TARLAC STATE UNIVERSITY
College of Business and Accountancy
Financial Management Department
A.Y. 2013 2nd Semester
“Deceitful Acts in Credit Transaction”
Case 1. Gregorio, an unemployable college drop-out, pretended to be a public works contractor, and asked his former college seatmate, who owns a large hardware store, for a 90-day credit on Php200,000 worth of construction materials. Greg explained that he just won a new public works contract on a school building. The credit, of course, was never paid. Greg sold the materials for cash at 20% below cost.
An investor can avoid such deceitful acts and losses by making sure that the one you are investing in is real and has proof of where the money will be spent such as copy of the contract in the case of Gregorio. The investor must conduct a Credit Investigation before he approves the credit. In order to investigate, an investor should consider the following credit information of the individual applicants should be secured and verified.
> Income must be evaluated relative to the demands placed upon it, information should be sought about the demands upon the income brought about by family needs and existing obligations. Investigation of individual’s income is essential.
> Employment is probably the principal source of income, so it should be investigated along with income. In the case of Greg, the investigation should be especially extensive since the employment information also must necessarily be the source of information relative to income.
> The investigation also may seek to develop information about reputation of the credit applicant and to secure information adequate for evaluating the credit data reported by references.
> Payment record, residence, marital status, age, reserve assets, equity in purchase and collateral must also be considered in investigating individual.
After collecting necessary credit...