Andrada, Xzyrex Louie S.

BSBA 3A

I. LEARNING ACTIVITIES

A. Installment sale, the National Retail Credit Association of St. Louis, Missouri,
U.S.A, made a study on the subject in the Small Marketers Aid, the result of
which is reproduced hereunder since it contains information on installment selling
applicable also to Philippine business:
“installment selling can often help small marketers to increase their sales and profits.
In some cases, it can give an edge over competition. In all cases, it carries certain
operating expenses and creates certain problems which are not present in cash sales.

This aid discusses questions small marketers need to answer before deciding whether
to offer installment selling. Among them are:

1. What goods am I offering?

2. What type of credit do my customers want?
3. What are my financial resources?
4. Are my competitors offering installment credit?
5. What laws regulate installment selling?

When a store or service establishment offers installment selling, it is offering long-

term credit – credit stretched out to 90 days or longer – rather than 30-day credit. In
installment credit the customer normally makes a down payment and signs a contract
to pay a certain amount at stated intervals.
Even though the customer pays for this privilege, such sales call for more capital than
do cash sales. For example, under certain conditions, you would need $33,390 to
carry installment sales amount to $10,000 a month”

B. How Many Pesos?

Under certain conditions, what would be the maximum number of pesos you
could have tied up in installment receivables?

Suppose you hope to sell P100,000 of merchandise a month, or P1,200,000

annually, on installment terms. Suppose also that your contracts call for a 10 %
down payment, 6 months to pay, and a service charge of 1% per month. The
maximum peso amount you would have tied up in installment receivables is
shown in the table on page 37.
 Installment payments for any given month are equal to the total of new
installment business in previous months (not including the given month) divided
by the contract period.

Installment receivables for a given month are equal to installment receivables of

the previous month, plus the new installment business written during the given
month.
In the table, the receivables increase by smaller and smaller amounts each month.
They reach a peak of P333,900 in the sixth month and remain unchanged
thereafter.

With a smaller down payment, your maximum pesos tied up in receivables would
increase. However, if you use a three (3)-month instead of a six (6)-month
contract, your number of pesos tied up in receivables would decrease.

Of course, this is a highly simplified case. It assumes that:

1. All the contracts have the same terms;
2. No customer is past due in his payments;
3. No one pays more than he agrees to each month;
4. No one pays in a shorter length of time than agreed; and
5. No one adds additional purchases on his installment contract prior to
completion of payments.

All of these factors can change the maximum number of pesos you would have to
plan to have tied up in installment receivables.

Maximum Peso Amount Tied Up in Installment Receivables

Month Business Written Installment Month End

Payments Installment/
Receivables
1 95,400 P - 95,400
2 95,400 15,900 174,900
3 95,400 31,800 238,500
4 95,400 47,700 286,200
5 95,400 63,600 318,000
6 95,400 79,500 333,900
7 95,400 95,400 333,900
8 95,400 95,400 333,900
9 95,400 95,400 333,900
10 95,400 95,400 333,900
11 95,400 95,400 333,900
12 95,400 95,400 333,900
 Equals installment sales of P10,000 minus down payment of P1,000 plus the service
charges of P5,400 based upon the beginning unpaid balance.

II. ASSIGNMENT
1. Which Policies of Installment Credit thus the following statements or examples
apply?
a. A P1,000 hard-driven mower may be a cash purchase for some families but
an installment purchase for others. So, you must consider your customer’s
buying habits. INSTALLMENT TERMS
b. Such payments should vary with the type of goods you are selling. You also
may want to vary according to the risk involved in the individual credit
purchase. GOODS TO SELL
c. Find out when your customer receives his paycheck and adjust the time of
his payments accordingly. If he has a house mortgaged and other major bills
around the first of the month, it may be easier for him to pay you the 15 th of
the month. AMOUNT AND SCHEDULED OF PAYMENT
d. Terms on clothes will be over shorter period than terms on an automobile.
Twenty percent down on a woman party outfit with term no longer than 4 to
6 months would be generally as acceptable as terms of one third down and
24 to 36 months (even up to 48 months) on a new automobile. In each case,
the enjoyment of the purchase continues longer than the contract and
encourages the customer to complete his payments. DOWN PAYMENT
e. This charge, if left unexplained to customers may be a source of
misunderstanding. CARRYING CHARGES

2. What is the truth In lending act? Why is this important? Who benefits from this act?
 The Truth in Lending Act protects you from credit invoicing and credit card
practices that are false or unjust. It mandates that lenders give you with loan
pricing information so that you may shop around for other types of loans. The
state's policy is to safeguard its citizens from a lack of understanding of the
actual cost of credit to the user by ensuring full disclosure of such costs, with
the goal of limiting misinformed credit usage that harms the economy. The
one who benefits from this act is the lender.

3. What are the different kinds of Collection letters? For each kind give a sample letter.

 Reminder Collection Letter

Dear ,
This is just a friendly reminder that your account is past due. According to our records your
balance of $ is currently . We have emailed a detailed copy of your account statements. In the
event you have not received these messages and documents, we have provided a summary of
your account below.

Invoice number:

Invoice Date:

Amount: Due Date:

Days past due:

We would much appreciate if you could let us know the status of this payment. Please contact
us or send your payment of $ to the address below by April 16, 2022 if you have not already
done so.

ATTN: Accounting Dept.

If there is some error or you are unable to pay at this time, please contact me at so we can
correct any errors or arrange for another payment plan. Thank you for your prompt response to
this request and for your continued business.

Sincerely,

 Inquiry Collection Letter

Dear ,

At this time we have not yet received a payment in regards to nor have we gotten a response to
the letter sent on . Your accounts is now days past due and you owe a total of $.

As a valued customer, we would like to help you quickly remit payment to avoid any actions
that could damage your credit rating or future credit limits with our company. If there is any
reason you are unable to pay in full, please contact me at and I would be happy to talk about
arranging a payment schedule that is mutually agreeable.
Please get in touch with me immediately if you would like to work out a payment schedule,
otherwise please submit your payment of $ by . We can accept your credit card information
over the phone, through our online payment portal, or I have enclosed a self-addressed
envelope for your convenience should you choose to send a check in the mail.

Thank you in advance for your prompt response to this letter and for your continued business.

Sincerely,

 Appeal collection Letter

Dear ,

At this time we still have not heard from you in regards to invoice which was due on nor have
we gotten a response to the letter sent on , the letter sent on , or our numerous attempts to call
and email you. Your accounts is now days past due and you owe a total of $.

I regret to inform you that unless we receive payment in full by or work out an agreed upon
payment plan by this date, we will have to turn your invoice over to a collection agency and/or
our attorney.

I hope to hear from you before this action must be taken to avoid damage to your credit rating
or our future business relationship. Please contact me immediately at so we can get this matter
settled.

Sincerely,

 Ultimatum Collection Letter

Dear ,

At this time we still have not heard from you in regards to invoice for $ which was due on . Nor
have we gotten a response to numerous phone calls, emails, or the letters sent on , , or .

Because we have failed in our attempt to work this out with you directly, I regret to inform you
that we have reported this issue to the credit bureau and turned this invoice over to a
collection agency who will be in contact with you in regard to the payment of this invoice.

Sincerely,
4. How important are Account Receivables on companies’ books?
 It is important because investors can get a better idea of a company's overall
financial soundness and liquidity by looking at its accounts receivable. The
accounts receivable-to-sales ratio aids investors in determining how much of
a company's sales have yet to be paid for.