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Nature of Credit

The document discusses the nature of credit, emphasizing trust and confidence as essential elements for transactions between creditors and debtors. It outlines various viewpoints on credit, including those of borrowers, lenders, economists, and legalists, highlighting the risks and costs associated with extending credit. Additionally, it lists the types of items that can be lent or credited, such as goods, services, and funds.

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107 views1 page

Nature of Credit

The document discusses the nature of credit, emphasizing trust and confidence as essential elements for transactions between creditors and debtors. It outlines various viewpoints on credit, including those of borrowers, lenders, economists, and legalists, highlighting the risks and costs associated with extending credit. Additionally, it lists the types of items that can be lent or credited, such as goods, services, and funds.

Uploaded by

shashaamarillo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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BUKIDNON STATE UNIVERSITY

KITAOTAO CAMPUS
2nd Semester A.Y. 2023-2024
FMPr 4 – Credit and Collection

Basic elements of Credit


NATURE OF CREDIT
1.Trust & Confidence. The very essence of
Credit credits is confidence on the part of the lender.
No transaction based on credit would occur
-the word credit comes from the Latin word without the lender having faith on the borrower.
credere or credo, which means “to trust” or “to
believe” The widespread use of credit is a strong 2. Risk. This is the uncertainty face by the
evidence to support the belief that people trust creditor, whether he gets paid in full, in part or
one another. not at all.

-the ability of a person to obtain goods, services, 3. Exchange of Economic Values. The actual
funds, property or rights, under a promise of release of funds or money in exchange for the
future payment. borrower’s promise to pay.

-it creates obligations and rights to both creditor 4. Futurity. The element which indicates that
and debtor. the obligation will be settled in a future date as
agreed upon by the funds and the funds user.
Creditor – is an entity or person that lends
money or extends credit to another party. The Cost of Using Credit

Debtor – is an entity or a person that owes All sellers of goods produced by means of
money to another party. borrowed funds have the same kinds of costs:
interest, operating expense and risk.

Various Viewpoints on Credit Interest is a price, and like other prices, it may
vary from time to time.
The Borrower’s Viewpoint
Operating expenses.
Credit represents the borrower’s ability to obtain Business enterprises that extend credit shoulder
goods and services or money in exchange for a the same operating expenses as other
future promise to pay. businesses. They must pay rent, light,
telephone service, water and others just as they
The Lender’s Viewpoint must pay their workers for their services in
production.
Credit is the trust and confidence of the -lenders incur the expense of investigating
lender/creditor on the borrower’s ability and applicants for credit purposely to find out if they
willingness to pay. are good risks and therefore worthy of credit.
The Economist’s Viewpoint -Collection is another item which includes
sending notices when payments are due and
Credit is the exchange of actual reality with a keeping a record of payments made.
future probability.
Risk.
The Legalist Viewpoint Extending credit always involves a risk for the
Credit is the legal right of the creditor to receive lender since he can never be certain that the
a stipulated payment from the debtor at a debt will be paid. When a lender is unable to
specifies time or upon demand. collect a debt, he takes a loss. Losses from
unpaid debts represent an added cost of doing
Items that are being lend/credit business.

 Goods
 Services
 Funds
 Property
 Rights
| Nature of Credit

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