Sem 2 2004/2005
FACULTY OF FINANCE AND BANKING
UNIVERSITI UTARA MALAYSIA
COURSE CODE : WF 3023
COURSE : CREDIT MANAGEMENT
PREREQUISITE : WF 2013 FINANCIAL MANAGEMENT I or WF 2123
CORPORATE FINANCE II
This course discusses the principles and theory of credit management specifically
business credit and consumer credit management. In the introductory part of the course,
topics covered will include the overview of credit management, classification and function
of credit, and components of a credit transaction. The credit management process will be
discussed encompassing promotion of credit programs, gathering of credit information,
credit investigation, analysis and monitoring of credit and debt collection including legal
actions. In addition to legal proceedings, creditor’s protection and export credit will also be
discussed. Emphasis will be given on the credit management practice in Malaysia which
also integrates related current issues.
Upon completion of the course, students should be able to:
2.1 appreciate the concepts of credit and its roles in the economy.
2.2 comprehend the underlying principles of business and consumer credit.
2.3 describe the credit management process starting from the credit offering until the
collection of debts.
2.4 recognise the importance of a credit policy
2.5 identify the remedies available at a creditors’ disposal in his effort for debt repayment
3.0 MAIN REFERENCES
3.1 Cole, Robert H. and Lon L. Mishler (1998) Consumer and Business Credit
Management, 11 th ed., Singapore : McGraw- Hill International Edition.
3.2 Wong, Richard Y.K. (1998). Cash: The Lifeblood of Business, Kuala Lumur: Leeds
3.3 Business Credit published The National Association of Credit Management. USA
3.4 Credit Management published by The Institute of Credit Management, UK
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3.5 The Journal of Lending and Credit Risk Management published by Robert Morris
4.0 TEACHING AND LEARNING STRATEGY
This course will be conducted using several approaches. Lectures will be further
supported with two-way interactions between the instructor and students. Occasionally,
external speakers, who are practitioners in credit management, will be invited to share
their practical experience.
Apart from lectures, students are required to work on assignments or projects, individually
or in groups, using secondary data collected from library or primary data that entails the
students to carry out field works. Reports from these projects are expected to be
submitted at the end of the semester. If time permits, students may be asked to present
their reports to the class
Quizzes will be given from time to time to ensure continuous evaluation is in force. This
will motivate students to be ready and consistent in their learning. Students will also be
tested via a mid-semester examination and a comprehensive final examination at
Finally, students are expected to keep abreast with the latest business and financial
developments. Discussions, quizzes, tests and examinations will, more often than not, test
student’s knowledge of these latest developments. Students who possess good grasps of
current affairs in credit management will surely have the advantage over those who do not.
5.0 COURSE EVALUATION
Students are evaluated on their coursework and examinations. Coursework comprises
activities related to the course that are carried out periodically or continuously throughout
the semester such as mid-semester exam, quizzes, projects, assignments, class
participation, etc. Final examination will be held at the end of the semester. The allocation
of marks is as follows:
Final exam 40%
Sem 2 2004/2005
6.0 COURSE CONTENT
1 INTRODUCTION TO CREDIT 3
Definition of credit
The credit transaction process
Components of a credit transaction
Myths of the credit industry
Cost of credit
2 CLASSIFICATION AND ROLE OF CREDIT IN THE ECONOMY 3
The role of credit in the economy
Benefits and dangers of using credit
Classification of credit
Types of credit
open account / charge account
cash loans, etc.
3 DECISION TO OFFER CREDIT 3
Purpose of giving credit
Outside providers of credit program
Factors affecting the decision to provide internal credit programs
Function of a credit manager
4 CREDIT POLICY AND TERMS OF CREDIT 3
Purpose and content of a credit policy
Terms of credit
Factors determining the terms of credit
Analysing changes in credit term
5 CREDIT MANAGEMENT PROCESS, PROMOTION AND CREDIT 3
Credit management process
Promotion of credit programs
Sources of credit information
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6 CREDIT ANALYSIS 6
Multiple discriminant analysis ~ the Z-score
Financial statement analysis
The 5C’s of credit
7 MONITORING OF ACCOUNTS RECEIVABLE 3
Routine and problem accounts
Causes of late payment
Aging of accounts receivable
8 COLLECTION METHODS AND PROCEDURES 6
Goals of a good collection system
Factors affecting a collection policy
Stages in collection procedures:
Techniques used in the various collection stages
9 TAKING LEGAL ACTION 6
Factors to consider before taking legal actions
The legal process
Enforcement of judgment:
judgment debtors summon
writ of seizure and sale
attachment of salary
10 SECURITY FOR CREDITORS 3
Collateral and types of collateral acceptable
Guarantees and types of guarantee available
11 INTERNATIONAL TRADE CREDIT 3
Credit problems of export trade
Export terms of sale
Sources of foreign credit information
Export credit insurance
Sem 2 2004/2005
LECTURER: NURUL HUDA ABDUL MAJID
CONTACT: 04-9286427 OR email@example.com
ROOM NO: FWB 2088
MID SEMESTER EXAM
The exam shall cover Chap one to five. There will be 30 True/False and 30 Multiple choice
questions. The tentative date is on the 31st January 2005.
1) Article / Journal Review (10 Marks)
Students will be assigned to a group of two members. Each group must submit an articles
from Journal that represent issues as follows :
1 Management of Receivables
2 Credit card
3 Credit scoring
4 Working capital management
5 Cash management
6 Credit policy
Selection of topic is given on first come first serve basis within the first 2 weeks of the
semester. Not more than 3 groups can choose the same article topic. Article selected
should fulfill the following criteria:
a) Research have been done by the writer and publish in journal.
b) Highlight the issues related to the syllabus of this course.
c) Article from Refereed Journal is preferrable.
Each group should write a review of the article not more than 10 pages. Submissions is
due on 14th January 2005.
2) Short Assignments (5 Marks)
Assignment will be given from time to time and students will be given 1 week to complete
and submit the assignment.
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PROJECT / CASE STUDY
Group project (maximum 4 members)
Your Company is currently developing the in-house credit programs. You as a
senior financial manager have been appointed to lead the new set-up department
namely Credit Department. Your responsibilities including setting up the credit
policy, planning for promotion of credit programs, conducting credit analysis and
manage and supervise the credit operation.
The first task is to develop an effective system for credit applications. As a
financial manager, you have to propose the credit application and analysis system
that should be applied to your company The analysis should covered factors that
are considered important and sources of information to be gathered in processing
credit applications. Besides, delegation of duties to your staff department should
also be taken into considerations.
Format of Report
Write a proposal on credit analysis functions that will be carried out by your
department. The detailed of the proposal ia as what has been explained in the
You also have to include analysis on sample company to support your proposals.
Any two public listed company in Malaysia can be used as a sample company.
Using the system that you propose, retrieve the financial data of that company and
prepare the credit analysis report if you were to process the credit application
from these two companies.
The credit analysis report should contains:
1) Relevant ratio analysis to measure short term liquidity, solvency and profitability
of the company.
2) Industry analysis and current trends.
3) Performance evaluation and comparisons of the two companies.
Using your analysis, recommend which one of the company are to be granted the
credit facilities as an example in processing credit application by your department.
Your proposal report should contains the following with an allocation of marks as
1) Objective of your proposal 5 marks
2) Brief background of your company 10 marks
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3) Credit Department Functions 10 marks
4) The proposed credit application and
analysis system for your company 20 marks
5) Credit analysis of 2 sample companies and your
recommendation(Financial data based
on the latest actual annual report) 40 marks
6) Conclusion 7 marks
7) Reference: Illustration and Appendix 3 marks
# Style and Presentations 5 marks
TOTAL 100 marks
Note: Annual Report of sample companies need to be attached.
DUE DATE: 6 March 2005
There will be at least 3 quizzes administered during lecture hours. Some of it will not be
informed earlier therefore students are advise not to miss any of the class.
Mid Term Exam 20%
Assignment (Article/Journal review and short assignments) 15%