing the most efficient assignment of customers to the selected sites and the amount of float in the lockbox system. Organizations are frequently faced with the need to review their cash collection system.
Request results from the latest Phoenix-Hecht Postal SurveyTM or Retail Mail AnalysisTM.

The New Customer Credit Investigation
       Skill/Knowledge Level - Core
The ultimate responsibility for the establishment of a customer's account rests with the credit executive. In particular, new customers represent an opportunity for increased sales and profits. However, certain procedures must be followed before a prudent credit decision can be made.

Sample Letter for a New Customer (pdf format, 1 page, 3k)
       Skill/Knowledge Level - Core
Buyer/seller relations are often predicated upon the initial contact. If the relationship is to bear profit for the seller, care must be taken to follow the instructions and procedures set forth by the purchaser which should be made apparent and understood at the beginning of the relationship.

Understanding Commercial Factoring and Credit Insurance
       Skill/Knowledge Level - Core
If your company suffered a $150,000 loss, and your pre-tax margin is 7.5%, you would have to do $2,000,000 in additional sales to break even. Yet accounts receivable is usually the only major asset not routinely safeguarded against catastrophic loss.

The Administration of Customer Deductions
       Skill/Knowledge Level - Advanced
In many cases, a sizable portion of the buildup in trade receivables can be attributed to the growth of unresolved customer deductions and invoice disputes. A deduction is the hardest type of open item in an accounts receivable to resolve because most departments in your company are involved in various degrees.

Principles and Methods of Collections
       Skill/Knowledge Level - Core
Good business practices require that collection of invoices be made promptly and without any damage resulting to the customer relationship. Just how much pressure should applied to obtain prompt collections; and, to what extent the relationship may be jeopardized in the effort are questions of policy.

Collecting from the Federal Government
       Skill/Knowledge Level - Core
Government receivables, without question, can be some of the most difficult invoices to collect. The government is a "risk-free" customer, so why do we have aging receivable issues for our government customers?

Understanding and Using Letters of Credit, Part I
       Skill/Knowledge Level - Core

Understanding and Using Letters of Credit, Part II
       Skill/Knowledge Level - Advanced
Letters of credit accomplish their purpose by substituting the credit of the bank for that of the customer, for facilitating trade. There are essentially two types: commercial and standby. The commercial letter of credit is the primary payment mechanism for a transaction, whereas the standby letter of credit is a secondary payment mechanism.

A Practical Approach to Customer Financial Statement Analysis
       Skill/Knowledge Level - Core
The level of analysis required to make an informed credit decision depends on the customer requesting credit terms and the amount of credit required. If the customer's financial condition is not strong and the credit request represents a large portion of the subject company's net worth, the analysis would be quite detailed. After completing the investigation, the analyst can determine whether to sell its good or services to the customer on open account and establish an appropriate line of credit.

Classification of Accounts (pdf format, 5 pages, 18k)
       Skill/Knowledge Level - Core
All line items on the balance sheet and profit and loss statement are classified into generic categories for general clarity. This section lists the line items and stipulates which classification they are. Also, it indicates the normal balance of debit or credit for the line item and will tell you which financial statement the line item generally appears.

The Trade Creditor's Guide to the Statement of Cash Flows
       Skill/Knowledge Level - Core
In the final analysis of any credit review of a customer requesting short-term credit there is only one axiom that matters - Cash Is King. The statement of cash flow's primary purpose is to provide information regarding a company's cash receipts and cash payments. The income statement and balance sheet provide information about a business but the cash flow statement is critical in determining if you will be paid.

Why Am I Always So Short of Cash, Even Though I'm Selling More Than Ever Before
       Skill/Knowledge Level - Core
There are only two basic sources of financing -- externally generated funds and internally generated funds. External sources are the ones we all think of when it's time to raise money and include more investment from the present ownership, bringing others in as investors, borrowings in the form of loans, or by increasing your obligations to vendors (accounts payable). The only true long term internal source of funds is profits.

Ratios and Formulas in Customer Financial Analysis
       Skill/Knowledge Level - Core
Financial statement analysis is a judgmental process. One of the primary objectives is identification of major changes in trends and relationships and the investigation of the reasons underlying those changes. Probably the most widely used financial analysis technique is ratio analysis, the analysis of relationships between two or more line items on the financial statement.

Rules Based Credit Scoring Methodology, Part I
       Skill/Knowledge Level - Advanced
Rules Based Credit Scoring Methodology, Part II - An Example Judgmental Scoring Model
       Skill/Knowledge Level - Advanced
In today's business environment, everyone is trying to do more with less. Statistical credit scoring by definition is a method of evaluating the credit worthiness of your customers by using formulas or a set of rules.

Understanding the Auditor's Report
       Skill/Knowledge Level - Core
If all the facts concerning financial transactions were properly and accurately recorded and if the owners and managers of business enterprises were entirely honest and sufficiently skilled in matters of accounting and recording, there would be little need for independent auditing. From a practical point-of-view however, the contribution of the independent auditor is to give credibility to financial statements so that creditors and others can rely on them.

The Insolvent Customer
       Skill/Knowledge Level - Core
The methods of handling the affairs of financially distressed or insolvent business debtors may be divided into two classes: those designed to keep the customer in business and restore the business to profitability; and those designed to put the debtor out of business, realize the assets and distribute the proceeds among creditors.

Business Fraud
       Skill/Knowledge Level - Core
Business credit is based on belief or faith. Faith that once you as a "lender" have analyzed and are satisfied with all the financial, character and ambient analysis of a customer, you will have a reasonable opportunity to be paid the full amount owed-on time.

Ethics and Laws Affecting Business to Business Creditors
       Skill/Knowledge Level - Advanced
It is important to establish and maintain high ethical standards as well as follow the ethical guidelines set forth by your company. Furthermore, you need to have an understanding of certain laws that have a direct influence on your work as a credit professional.

The Role of the Credit Executive in Mergers and Acquisitions
       Skill/Knowledge Level - Advanced
Today's credit executives are exhibiting many ancillary roles, some of which may arguably be as significant as their primary tasks of managing the customer financial relationship. Astute credit professionals are open to advancing their role if for no other reason than self-preservation in the competitive employment arena. One of the opportunities for a credit person to gain recognition in the organization is to help the management team prudently evaluate mergers or acquisitions their company may be involved in.

The Domestic Credit Manager and an Export Order
       Skill/Knowledge Level - Core
An increasing number of companies are finding new business opportunities outside North America. This trend is not limited to billion-dollar multinationals; smaller companies also see the benefit of globalization. This section is geared to the domestic credit manager who occasionally is asked to administer credit and collection activities to a foreign customer.