The paper is intended to introduce the candidate to the credit profession, equip the candidate with practical skills and knowledge required to manage the credit cycle for trade credit providers and financial institutions.


A candidate who passes this paper should be able to:

  • Assess and evaluate credit/lending proposals and advise credit applicants on various credit products
  • Create, maintain and update debtors’ profiles and keep proper records in the credit function
  • Implement credit guidelines and procedures for the complete credit cycle
  • Monitor outstanding debts for conformity with the set-out terms and conditions
  • Analyse credit extension by various providers; banks, saccos, microfinance institutions, insurance companies and non-financial entities (locally and internationally)



  1. Introduction to credit management

1.1 History of credit Management

1.2 Definition of credit

1.3 The credit cycle

1.4 Why businesses extend credit

1.5 Types of credit; Consumer Credit, Trade Credit and Export Credit

1.6 Financial effects of credit on; Cost of credit, overdue on profit liquidity and Cash flow

1.7 Merits and Demerits of credit

1.8 The role of credit and its importance in the economy


  1. Consumer Credit

2.1 Players in consumer credit- Savings and Credit Cooperative Societies (SACCOs), Microfinance Institutions (MFI’s), Banks, Financial Technology (FinTechs)

2.2 Types and features of consumer credit agreements/products – Hire purchase, auto loans, personal loans, credit card, Personal lines of Credit (PLOCS), Overdraft limits

2.3 Classification and characteristics of consumer credit products

2.3.1 Classification by the Tenure/Repayment mode Revolving Credit Installments Open Credit

2.3.2 Classification by Target Market Consumer Credit Corporate credit Small and Medium enterprise loans

2.3.3 Types of Loans by repayment mode and Security Secured versus Unsecured Amortising versus Non-Amortising Payment terms and methods Consumer credit documentation


  1. Trade Credit

3.1 Players in trade credit

3.2 Types of credit products/accounts

3.3 Payments terms and methods used in trade credit

3.4 Trade credit documentations – invoices, credit notes, debit notes, statements etc.


  1. Export Credit

4.1 Terms and conditions of sale in export

4.2 Payment terms and methods

4.3 Challenges and risks associated with export credit

4.4 Export credit documentation

4.5 International Communication Terms (Incoterms)

4.6 Players in export trade – agents, distributors, del Credere


  1. The credit department

5.1 Roles of a credit department

5.2 Organisational structure of a credit department – financial and non-financial institution

5.3 Expected qualities of a good credit officer/manager

5.4 Duties/responsibilities/qualification of a credit officer/manager

5.5 Departmental relationships – Finance & Sales


  1. Fundamentals of Credit Assessment and Analysis

6.1 Types of borrowers

6.2 Introduction to credit analysis, appraisal and assessment

6.3 Sources of credit risk information for assessment

6.4 Introduction to credit risk and common business risks

6.5 Categories of customers in credit analysis and their credit risk factors

6.5.1 Sole proprietorship

6.5.2 Partnership

6.5.3 Private and public limited companies

6.5.4 Clubs, societies & Schools

6.5.5 Local bodies, statutory bodies and corporations

6.6 Techniques and models for risk assessment- 5C’s, CAMPARI, PARSER, CCPARTS

6.7 Role of financial statements as a tool for risk assessment

6.8 Factors to consider when assessing credit risks – financial and non-financial factors

6.9 Hedging tools against risks – bank guarantees, Securities and collaterals


  1. Introduction to Debt Collection

7.1 Introduction to collections – trade, consumer and export

7.2 Nature of credit customers/debtors

7.3 Qualities of an effective collection officer

7.4 Identifying Early warning signs

7.5 Application of Pareto rule (80/20) in collection.

7.6 Collections tools – telephone, letters, SMS, emails etc.

7.7 Collections techniques

7.8 Collection performance measurement and reporting

7.9 Provisioning norms and write-off of bad debts – IFRS9


  1. Information Sharing

8.1 Introduction to information sharing and industry players

8.2 Role of credit Reference Bureau (CRB) in information sharing

8.3 CRB reports and clearance certificate

8.4 Benefits of CRB to lenders and borrowers

8.5 Role of CRB in the economy

8.6 Accessing and interpretation of a credit report


  1. Information Technology and Credit management

Customer recruitment and risk assessment

Customer Masterfile

Billing and lending

Sales Ledger management and controls

Contents and role of a sales ledger

Types of sales ledgers

Automated Collection support

Online Lending platforms

Advantages & disadvantages of Fintech lending


  1. Credit Functions Outsourcing

10.1 Credit scoring and rating

10.2 Collection call centers and Debt Recovery Agencies

10.2.1 Credit Insurance

10.2.2 Features of credit insurance policies

10.2.3 Types of credit insurance policies

10.2.4 Benefits of credit insurance

10.3 Factoring and invoice discounting

10.3.1 Types of Factoring

10.3.2 Advantages and disadvantages of factoring & Invoice Discounting

10.3.3 Difference between invoice discounting and factoring



Complete copy of CCP CREDIT MANAGEMENT Study text is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHERS APP) 

Phone: 0728 776 317





History of credit Management

Traditionally, credit management was considered a back-office function limited to assessing the customers? creditworthiness on spreadsheets and putting customers on a stop credit? list without consultation. In essence, it was a transactional overhead, which was perceived by the sales team as an obstacle rather than an enabler of business growth. However, over the last few years, businesses have started looking at credit management in a more strategic light. We see a shift from the traditional role to one focused on consulting, financial services, and business development. It is evolving into a data-driven function supported by artificial intelligence (AI), robotic process automation (RPA), advanced scoring models, and automated workflows that automate most manual tasks.

The aggregation and analysis of credit data, collaboration with business teams, reference calls, emails, and never-ending follow-ups are all being replaced by automation and workflow systems. The role of a credit manager is no longer limited to assigning credit limits to customers using excel formulas and mentally processing credit decisions based on intuition or experience. Greater business value and insight are now being sought from credit managers, and they are evolving into advisors for both finance and sales departments. In addition to risk containment and the enterprise-wide implementation of credit policies, the credit management team is now being entrusted with P&L analysis and working capital optimization, thus becoming responsible for tasks that were previously performed by financial analysts. Another area where credit managers are contributing more strategically is commercial opportunity analysis and business development. Credit managers are sitting on a lot of information via credit bureaus, trade groups, public financials, and internal data including insights from sales, marketing, and operations. This information could be used to drive customer-specific insights and identify those customers who should be developed over the long term and can help sales focus on creditworthy and profitable prospective customers. The latest trends and management expectations require credit departments to think not only in terms of risk optimization but also in terms of business opportunities to transform from being just another overhead to a valuable bottom-line facilitator.


Definition of credit

How do you define credit? This term has many meanings in the financial world, but credit is generally defined as a contract agreement in which a borrower receives a sum of money or something of value and repays the lender at a later date, generally with interest.

Credit also may refer to the creditworthiness or credit history of an individual or a company. To an accountant, it often refers to a bookkeeping entry that either decreases assets or increases liabilities and equity on a company’s balance sheet.

 How Credit Works

Credit is essentially a social relation that forms between a creditor (lender) and a borrower (debtor). The debtor promises to repay the lender, often with interest, or risk financial or legal penalties. Extending credit is a practice that goes back thousands of years, to the dawn of human civilization.

Today, a commonly used definition for credit still refers to an agreement to purchase a product or service with the express promise to pay for it later. This is known as buying on credit. The most common form of buying on credit today is via the use of credit cards. This introduces an intermediary to the credit agreement: The bank that issued the card repays the merchant in full and extends credit to the buyer, who may repay the bank over time while incurring interest charges in the meantime.

The credit cycle

The The credit cycle refers to the fluctuations in the availability and demand for credit in an economy. It is characterized by periods of expansion, when credit is readily available and demand for it is high, and contraction, when credit is less available and demand for it is low.

During a credit expansion, lending standards tend to be relaxed, leading to an increase in the number of loans being issued. This can stimulate economic activity and lead to growth in the broader economy. However, as more loans are issued, the risk of default may also increase, which can lead to a credit contraction as lenders become more cautious and tighten lending standards.

The credit cycle can have significant impacts on the economy, as the availability of credit can affect businesses’ ability to invest and consumers’ ability to make purchases. It can also affect asset prices, as the demand for credit can drive up the prices of assets such as stocks and real estate.

Some economists, including Barry Eichengreen, Hyman Minsky, and other Post-Keynesian economists, and some members of the Austrian school, regard credit cycles as the fundamental process driving the business cycle. However, mainstream economists believe that the credit cycle cannot fully explain the phenomenon of business cycles, with long term changes in national savings rates, and fiscal and monetary policy, and related multipliers also being important factors. Investor Ray Dalio has counted the credit cycle, together with the debt cycle, the wealth gap cycle and the global geopolitical cycle, among the main forces that drive worldwide shifts in wealth and power.

During an expansion of credit, asset prices are bid up by those with access to leveraged capital. This asset price inflation can then cause an unsustainable speculative price “bubble” to develop. The upswing in new money creation also increases the money supply for real goods and services, thereby stimulating economic activity and fostering growth in national income and employment.

When buyers’ funds are exhausted, an asset price decline can occur in the markets which had benefited from the credit expansion. This can then cause insolvency, bankruptcy, and foreclosure for those borrowers who came late to that market. This, in turn, can threaten the solvency and profitability of the banking system itself, resulting in a general contraction of credit as lenders attempt to protect themselves from losses.

Why businesses extend credit

  • Establishing trust with customers:A company who offers credit is reliable, stable, trustworthy, and mature; all of which are comforts to a potential customer.
  • Increase customer loyalty: Trusting your customers and offering them credit is a great way to tell your customers how important their business is to you and how much you appreciate it. They’re helping you bolster your business, so you are providing them with the option for credit so they can be flexible with their own cash flow without scrimping on what they need. By offering credit you have made them feel as though your relationship with them is less about supply and demand and more about trust; an important part of the modern buyers vendor selection.
  • Enhance your reputation:Extending credit is not something every business can afford to do. By extending credit to customers, you’re telling the customer and your competitors that you’re financially healthy with cash and access to working capital. This will boost the reputation of your organization and your product among buyers and throughout your industry.
  • Gain a competitive edge:Not all businesses extend credit, so just by making this a possibility for your customers you are giving yourself an edge. Customers like to buy on credit because it gives them more control over when they pay and provides them with more flexibility and control over their cash flow. If they are between two vendors, they’re very likely to be more attracted to the vendor who gives them this flexibility.
  • Enhance your reputation:Extending credit is not something every business can afford to do. By extending credit to customers, you’re telling the customer and your competitors that you’re financially healthy with cash and access to working capital. This will boost the reputation of your organization and your product among buyers and throughout your industry.
  • Increase sales:For all of the reasons above, offering credit to customers is going to help you attract more prospects and close more deals. Many times customers are less concerned with price when they know they can buy now and pay later. With longer payment terms and more buying power, your customers have everything they need to purchase more from you. Additionally, the relationship you will establish with them in the process will further enhance their willingness to buy and even spread the word about your company to their peers.

Disadvantages of Extending Credit to Customers

All of these benefits of extending credit to customers seem pretty attractive- and they are. But there are some risks to extending credit that all businesses should be aware of:

  • Late paying customers: Most of your customers who buy on credit will be great customers who pay you on time; but there could be a few bad eggs that bring trouble in the form of late or delinquent payment.
  • The effect on cash flow: When you ask customers to pay upfront, you know exactly what your income is every month, but when you sell on credit things get a little more complicated. As we mentioned above, most customers will pay you on time, some may be a little late, and some may become serious problems; all of this will affect cash flow; perhaps in a positive way, but the chance for a negative impact is possible as well
  • Enhance your reputation:Extending credit is not something every business can afford to do. By extending credit to customers, you’re telling the customer and your competitors that you’re financially healthy with cash and access to working capital. This will boost the reputation of your organization and your product among buyers and throughout your industry.
  • Collection fees:If you have to turn an invoice over to a collection agency or get a lawyer involved due to lack of payment, you won’t collect everything you are owed. This combats the purpose of extending credit in the first place, but it’s only a real problem if numerous invoices end up requiring a collection agency or legal action. A well written and regularly reviewed credit policy can help you avoid this issue entirely.
  • You’ll need to focus on accounts receivable management:If you start selling on credit you’re going to need to make accounts receivable management a priority. A/R management is much more than simply sending invoices and recording payment, it takes a lot of time and energy to do it right and avoid bad-debt write offs, invoice disputes, and late payments. You may even feel as though you need to hire another employee to keep up with it all. This is not always the case; there are plenty of tactics, tools, and simple process adjustments you can implement to help you quickly collect invoices without hiring any additional hands or letting money slip through the cracks.


Types of credit

Consumer Credit

Consumer credit is personal debt taken on to purchase goods and services. A credit card is one form of consumer credit.

Although any type of personal loan could be labeled consumer credit, the term is more often used to describe unsecured debt that is taken on to buy everyday goods and services. However, consumer debt can also include collateralized consumer loans like mortgage and car loans.

Consumer credit is also known as consumer debt.

Consumer credit is extended by banks, retailers, and others to enable consumers to purchase goods immediately and pay off the cost over time with interest. It is broadly divided into two classifications: instalment credit and revolving credit.

Instalment Credit

Instalment credit is used for a specific purpose and is issued at a defined amount for a set period of time. Payments are usually made monthly in equal instalments. Instalment credit is used for big-ticket purchases such as major appliances, cars, and furniture. Instalment credit usually offers lower interest rates than revolving credit as an incentive to the consumer. The item purchased serves as collateral in case the consumer defaults.

Revolving Credit

Revolving credit, which includes credit cards, may be used for any purchase. The credit is “revolving” in the sense that the line of credit remains open and can be used up to the maximum limit repeatedly, as long as the borrower keeps paying a minimum monthly payment on time.

It may, in fact, never be paid off in full as the consumer pays the minimum and allows the remaining debt to accumulate interest from month to month. Revolving credit is available at a relatively high interest rate because it is not secured by collateral.

Special Considerations

Consumer credit use reflects the portion of a family or individual’s spending that goes to goods and services that depreciate quickly. It includes necessities such as food and discretionary purchases such as cosmetics or dry cleaning services.

Consumer credit use from month to month is closely measured by economists because it is considered an indicator of economic growth or contraction. If consumers overall are willing to borrow and confident they can repay their debts on time, the economy gets a boost. If consumers cut back on their spending, they are indicating concerns about their own financial stability in the near future. The economy will contract.

Advantages of Consumer Credit

Consumer credit allows consumers to get an advance on income to buy products and services. In an emergency, such as a car breakdown, that can be a lifesaver. Because credit cards are relatively safe to carry, America is increasingly becoming a cashless society in which people routinely rely on credit for purchases large and small.

Revolving consumer credit is a highly lucrative industry. Banks and financial institutions, department stores, and many other businesses offer consumer credit.

Disadvantages of Consumer Credit

The main disadvantage of using revolving consumer credit is the cost to consumers who fail to pay off their entire balances every month and continue to accrue additional interest charges from month to month. The average annual percentage rate on all credit cards was 14.75% at the end of Q1 2021 according to the Federal Reserve. A single late payment can boost the cardholder’s interest rate even higher.

 Trade Credit

A trade credit is an agreement or understanding between agents engaged in business with each other that allows the exchange of goods and services without any immediate exchange of money. When the seller of goods or services allows the buyer to pay for the goods or services at a later date, the seller is said to extend credit to the buyer.

Understanding Trade Credit

Trade credit is usually offered for 7, 30, 60, 90, or 120 days, but a few businesses, such as goldsmiths and jewelers, may extend credit for a longer period. The terms of the sale mention the period for which credit is granted, along with any cash discount and the type of credit instrument being used.

For example, a customer is granted credit with terms of 4/10, net 30. This means that the customer has 30 days from the invoice date within which to pay the seller. In addition, a cash discount of 4% from the stated sales price is to be given to the customer if payment is made within 10 days of invoicing. If instead, the terms of sale were net 7, then the customer would have 7 days from the invoice date to pay, with no discount offered for early payment.

Trade credit extended to a customer by a firm appears as accounts receivable and trade credit extended to a firm by its suppliers appears as accounts payable. Trade credit can also be thought of as a form of short-term debt that doesn’t have any interest associated with it.


Complete copy of CCP CREDIT MANAGEMENT Study text is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHERS APP) 

Phone: 0728 776 317


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