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  • Predictive Indicators - Learn how to read the signs and improve your bottom line

    Managing your company’s exposure to risk has become a challenging task. There is more pressure to speed up the credit review process and more responsibility resting on your shoulders to be accountable for your decisions and improve company profitability.

  • Suing a Foreigner? Keep Control of the Case with a Forum Selection Clause

    In the world of cross-border litigation, I can tell you that prevention is worth much more than a pound of cure. Battles over where a case is to be litigated are common, and can be so protracted and costly that the parties never reach a determination of the merits of the case. Such battles are common because generally there are tremendous strategic advantages to litigating the case in one’s home jurisdiction, and disadvantages to litigating the case in one's opponent's jurisdiction.

  • PPSA & Legislative Q's
  • Return on Equity Financial Expression

    Efficient use of assets is important for the profitability and growth of any organization. One of the easiest ways to gauge whether a company is an asset creator or cash user is to look at the return on equity (ROE) ratio. ROE is a strong measure of how well management is creating value for shareholders.

  • Financial statement simple analysis

    In today's environment the obtaining of Financial Statements from a customer is becoming virtually impossible. A good credit professional needs to sell his customer on the benefits of supplying at least a common size balance sheet and income statement in order to justify a credit limit sufficient to meet both yours and the customer's needs.

  • Credit and Collections as a Revenue Generator
    Next time you are spending quality time with a client, at a board meeting, or getting an update from the CFO you may want to inquire about practices of their company’s credit and collections department. The credit and collections department is constantly interacting with the company's customer base. This provides them with opportunities to augment sales, identify customer needs and problems, and / or be proactive in collecting those slow paying accounts. A properly operated credit and collections department can enhance profits and earnings per share.
  • Why are monitoring and control procedures critical to reduce bad debts and overdue accounts?
  • Risk Assessment

    Risk assessment is a step in a risk management procedure. Risk assessment is the determination of quantitative or qualitative value of risk related to a concrete situation and a recognized threat (also called hazard). Quantitative risk assessment requires calculations of two components of risk (R):, the magnitude of the potential loss (L), and the probability (p) that the loss will occur.

  • Credit Scoring

    Most credit scoring systems have been developed for use by banks. This has been adjusted to reflect both consumer and mercantile business. Credit scoring is a method of evaluating the credit risk of customers ...

  • Credit and Collections Department Should Be Generating Revenue

    Next time you are spending quality time with a client, at a board meeting, or getting an update from the CFO you may want to inquire about practices of their company's credit and collections department. The credit and collections department is constantly interacting with the company's customer base. This provides them with opportunities to augment sales, identify customer...

  • Credit Risk Management

    Credit risk is defined as the likelihood of loss resulting from a customer's failure to pay for the goods delivered. It is the responsibility a Credit Manager to verify that all customer files are complete and contain all the necessary information to protect the accounts receivable.

  • Construction Credit

    Construction credit is a unique and specialized form of mercantile credit. Although the field follows many of the same principles, practices and procedures as mercantile credit, there are a number of factors that make the practice unique. In order to be successful, the credit professional must...

  • Leasing and Rentals

    Merchantile Credit Managers are well trained to deal with how to manage the credit and collections of the transactions of selling of a product or services from one business to another.  However, the Leasing or Rentaling of a facility or a piece of equipment deserves special  consideration.

  • Terms used by CPA's

    A CPA will competently assist an organization (whether it is a privately held business, a publicly owned corporation, or a nonprofit organization) with preparing reports on its financial performance. Such reports help owners and managers make operational decisions, enable creditors to evaluate loan applications, and provide individuals with information to make investment decisions.

  • Direct payments and construction insolvency
    Main contractor Carillion’s entry into liquidation has resulted in many employers seeking to establish relationships with subcontractors, under which they will be paid directly in order to stay on site and finish the relevant project. On the face of it, this seems like an attractive solution, and may leave some employers wondering why they didn’t procure their projects by construction management in the first place. However, establishing direct relations is not without risks, and requires safeguards for employers and subcontractors alike. Those are set out in the last section of this article, but it is important to understand the pitfalls, particularly of direct payment, first.
Q and A (5)
  • What can creditors do to protect themselves when a customer remits a cheque, for less than the full amount owing, and marks it "Paid in Full" or words to that effect? Also, what can a creditor do to protect themselves in this situation when their company uses a "lock box" or "shared service" center and the A/R personnel may not even see the cheque prior to it being negotiated? Is the law that governs these scenarios Federal or Provincial?

    Courts are very familiar with this tactic and will generally not give effect to it. A cheque marked “paid in full” may very well be evidence of an agreement to reduce the debt owing, but it is easily rebuttable by clear evidence that the creditor accepted the payment only as partial payment. This is based at least partially on the concept of consideration. Put simply, this concept involves the idea that you do not get something for nothing. What the debtor is attempting to do in this situation is to receive a discount on its debt without providing any real benefit to the creditor in return. The courts will not allow a debtor to unilaterally alter its agreement with its creditor - which is what it is attempting to do with the notation on the cheque.

    One possible method of dealing with such attempts would be regularly forwarding statements thanking the debtors for any payments received and indicating the account balance to date. If the debtor then challenges the statement arguing that payment had been made in full by way of the cheque in question, all the creditor would have to do would be to respond by saying it was received in partial payment. Unless the debtor is able to produce some sort of an agreement with the creditor showing the creditor’s agreement to accept the reduced amount in full satisfaction for the amount owing, it is extremely unlikely that the courts find in favour of the debtor.

    Of course, if the creditor notices the notation before it deposits the cheque, it can also send a specific letter to the debtor thanking it for the payment and saying that the payment has been applied against the amount owing, that the creditor did not agree to accept the payment in full satisfaction of the amount owing and that the balance remains owing by the debtor.

    The law governing these scenarios is the common law of contract, which is a matter within the jurisdiction of the provinces. As such, the law as interpreted in one province may not necessarily be applied in another. However, frequently the courts in one province will consider and often follow the decisions of courts in other provinces.

  • What triggers a recession?

    The last 2 recessions, in 1991 and 2001, were preceded by financial catastrophes, the Savings and Loan Fiasco and the Bursting of the Hi-Tech Bubble.  When events like these occur, they not only take equity out of the economy, but more importantly, they reduce the consumer’s confidence; that is, the consumer becomes concerned and reluctant to spend.
    The intrepid consumer drives the U.S. economy, and for the last decade, it has been overspending.  The U.S. has a negative saving rate.  The ballooning equity in homes or the paper profits in the Hi-Tech Stock Bubble allowed them to overspend based on credit secured by these assets.  When the value of the assets decline, the consumer is often left technically bankrupt.
    The recovery from the Sub Prime problems may be protracted, as the full extent of the write-offs will not be known until 2010 and the poorest people, who are most affected by the loss of their homes, will definitely not be driving a consumer recovery.

  • What is a Credit Crunch?

    A number of the largest banks in the World have had to write off billions of dollars of investments in the Sub Prime mortgage market.  When a bank lends money, it must always set aside a certain amount of capital to support the loan.  The term is Capital Adequacy.  To support the loans they are making, banks must have a certain Tier I Capital.  If the bank has to write off large amounts of capital, it may no longer have adequate capital to meet the reserve requirements and it must either reduce its loan portfolio or obtain new capital.  The basic impact is that credit becomes tighter and more expensive.

  • How does a slowdown affect companies?

    As demand is affected by a decline in consumer confidence, it becomes more and more difficult to maintain sales levels.  The inflationary pressure felt on inputs becomes harder to pass on and margins become squeezed.  As margins become squeezed, the companies must reduce costs by purchasing less and laying off workers.  The recessionary spiral steepens.

  • Is credit insurance the answer to a credit manager’s prayer?

    Not in every case!  By the time a credit limit is requested on a buyer, the writing may already be on the wall and the underwriters can’t increase their exposure.  This information in itself is useful.

    In some cases, the underwriters may only be able to cover some of the exposure due to the credit evaluation or their current level of exposure.  Again, this is useful information.  In most cases, at least one of the underwriters will be able to approve the buyers.  When this happens, credit managers can sleep like babies knowing that they are protected from the unforeseen.  Once the credit limit is in place the underwriters monitor the buyer and they will advise you if problems are arising.

    Underwriters can, and definitely will, cancel or reduce credit limits, but the cancellation or reduction only applies to future shipments.  They have no retroactive effect.  Your insured exposures remain insured.

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