KINDS OF BUSINESS

LETTERS
CREDIT AND COLLECTION
LETTER

CREDIT LETTER
IMPORTANCE OF CREDIT:
Credit is the backbone of business. It is the
lifeblood that makes everyday
transactions in a business possible. The
so-called 85% business transaction
everyday is impossible without credit.
Regardless of whether you are a
wholesaler, retailer, or customer, credit
plays an important role in whatever
business transactions that takes place
daily.

Nature of Credit
Credit would mean the sellers
confidence and trust in the
buyers ability to pay for the
goods or services that have been
delivered to him. Generally, a
customer is given 30 days, 60
days, or 90 days to pay depending
on the agreement of both parties.

Creditor vs. Debtor

CREDITOR An individual or
institution that extends or lends
money, merchandise, or
services on credit
DEBTOR is anyone or an
institution that borrows money,
merchandise, or services on
credit.

Kinds of Credit

Secured Credits are those that

need collateral such as bonds,
mortgage on land titles, buildings,
and equipment as protection to the
credit.
Unsecured Credits are those
without any form of collateral or any
form of security other than the
capacity and character of the debtor.

Application for Credit

Methods involved in the application
for credit:
1. Customer fills out credit application
blank form
2. Customer places initial order and
leaves matter of credit to the seller
3. Customer places initial order and
leaves matter to the creditor.
4. Customer writes a letter requesting
for credit

Principles on Credit
Transactions
1.

2.

.
.
.
.

Business revolves around the use of

credit since the business cannot always
sell on cash basis.
The use of credit is not a given right; it is
an earned privilege. Credit applicants are
those evaluated on the following Cs:
Credit
Character
Capacity
Capital

Principles on Credit
Transactions
3. The creditor may classify debtors into
these steps:
a) Good pay the debtor is known to
always pay on time.
b) Good but slow pay the debtor who
always pays but occasionally needs to be
reminded
c) Poor pay the debtor is difficult to
collect from
4. The creditor must acquaint himself

Example:
1825 Gov. Forbes Street
Sta. Cruz, Manila
September 7, 2016
Mr. Benjamin Pelaez
18 Pebillare Street
Del Monte, Quezon City
Dear Mr. Pelaez:
We appreciate very much if your company will allow to open a
charge account in my
name.
Enclosed are names of business institutions whose credit facilities I
have used for
may years. Please feel free to write or call anyone of them to
determine my
character and my capacity to maintain my good credit standing.

Please dont hesitate to inform me with regard to the result of

your inquiry.
Sincerely yours,
Mr. Reynaldo Cruz

Principles involved in answering the Letter

1.
2.

3.

4.

The letter must be friendly and cheerful

Explain clearly explicitly your reasons for
granting or refusing the request
End with a short note that will interest the
customer
Be tactful and courteous so that you will not lose
a client

Example:
Dear Sir:
We thank you for your letter of August 30, requesting to open a
charge account with us. We are happy to tell you that we
always welcome new customers and serve them willingly to the
best that we can.
We are sending you the blank application form to facilitate the
opening of your charge account with us.
If you will fill out the form, we can hasten the opening of your
account.
Sincerely yours,

A cheerful request for further information

Dear Mrs. Reyes
We thank you for your order last September 1, 2016
We regret to inform you that your name is not included in our list of
charged
customers.
For your convenience, we are enclosing a blank credit application form
for
you to fill in your order.
Please fill it out and return it to us as soon as possible.
If there is anything more you want to know, do not hesitate to write us
again.
Sincerely yours,

Refusal of Credit
A letter not accepting credit must be courteous,
tactful, and diplomatic. In addition, it must be
polite, friendly, and sympathetic.
It must include the following information:
1.
2.

3.

4.

Stress a note of appreciation for his order

Make the applicant understand the situation by
giving a clear and frank explanation
Offer some suggestions for him to buy the goods on
cash basis at the moment
End with the assurance that his application for
credit will be considered in the future

Example:
58 Malabon Street
Sta. Cruz, Manila
September 7, 2016
Mr. Dario de las Alas
14 De Vera Street
Del Monte , Quezon City
Dear Mr. de las Alas:
We thank you vey much for your order of September 1 to be delivered on
account.
We are sorry to inform you that the merchandise you ordered are sold on
cash basis only.
We assure you through, that your next order will be delivered to you on account.
Sincerely yours,
Ronald Dollison

Letter Stimulating Credit Business

These letters are combined goodwill-sales letters. They stimulate both
interest and sales for the firm. Business companies welcomes the
opportunity to grant credit to the people who will use it wisely.
Example:
Dear Mrs. Prey:
You are sincerely invited to open a charge account at Adela Boutique. Many of our
customers enjoy the convenience of a charged account. They can go on shopping
without having to carry large sums of money. They also enjoy the convenience of
shopping by mail or by phone. You can carry buy the merchandise that you really
need now.
Adela Boutique pampers its charge customers. You will be delighted with the
personal attention you will get from us.
Visit our store and let us show you how easy it is to open an account and use it
Immediately.
Sincerely yours,

Collection Letter
The collection system should begin to operate as
soon
as the records indicate that the customer has
failed to meet the payment. The successful
collection
letter writer is not the man who collects the
greatest
number of bills, but rather the one who collects the
highest percentage of accounts receivable with the
Lowest percentage of loss of goodwill.

Collection Letter
Guidelines in writing collection letter:
1. The collection letter should be cheerful, optimistic, and
confident.
2. The writer should be a psychologist. He should use
approaches and appeals that have been prove to be the
strongest in moving the debtor to pay.
3. The collection process involves a series of letters that
progress from reminders to ultimatums.
4. Collection letters must be promptly written. Many people
react favorably to deadlines.
5. Proper tone in the collection letter must be used. The tone
should be friendly but insistent, considerate but
constructive, sympathetic and yet firm. Last resort letter
can use threats to legal actions.

The Collection System

The series of collection letters depend
on the companys principles, the
personality of the debtor and the
nature of the account and the credit
terms. The characteristics of each
letter should be based on each
collection stage and type.

The Collection System

The following collection follow-up stages and
types can be used:
1. Printed notices
2. Form Letters
3. Personal letters
4. Telegrams
5. E-mail messages; deliveries thru fax
machines, cell phone calls, telephone calls
6. Personal visits
7. Appeal

Collection System: Appeal

Appeals deal with sensitive part of human feelings.
Choosing the right appeal at the right time is part
of the successful collection strategy. The following
appeals in order to severity can be used.
a) Reminders
b) Appeal to self-interest
c) Appeal to cooperation
d) Appeal to pride
e) Appeal to honor
f)
Appeal to fairness
g) Appeal to fear

Appeal: Reminders
The writer calls the attention to the overdue account
and asks for payment.
Example:
Dear Miss Estoque:
Last month we called your attention to the overdue balance of your charge
account. We have already allowed you thirty days, an accommodation
which
we gladly extended to you.
We hope that you will send us your check for (Five Thousand Five Hundred
Thirty Four pesos) only within the next ten days.
Sincerely yours,

Appeal to Cooperation
Dear Mrs. Reyes:
You may have a good reason that is unknown to us why
you
have not paid your past due account in the amount of
(Nine
Thousand Eight Hundred Fifty pesos) only.
If so, wont you tell us about it now? If everything is
satisfactory,
send us your check on or before September 10, 2016.
Sincerely yours,

Appeal to Self Interest

Dear Miss Intong:
When your account was opened with us, we had every reason to believe
that
you would pay it promptly when it became due.
In making the usual credit investigation, we discovered that all those with
whom you had done business spoke very highly of you in a personal way
and declared that you would meet your obligation promptly.
Do not destroy this good impression in you. Send us your check in the
amount of (Seven Thousand Eight Hundred pesos) not later than September
20,
2016.
Sincerely yours,

Appeal to Pride
Appeal to pride deals primarily with self-esteem, reputation,
accomplishment, ownership, or prestige.
Example:
Dear Mr. Miranda:
We gladly opened a credit account for you because we believed that a
businessman of your standing would never delay payment.
Your credit investigation showed that you are rated excellent in your credit
rating.
You must be proud of such rating. You can retain this pride by keeping your
account in our preferred file.
All you have to do is send your check (Twenty Seven Thousand Eight Hundred Thirty Five
pesos)
only within 15 days after the receipt of this letter.
Sincerely yours,

Appeal to Fear
The appeal to fear is resorted only when all other appeals
have failed. It is considered as the strongest of the
collection appeals. It is usually a declaration of placing
the collection in the legal division.
Example:
Dear Ms. Reyes:
We have sent you many letters calling your attention to your unpaid balance
amount of (Fifteen Thousand Pesos) only.
All attempts made to settle your accounts convenient for you have failed.
This is the time for us to take the last step to enforce the collection.
If we will not receive you check for (Fifteen Thousand Pesos) within ten days, we
will forward the collection to our legal division.
Truly yours,