Fundamentals of Credit Management – KASNEB Syllabus

PAPER NO. 1 FUNDAMENTALS OF CREDIT MANAGEMENT

GENERAL OBJECTIVE

This paper is intended to equip the candidate with knowledge, skills and attitudes required to apply the basic principles of credit management in business.

LEARNING OUTCOMES

A candidate who passes this paper should be able to:

• Have a general understanding of credit business
• Apply the basic principles of credit management in a business environment
• Analyse the effects of cost of granting credit to a business
• Provide basic advice on various aspects of credit management
• Perform basic debt collection

CONTENT

Introduction to credit

• Definition of credit
• History of credit
• Reason for and benefits of extending credit
• Effect of credit to a business
• Major categories of credit (such as consumer, trade and export)

Types of credit customers

• Individuals
• Sole traders
• Partnerships
• Limited companies
• Government bodies
• Unincorporated associations
• Trusts/ Foundations/NGOs

Credit management function

• Structure and organisation of the credit department
• Roles of a credit department
• Role of a credit officer
• Qualities of a credit officer
• Promoting Interdepartmental relationships (sales and marketing; accounts and finance; risk and internal audit; procurement; operations)

Cost of granting credit

• Definition of cost of credit
• Types of cost of credit
• Component of total cost of credit: from a bank’s perspective
• Determination of cost of credit
• Effects of credit on profits, cash flow and liquidity

Overview of credit agreements/products

• Hire purchase
• Credit sale
• Conditional sale
• Optional account
• Factoring
• LPO financing
• Invoice discounting
• Charge account
• Budget account
• Personal loan
• Mortgage
• Rental agreement
• Leasing

Documents, records and reports

• Credit application form
• Customer files
• LPOs/LSOs
• Sales order
• Invoice
• Delivery notes
• Credit note
• Debit note
• Statements of account
• Query records
• Aged analysis
• Telephone call records

Payment terms

• Monthly account
• Net days’ terms (7, 15, 30, others)
• Stage payments
• Load overload
• Contra accounts
• Cash with order
• Cash on delivery
• Journey terms
• Settlement discounts

Payment methods

• Cash
• Cheques
• Banker’s cheque
• Bank transfers (EFT, RTGS)
• Bills of exchange
• Promissory notes
• Letters of credit
• Credit cards
• Mobile money transfer
• Payment reports

Collections

• Overview of collections
• Establishing targets
• Collection planning
• Collection cycle
• 80/20 principle
• Collection tools and methods
• Computer aids to collection
• Identification and measures taken on an initial default
• Making contact with defaulters
• Negotiation and structuring of offers
• Rules for effective collection practices
• Mistakes made during collection
• Reasons for delays in payments
• Third party collectors

Automation of the credit function

• Process of automation of credit function
• Benefits of automation of credit operations
• Customer master file
• Online credit management
• Billing automation
• Types of credit management information software

Emerging issues and trends