CREDIT INVESTIGATION

Allan Cris Ricafort

26 Mar 2022
2nd sem, AY 2021-2022
FMGT 60 - Ricafort

CREDIT QUALITIES TO INVESTIGATE

 For Individuals
INCOME
• The amount of income should be ascertained, its
regularity of receipt established, and the
probability of its continuance estimated.
• During the investigation, the specific facts sought
should be simply the amount and source of the
income

FMGT 60 - Ricafort
 For Individuals
EMPLOYMENT
• Should seek the name of the employer, the type of
business, and the position occupied by the subject
of inquiry.
• The record should be established for at least a five-
year period.

FMGT 60 - Ricafort
 For Individuals
PAYMENT RECORD
• Most important factor revealed by the
investigation
• Shows the payment habits.
• The investigation should seek facts as to the type
or types of account involved, the amount currently
owed, the amount past due, and the highest
recent credit.
FMGT 60 - Ricafort
 For Individuals
PAYMENT RECORD
• The manner of payment should be stated
specifically
• The date of the experience should also be
established

FMGT 60 - Ricafort
 For Individuals
RESIDENCE
• The information should show the length of time at
that location and, if less than five years in duration,
should reveal the previous residence.
• Should determine the status of the credit applicant
as owner or tenant of the property.

FMGT 60 - Ricafort
 For Individuals
MARITAL STATUS
• Significant quality in most consumer credit
transactions
• Married, single, widow, widower or separated
• The happiness or unhappiness associated with the
status is also important to consider

FMGT 60 - Ricafort
 For Individuals
AGE
• The investigation should establish that legal
capacity to contract is present
• Some lenders do not lend to individuals under 25
years of age nor to individuals over 65

FMGT 60 - Ricafort
 For Individuals
REFERENCES AND REPUTATION
• The investigation may also seek information about
the reputation of the credit applicant and to
secure information adequate for evaluating the
credit data reported by references
• references and reputation + payment record =
Investigation of character

FMGT 60 - Ricafort
 For Individuals
RESERVE ASSETS
• Additional surety which both debtor and creditor
hope there will not be a need to use.
• The investigation of reserve assets may be essential
with aged customers who are living upon a
pension or income from investments.

FMGT 60 - Ricafort
 For Individuals
EQUITY IN PURCHASE
• An additional credit quality that is a major concern
especially under the installment method of
consumer processing.
• The proportion of initial equity or ownership may
reflect the attitude of the buyer toward the
obligation.

FMGT 60 - Ricafort
 For Individuals
COLLATERAL
• Collateral in the form of some tangible asset
owned by the individual and offered as additional
security to the loaning institution.

FMGT 60 - Ricafort
 For Partnerships, Corporation,
and Similar Entities

I. Antecedent history of the company

• Date of inception of the business
• Form of organization and changes, if any
• Record of mergers or consolidations
• Summary of the company’s past operating record

FMGT 60 - Ricafort
 For Partnerships, Corporation,
and Similar Entities
II. Experience and ability of the company’s management
• Ages of the executive
• Their experience
• Their outside business affiliations
• Opinions with respect to the integrity of the
management
• Outside Financial Interest of the Officers
• Understudies of the principals
• Life insurance on the lives of the executives
FMGT 60 - Ricafort
 For Partnerships, Corporation,
and Similar Entities
III. Exact nature of the company’s operations
• Knowledge of the products handled
• Extent or nature of fabrication of its products
• Selling methods employed
• Economic need for its products
• Territory and customers served
• Unusual hazards of business
• Buying and selling terms
FMGT 60 - Ricafort
 For Partnerships, Corporation,
and Similar Entities
III. Exact nature of the company’s operations
• Sources of raw materials
• Proximity to labor supply, materials and markets
• Labor situation
• Importance of company in its industry

FMGT 60 - Ricafort
 For Partnerships, Corporation,
and Similar Entities
IV. The company’s present financial condition and
the condition that has existed for the past three or
five years including a review or knowledge of:
• Balance sheets, operating statements, and
supplementary statements and schedules
• Contingent liabilities
• Insurance coverage of insurable risks

FMGT 60 - Ricafort
 For Partnerships, Corporation,
and Similar Entities
V. Condition of the company’s plant
• Its location
• Condition of properties and machineries
• Plant layout
• Work-flow
• Productivity; low-cost or marginal

FMGT 60 - Ricafort
 For Partnerships, Corporation,
and Similar Entities
VI. Experience and opinion of banks of accounts and/or
other banks regarding the company
• Account experience
• Loan experience
• General comments regarding
o Management
o Financial condition
o Prospects
o Method of operation
FMGT 60 - Ricafort
 For Partnerships, Corporation,
and Similar Entities
VII. Trade opinions and ledger experience of the
concerns from which the company has been
purchasing
• Manner of paying its bills
• Present outstanding bills and lines, if any

VIII. Trade competitors’ opinions, if advisable

FMGT 60 - Ricafort
 For Partnerships, Corporation,
and Similar Entities
IX. Condition both within and without the industry
• General business conditions
• Conditions within the industry

X. Extent and nature of government competition and

regulation, and effect of present or prospective
legislation

FMGT 60 - Ricafort
FMGT 60 - Ricafort

CREDIT INVESTIGATION
PROCEDURE AND REPORTS
 IN THE FIELD OF THE
INVESTIGATION
1. Make it a habit before going out to the field of
investigation, to check internal records thoroughly
for any information on the subject of the
investigation.
2. During the process of investigation, asking for
references from banks, commercial firms and from
individuals who happened to have come across
the name/s of the subject of investigation would
be a good source for possible leads.
FMGT 60 - Ricafort
 IN THE FIELD OF THE
INVESTIGATION
3. If any derogatory information is received, follow it
through immediately and thoroughly.
4. In the process of investigation, in order to establish
factual results there should be a rigid scrutiny of
events as the information are gathered.
5. Endeavor to obtain a more meaningful insight into
the credit worthiness of the subject of the inquiry.

FMGT 60 - Ricafort
 IN THE FIELD OF THE
INVESTIGATION
6. When conducting credit checking on insurance
companies, check the standing and financial stability
of the insurance company with the office of the
Insurance Commissioner.
7. Total Currents Assets, Total Assets, Total Liabilities, Net
Worth, Gross Income and Net profit.
8. Obtain a statement from the current banker/s or credit
companies, whether a credit relationship may be
recommended by them.

FMGT 60 - Ricafort
 IN THE FIELD OF THE
INVESTIGATION

9. In case of re-checks, the investigation requires

greater attention to details.
10. Any change in previous terms of relationship
should be satisfactorily explained.

FMGT 60 - Ricafort
 PREPARATION OF REPORT
1. Indicate the name of or quote the person from whom
the information was obtained.
2. Information gathered from banks and in trade should
be arranged from current dealings, past dealings and
to no dealings.
3. In conducting credit checking on a business firm
together with the name/s of the firm’s principal/s
prepare a combined investigation report on the firm
and principals.

FMGT 60 - Ricafort
 PREPARATION OF REPORT

4. Every report should indicate, by way of footnote,

all relationship, if any, the subject of inquiry has with
this bank.
5. Be brief but complete.
6. Your credit report is an important basis of a credit
decision, either here or abroad.

FMGT 60 - Ricafort
FMGT 60 - Ricafort

SOURCES OF CREDIT INFORMATION

 SALESMAN’S REPORT
• The company’s first contact with a new customer
• The salesman can obtain a great deal of
information by keeping his eyes and ears open
• To obtain the full benefit of the salesman’s
observation, a spirit of mutual confidence and
cooperation must be developed between the
sales and credit departments

FMGT 60 - Ricafort
 CUSTOMER SUPPLIED
INFORMATION
• Can provide the credit man with available
financial details, banks and trade references, and
other information which can be obtained from the
customer.
• Contact with customer may take the form of a
personal visit, a phone call or by direct
correspondence

FMGT 60 - Ricafort
 BANK INFORMATION
• The credit manager should make a special point
of becoming well-acquainted with members of
the credit department in his bank
• A letter of inquiry to the customer’s bank usually
will bring a reply indicating the customer’s bank
balance, line of credit and the manner in which
payment on bank loans are handled.

FMGT 60 - Ricafort
 CREDIT INTERCHANGE
• Direct interchange of credit information is also one
of the most valuable sources of information.
• The credit analyst should not overlook the
possibility of directly exchanging ledger and other
pertinent information with credit representatives of
other concerns known to be supplying the
customer under review

FMGT 60 - Ricafort
 CREDIT REPORTING
AGENCIES
• The agency report usually attempts to cover all the
major factors involved in the credit decisions.
• Information from the agency may be sufficient to
eliminate the need for further investigation or may
serve to point the areas which should be explored

FMGT 60 - Ricafort
 OTHER SOURCES OF
INFORMATION
1. Interchange Bureaus –Credit Management
Association of the Philippines (CMAP)
2. Court and Securities and Exchange Commission (SEC)
listings
3. Securities and Exchange Commissions
4. Miscellaneous Sources
o Daily newspapers
o Accountants and attorneys
o Credit Information Corporation

FMGT 60 - Ricafort
FMGT 60 - Ricafort

END OF THIS MODULE.