ERIC ED373256: Customer Credit. Unit 19. Level 3. Instructor Guide. PACE: Program for Acquiring Competence in Entrepreneurship. Third Edition. Research & Development Series No. 303-19.

32 Pages·1994·0.77 MB·English

by  ERIC

DOCUMENT RESUME
CE 067 090
ED 373 256
Customer Credit. Unit 19. Level 3. Instructor Guide.
TITLE
PACE: Program for Acquiring Competence in
Entrepreneurship. Third Edition. Research &
Development Series No. 303-19.
Ohio State Univ., Columbus. Center on Education and
INSTITUTION
Training for Employment.
PUB DATE
94
32p.; For the complete set, i.e., 21 units, each done
NOTE
CE 067 029-092. Supported by the
at three level
,
International Consortium for Entrepreneurship
Education, the Coleman Foundation, and the Center for
Entrepreneurial Leadership Inc.
Center on Education and Training for Employment, 1900
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Behavioral Objectives; Business Administration;
DESCRIPTORS
*Business Education; *Competency Based Education;
*Credit (Finance); 'Entrepreneurship; Learning
Activities; Money Management; Postsecondary
Education; Secondary Education; *Small Businesses;
Teaching Guides
*Customer Services; *Program for Acquiring Competence
IDENTIFIERS
Entrepreneurship
ABSTRACT
This instructor guide for a unit on customer credit
in the PACE (Program for Acquiring Competence in Entrepreneurship)
curriculum includes the full text of the student module and lesson
plans, instructional suggestions, and other teacher resources. The
competencies that are incorporated into this module are at Level 3 of
learning--starting and managing one's own business. Included in the
instructor's guide are the following: unit objectives, guidelines for
using PACE, lists of teaching suggestions for each unit
objective/subobjective, model assessment responses, and overview of.
the three levels of the PACE program. The following materials are
contained in the student's guide: activities to be :ompleted in
preparation for the unit, unit objectives, student reading materials,
individual and group learning activities, case study, discussion
questions, assessment questions, and references. Among the topics
discussed in the unit are the following: the relevance of customer
credit, guidelines for granting credit, legal rights of credit
grantors, managing credit and collection, and credit promotion plan.
(KC)
INSTRUCTOR GUIDE
UNIT 19
LEVEL 3
Unit 19
Customer Credit
Level 3
HOW TO USE PACE
Use the objectives as a pretest. If a student
is able to meet the objectives, ask him or
her to read and respond to the assessment
questions in the back of the module.
Program for Acquiring
Competence in
Entrepreneurship
Duplicate the glossary from the Resource
Guide to use as a handout.
CENTEN ON EDUCAMN
ANODIAPIVIGIONEMPLOYIKNT
COLLEGE OF EDUCATION
Resennch & Development %reit-, Ma. 303-19
THE OHO STATE UNTYEREITT
Use the teaching outlines provided in the
Instructor Guide for assistance in focusing
The left side of
your teaching delivery.
Objectives:
each outline page lists objectives with the
corresponding headings (margin questions)
from the unit. Space is provided for you to
Analyze the relevance of customer credit for your
add your own suggestions. Try to increase
student involvement in as many ways as
business.
possible to foster an interactive learning
process.
your
credit
in
for
granting
guidelines
Develop
When your students are ready to do the
business.
Activities, assist them in selecting those
that you feel would be the most beneficial
to their growth in entrepreneurship.
Analyze the legal rights of credit grantors.
Assess your students on the unit content
when they indicate they are ready.
You
Design a system for managing credit and collection.
may choose written or verbal assessments
Model re-
according to the situation.
sponses are provided for each module of
Prepare a credit promotion plan.
"PERMISSION TO REPRODUCE THIS
While these are suggested
each
unit.
BY
MATERIAL HAS BEEN GRANTED
U S DEPARTMENT OF EDUCATION
responses, others may be equally valid.
Office iv 1-0,,,iional Resclech aril ii.iiriii,rii,iiii-i
INFORMATION
ED CATIONAL RESOURCES
CENTER Ef,t1Co
his document has been reproduced as
Rs
,-, received from the person or organization
originating it
2
Minor changes have been made to
improve reproduction quality
RESOURCES
TO THE EDUCATIONAL
BEST COPY AVAILABLE
INFORMATION CENTER (ERIC)
this
Points of view or opinions stated in
document do not necessarily represent
official OERI position or policy
Teaching Suggestions
Objectives
1. ANALYZE THE RELEVANCE OF
CUSTOMER CREDIT FOR YOUR
BUSINESS
Is offering credit relevant for your
Introduce students to the general issues related to customer credit.
business?
What considerations should be in-
Have students express their opinions on what factors entrepreneurs
should consider when making credit decisions.
collection
credit
and
cluded
in
policies?
2. DEVELOP GUIDELINES FOR
GRANTING CREDIT IN YOUR
BUSINESS
What are some examples of easy
Have students compare their own business' credit policies with
Clearly distinguish between credit and col-
those of other firms.
going and strict collection policies?
lection aspects.
3. ANALYZE THE LEGAL RIGHTS
OF CREDIT GRANTORS
What are your legal rights in util-
For this entire section it would be most useful to have an attorney
Prepare students in advance by defining the new
as a speaker.
izing secured versus unsecured re-
concepts introduced in this unit.
covery devices.
What are the legal rights of the se-
Link the concepts of secured loan, chattel mortgage, bailment lease,
and repossession rights.
cured party?
Ask students to define open-end and closed-end credit.
What are the legal requirements for
Lead
questions and answers to gauge the student's comprehension.
open-end and closed-end credit?
What should open-end credit ad-
Have students compare open-end and closed-end credit advertise-
Sample credit advertisements or applications
ment disclosures.
vertising disclose?
would be helpful.
What should closed-end credit ad-
Refer to above suggestion.
vertising disclose?
It would be useful to provide students with copies of legal provi-
What are provisions of the Truth in
sions of the Equal Credit Opportunity Act.
Lending Act?
What are the provisions of the
Divide the class into teams. Have team representatives debate the
Open the
requirements of the Equal Credit Opportunity Act.
Equal Credit Opportunity Act?
discussion with a historical perspective of credit before this regu-
lation was enacted.
The instructor should handout copies of credit report forms from
What are the provisions of the Fair
Credit Reporting Act? the local credit bureau.
4. DESIGN A SYSTEM FOR
MANAGING CREDIT AND
COLLECTION
Acquaint students with various sources of credit
What credit information manage-
information
ment resources and systems are
Have students do library research to
available to entrepreneurs.
gather more information about these sources.
available?
3
Teaching Suggestions
Objectives
(Use the example
Have students solve problems on credit limits.
How can credit be managed?
provided in the text or from your own examples).
5. PREPARE A CREDIT
PROMOTION PLAN
What are some illegal collection
Role play types of legal and illegal collection practices.
practices?
Have students write short reminders for past due bills. They should
What various collection procedures
compare their reminders with the one provided in the text.
are used?
It is critical for students to get used to
What are some examples of a col-
Refer to above suggestion.
the wording of this type of letter.
lection letter series?
Engage students in a discussion on relationships between credit
How can
credit
promotions
be
Strongly highlight the importance of
policies and promotions.
planned and implemented?
credit in marketing.
Refer again to
What are some sources of new
Have students list sources of new credit accounts.
the relationship between credit and marketing.
credit accounts?
Have students express their own ideas on how entrepreneurs can
How can new accounts be obtained?
open new accounts.
How should a credit promotion
Have students write a credit promotion letter. They should compare
their letters with credit promotion letters used by other firms.
letter be written?
What are some reasons for con-
Restate to students the importance of maintaining and increasing the
credit client base.
tacting inactive and active clients?
Use a local newspaper or magazine to demonstrate the importance
Why should credit be continually
of credit promotion.
promoted?
MODEL ASSESSMENT RESPONSES
Granting credit to customers can increase the sales and thus, improve the cash flow. Wise credit policies allow
1.
the entrepreneur to spend more time on selling products rather than collection activities.
Open-end credit plans allow customers to continuing charging as long as they meet their monthly payments.
2.
Interest is computed on the amount owed each month. Under closed-end credit plans, clients charge their
total
accounts only once, when they buy the merchandise, and then they pay for it on a installment basis. The
interest owed is predetermined.
Open-end credit advertisements must disclose (1) the time period when the client must pay the credited amount
3.
in order to avoid financial charges; (2) the method of computing the balance on which the finance charge is
based; (3) the method of computing the finance charge, including any minimum charge; and (4) the annual
interest rate stated in its exact terms.
Closed-end credit advertisements should disclose: (1) the amount of down payment requested (or the fact that
4.
dates; (3) the
no down payment is required); (2) the total number of payments, their exact amount and due
annual interest rate; (4) the total cost to the buyer (the deferred payment price).
4
Regulation Z (or the Truth-In-Lending-Act) controls the information needed by consumers to compare different
5.
credit sources, use of credit cards, settlement of disputes over credit accounts errors, and information that must
be disclosed by credit issuers.
The Equal Credit Opportunity Act (or Regulation B) attempted to remedy injustices regarding credit
6.
discrimination against women. In the past, creditors would not grant equal credit opportunities to men and
women.
(1) conditional sale, (2) chattel mortgage, and
Legal security devices used by the credit grantors include:
7.
(3) bailment mortgage.
times
Illegal collection practices include: (1) use of obscene words; (2) telephone harassment at inconvenient
8.
(4) obtaining information under false
or places; (3) impersonating government officials and attorneys; and
pretenses.
(2) client's
When promoting credit, an entrepreneur should consider the (1) customer's credit limit estimation,
9.
major credit card(s), and (3) an endorser, if the customer is under the age of 18.
obtaining
10. Credit promotions policies are part of the overall marketing strategy. Six related strategies are: (1)
prospective clients; (3) mailing out
new charge customer accounts; (2) mailing out promotion letters to
credit
personalized "thank you" letters to good credit customers; (4) contacting inactive clients; (5) attracting new
credit customers.
customers through department store credit cards; and (6) increasing sales to all existing
Program
Com
Entit e
of learning, with experiences and
Incorporates the needed competencies for creating and operating a small business at three levels
outcomes becoming progressively more advanced.
Understanding the creation and operation of a business.
Level 1
Planning for a business in your future.
Level 2
Starting and managing your own business.
Level 3
complete content in form of answers
Self-contained Student Modules include: specific objectives, questions supporting the objectives,
references. Instructor Guides include the full text
to the questions, case studies, individual activities, group activities, module assessment
F kCE,Third Edition, Resource Guide includes
of each student module and lesson plans, instructional suggestions, and other resources.
assistance organizations.
teaching strategies, references, glossary of terms, and a directory of entrepreneurship
For information on PACE or to order, contact the Publications Department at the
Ohio 43210-1090
Center on Education and Training for Employment, 1900 Kenny Road, Columbus,
[phone], [phone].
Support for PACE, Third Edition provided in whole or in part by:
The Coleman Foundation
International Consortium for Entrepreneurship Education
and
5
Center for Entrepreneurial Leadership Inc.
International Enterprise Academy
Ewing Marion Kauffman Foundation
Center on Education and Training for Employment
The Ohio State University
UNIT 19
LEVEL 3
Customer
Credit
gig\
Your Potential
Nature of
The
Business
Global Markets
as an
j Business Plan
Small Business
Opportunities
Entrepreneur
1
Help for
Types of
Pricing
Financing
Marketing
Location
the
Analysis
Strategy
the Business
Ownership
Entrepreneur
Business
Human
Legal
Promotion
Selling
Management
Resources
Issues
Risk
Financial
Record
Operations
Management
Analysis
Keeping
AL_
Progr
for =Acquiring
Competence in
Entrepreneurship
II
tk
CENTER ON EDUCATION
AND TRAINING FOR EMPLOYMENT
COLLEGE OF EDUCATION
6
Research & Development Series No. 303-19
THE OHIO STATE UNIVERSITY
CUSTOMER CREDIT
. . .
BEFORE YOU BEGIN
Consult the Resource Guide for instructions if this is your first PACE unit.
1.
If you think
Read What are the Objectives for this Unit on the following page.
2.
you can meet these objectives now, consult your instructor.
The following objectives were met at Level 1 and Level 2:
3.
Level 1
Identify the different types of credit.
Give the reasons for offering customer credit.
Identify the advantages and disadvantages of customer credit.
Describe the basic guidelines for evaluating credit applicants.
Examine credit collections procedures.
Level 2
Discuss the importance of offering customer ^redit.
Examine the criteria for granting credit.
Analyze the credit options for your small business
Describe the use of credit records.
Analyze the procedures used for credit collections.
If you need help with the
Look for these business terms as you read this unit.
4.
meanings, ask your instructor for a copy of the PACE Glossary contained in the
Resource Guide.
Lease/purchase agreement
Bailmi,at lease
Open -end credit
Cash on delivery
Regulation B
Chattel mortgage
Regulation Z
Closed-end credit
Secured loan
Conditional sale
Security
Credit promotion
Copyright '© 1994, Center on Education and Training for Employment,
The Ohio State University. All rights reserved.
3
CUSTOMER CREDIT
WHAT ARE THE OBJECTIVES FOR THIS UNIT?
Upon completion of this unit you will be able to
analyze the relevance of customer credit for your business,
develop guidelines for granting credit in your business,
analyze the legal rights of credit grantors,
design a system for managing credit and collection, and
prepare a credit promotion plan.
tion policies? Can you develop an effective
WHAT IS THIS UNIT ABOUT?
series of collection reminders, letters, and
Are you familiar
follow-up procedures?
with information management resources that
Have
you ever seen an ad that read, "No
can assist creditors? Do you know how an
money down," or "100 percent financing
effective credit promotion can be planned
available," or "Thirty-six months to pay?"
and implemented?
Such statements alone, without further infor-
mation, violate the Federal Truth in Lending
As manager of a small business you must be
Act. Whenever sellers advertise that goods
knowledgeable in the above credit and col-
may be purchased on credit, they must dis-
This unit addresses the fol-
lection topics.
close in the advertisement the exact cost of
lowing questions as you apply your under-
purchasing on credit.
this unit
standing of the information in
through individual, group, and case problem
Are you, as a prospective or present business
assignments:
owner, familiar with the basic credit laws
and related legal requirements and recourse
Why is it important to consider offering
In addition to the legal as-
of a creditor?
pects cf credit, are you able to analyze the
customer credit?
pros and cons of various credit and collec-
4
Properly applied, a good credit policy can
for
guidelines
effective
What
are
increase the sales and thus cashflow of any
granting credit?
business. Wise credit decisions on the part
of a small business person allows him or her
What are your legal rights as a credit
to spend less time worrying about credit and
grantor?
collections and more time producing and/or
selling products or services.
How will you design systems for manag-
ing credit?
WHAT CONSIDERATIONS
SHOULD BE INCLUDED IN
What are the key elements of a credit
CREDIT AND COLLECTION
promotion plan?
POLICIES?
How will you develop a credit promotion
plan?
The establishment and execution of credit
and collection policies can minimize prob-
lems associated with accounts receivable.
IS OFFERING CREDIT
Whether a firm has an easy going or strict
RELEVANT FOR YOUR
credit and collection policy depends on these
BUSINESS?
factors:
The profit margin on the merchandise
This question is best answered by responses
What is the
to these and other questions.
The line of business and its customers
current economic atmosphere? What is the
nature and extent of the competition? What
sort of credit arrangement does the competi-
The policies of competitors
tion have? What credit arrangement do you
And the most
have with your suppliers?
The phase of the business cycle at the
important question, can you afford not to
time
offer credit?
In the early days of American business, most
The store's competitive position
transactions were either on a cash or barter
basis. These days are long gone; most mod-
The financial and other circumstances
It is not
em economies are based on credit.
peculiar to the business
so much a question of if you will offer cred-
it, but to whom will you offer credit, how
much will you offer, and how will you collect
outstanding monies.
5
Easy going granting and strict collection
Strict granting and easy going collection
Strict granting and strict collection
Easy going granting and strict collection.
WHAT ARE SOME
Under this policy, credit is granted to all
EXAMPLES OF EASY GOING
Usually the granting of
classes of risks.
AND STRICT COLLECTION
the busi-
credit is liberal for two reasons:
POLICIES?
ness needs to win business from the compe-
tition, and the owner believes t:)at he/she can
be a better collector than the competition.
Businesses with similar merchandise, simi-
This type of business requires steady cash-
flow and uses a great deal of pressure in
lar customers, and similar images usually
collections.
have similar credit policies. When two firms
have different merchandising policies, the
Strict granting and easy going collection.
differences are usually reflected in their
Businesses that use this policy do not grant
Credit policies, easy going
credit policies.
credit to customers who are poor credit risks.
or strict, may be divided into the four cate-
But the firm isn't .Lrict when it collects pay-
gories described below.
ments from customers. The owner justifies
this approach by carefully selecting credit
Easy going granting and easy going collec-
customers who he or she believes can be
tion. A business using this policy extends
trusted to pay their bills.
credit to consumers with excellent, good,
and average credit ratings, as well as to
strict
and
Strict
granting
collection.
those with just fair or poor credit standing.
Sometimes firms find it necessary to become
The aim is to achieve the highest credit sales
their credit granting and
more strict
Little pressure is used in
in
volume possible.
When the size of the
collection policies.
collecting.
losses in their consumer credit divisions
increases because of the cost of borrowing