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  • With increasing costs continuing to put pressure on borrowers disposable income its important to focus on a borrowers Debt to Income (DTI) ratio to ensure a borrower can afford the payments of a loan being offered. 
    The DTI is a financial metric that is used to evaluate a borrower's ability to repay a loan. It is a measure of how much of a borrower's gross income is needed to cover their monthly debt payments. The ratio is calculated by dividing the borrower's total monthly debt payments by their gross monthly income.

    For example, if a borrower has a monthly gross income of $5,000 and total monthly debt payments of $1,500, their DTI would be 30% (1,500/5,000 = 0.3). This means that 30% of the borrower's gross income is needed to cover their monthly debt payments. A lower DTI is considered more favorable, as it indicates that the borrower has a lower level of existing debt in relation to their income. Lenders usually have a maximum DTI ratio that they will accept for loan approvals. It varies from lender to lender and also depends on the type of loan. For example, a lender may require a DTI ratio of no more than 36% for a mortgage loan, but for a personal loan, it could be as high as 43%.

    DTI ratio is important for lenders to evaluate the creditworthiness of a borrower, especially when it comes to long-term loans such as a mortgage or a car loan. A high DTI ratio indicates that a borrower has a high level of existing debt and may have trouble making their loan payments in addition to their other monthly obligations. This can be a red flag for lenders, who may decide to deny the loan or charge a higher interest rate to compensate for the increased risk of default.

    To calculate the DTI ratio, lenders typically require borrowers to provide information about their income and debt. This includes:

    •        Gross monthly income, which is the total amount of income earned by the borrower before taxes and other deductions.

    •        Monthly debt payments, which includes all payments that the borrower is required to make on a regular basis, such as credit card payments, car loans, student loans, and rent or mortgage payments.

    It is important to note that lenders may also consider other factors when evaluating a borrower's ability to repay a loan, such as their credit score, employment history, and assets. However, the DTI ratio is an important indicator of a borrower's overall financial health, and it is typically used in conjunction with other metrics to make a lending decision.

    Moreover, borrowers can reduce their DTI ratio by either increasing their income or reducing their debt. Increasing income can be done by getting a raise, taking on a part-time job, or starting a side hustle. Reducing debt can be done by paying off outstanding credit card balances, consolidating loans, or negotiating a lower interest rate with creditors. By reducing their DTI ratio, borrowers can improve their chances of getting approved for a loan and qualify for a lower interest rate.

     

  • What a great time to be part of an association of credit professionals. We’ve seen unprecedented increases to interest rates by the Bank of Canada. Economists are telling us recessions looms. I have the feeling from the credit applications I am seeing that a lot of main stream lenders have put the breaks on originations.

    I saw this at the beginning of my Career in 2008. But really, I think it’s been pretty rosy since then (Covid aside). Which means there must be a lot of Credit Managers who have started in the last 10 years or so that just haven’t seen this. Being part of the CIC gives us all access to so much expertise. Are we maximizing it?

    Who’s seeing the End of Credit on the horizon? Where are you going for answers when trying to deal with situations that you may not have encountered before? And who is ready to step in and help those that do have questions?

    Shane, CCP, Vancouver

    #CIC23 #endofcredit #creditmentor

     

  • Hi friends,

    Can anyone please give me some advice as to how to deal with a large amalgamated corporation with over 2 dozens predecessor companies? Several of the predecessor companies would like to apply for their own individual credit account with us but they are under one legal entity now under the amalgamated company. In case one of the predecessor companies defaulted on payment or went bankrupt, who do we go after to? Is it the individual company or the amalgamated company? Another issue is that they can't share one credit account as they have their individual accounting department.
    Any information would be very much appreciated!
    Thank you for your time!
    Nancy Indita




    Last reply on August 5, 2022 by Mila Raznatovic, CCP

  • Hi Credit Friends 
    I am in a fairly new role and a part of our client portfolio are film/production companies. The clients set up a new entity for each new production leaving the credit ref bare or non existent. Bank checks are taking forever. I have added a PG to our credit app but its hit and miss on if it gets signed. Our line of business is services. I am having a hard time justifying the 100,000 credit limits they require. Any tips or thoughts on how to properly analyze or secure payment for these clients.
    Thanks! 

  • Profile image
    cerb overpay letter
    By
    Anne Bannon
    on
    March 28, 2022
    Hi - i am not sure if anyone can give advise here. 
    i got cerb but can't show them that i made enough to get the money and now i am so stressed that i owe it all back now.
    i saw a post on facevbook from https://debt-experts.ca/cant-repay-cerb-breaking-news-25-03-2022/ that said if i have to go bankruptcy then i can get rid of this debt?  is this true?  anyone know if they are a good company?  thank you. 

  • Profile image
    D365
    By
    Ashley Koester, CCP
    on
    March 7, 2022
    Hello Credit & Collection Friends !
    Is anyone out there using D365 and up for some questions? I recently started with a company where the prior Manager left months ago, the PM of the new ERP left on my first day, the team is somewhat lost and I have questions. Thanks in advance ! 
    Ash

  • Profile image
    Oracle ERP
    By
    Liza Singh, CCP
    on
    July 6, 2021
    Hello Credit and Collection professionals does anyone have experience with Oracle? Looking to get a short overview, pro and cons for collection purpose. Saving contact info, collection notes, reconciliation, adjustment entries etc. Please reach out here or via lizansingh@gmail.com if able to provide insight.  Thank you

  • Profile image
    Welcome letter
    By
    Ron Murphy, CCP
    on
    March 24, 2021
    Upon opening an account for a customer, do you send out an official letter to your customer to confirm that the account has been opened?
    If so, do you include specific information like payment terms and limit?
    If not, how is your customer notified of the account approval?
    Last reply on December 16, 2021 by Jean Coralynn Richter, CCP

  • I have a question and i am looking for some advice.

    We are moving away from "paper" Credit Card Authorizations when obtaining customers credit cards and will be obtaining them through a secure web link.  However, with the paper authorization forms they include the Card holders authorization to charge their card as payments for goods become due.

    For our new process when we send the link, we can add some verbiage indicating "your card will be retained and used for future purchases........." but the customer never clicks off or signs anything. 

    Does the verbiage hold up if there are charge backs or disputes?  Or do we need an actual signature or clicking off on the terms and conditions?

    Thanks!

    Last reply on February 28, 2021 by Uchechukwu Adams Okorie Daniel, CCP

  • I live in Toronto. I was bad with my credit cards and had so many racked up. I have three credit cards which the lowest credit line was $12,000. My wife and I were spendthrift shoppers, which made me have debt on all my credit cards. It ruined my credit score. We never thought that we would land into such an overwhelming situation. Then I came online to see if there any debt relief solutions and came to know about debt consolidation in Toronto. I'm thinking about applying for it. Has anyone has come across a similar situation like me and consolidated your debts? Did it really help you? If my application for debt consolidation is not approved, then what can I do? If it happens due to a bad credit score, then how can I improve it? Please share your thoughts and advise me on this.
    Thanks

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Posted January 26, 2021 by Kristina Fixter
This month`s featured article focusses on some of the key pitfalls to avoid as a credit analyst. 
They are as follows:

#1 Overlooking warning signs of client insolvency

#2 Waiting too long to act on overdue accounts

#3 Gathering insufficient information about clients in the beginning

#4 Failing to provide an effective reference guide to credit personnel

#5 Giving authority to sales over the credit department to make decisions

Which one of these have worked or not worked for you and why is that?
Do you have any more gems to add to the list? 


#businesscredit #riskmitigation




0 Replies
Posted December 16, 2019 by Courtney Wilkinson

Determining Vitamin C Deficiency: and An Important Question To Be Asked
By: Ken Young, CCP Emeritus

Those who have been trained in the art of credit management know very well the 5 C’s of credit that should be investigated prior to granting a line of credit.  TheseC’sconsist of the following:

1) Capacity measures the borrower’s ability to repay the funds by assessing the cash flow and financial capabilities of the company. Investigating the trade references of the firm gives insight into the past history and current status of repayment of amounts owing, and is a good method to help determine the probability of timely repayment.

2) Capital refers to the investment made into the company.  A large investment into the firm decreases the chance of default.  An element of excess capital provides a cushion for any unexpected financial setback.  The questions that need to be asked are: Who is investing more in the firm, the owner or the lender? And if the firm is losing money how long can it survive?

3) Collateral determines what security the firm has available, and what has already been pledged.  Has the firm granted the bank collateral on all of the assets?

Is it appropriate for you to consider an element of security from the firm or a personal guarantee? This gives the supplier a plan B if everything does not go well.

4) Conditions relate to a number of areas, such as interest rate or currency fluctuation and the life cycle or shelf life of the product.  If the firm is barely making ends meet could they withstand an increase in the interest rate?  Is there new technology that is going to make their product irrelevant soon?  Is the shelf life almost at the end?  If the firm exports and sells in adifferent currency what effect could that have?  Will a change in the overall economic conditions have an effect on the buying patterns of the customer?

5) Character gauges the trustworthiness of the owner(s).  Do you feel comfortable selling to them?  Do you perceive them to be honest, possess a sense of responsibility and believe that they will keep their word if they make a commitment?  This may be described as a “gut feel.”

I recall very clearly many years ago at an industry trade meeting, a fellow Credit Manager made a unique point about financial statements.  He said that when you are reviewing financial statements (which assists greatly in the assessment of the 5C’s) with a customer, the first thing you should do is to ask, “Is there anything you would like to tell me about these before I review them?”

This gives the client the golden opportunity to explain any weak areas and to let you know what they are doing to remedy them.  If they don’t disclose anything specific at the time and upon review of the statements you ultimately see some areas of concern, before you ask for an explanation from them about it, you may ask yourself are they even aware of this?  Is there a concern that the firm is suffering from a Vitamin C deficiency – namely, cash, credit and customers?  That’s a very simplified version of the 5C’s.

Over the years I’ve found that asking this question can get to the heart of concerns more quickly.  This allows for more time to be spent on questioning how the business will change and grow profitably in the future and on determining how your firm can assist in that.

Ken has been a credit management professional for over twenty-five years and has global experience in a broad range of industries including the food (aquaculture & beverage), chemical, manufacturing and transportation sectors.  Ken is honored to serve on the board of the Credit Institute of Canada representing the Ontario region.

He has been awarded the highly esteemed CCP Emeritus award from the Credit Institute of Canada for distinguished and meritorious service for the advancement of credit education and the credit profession.  
Consulting projects and speaking engagements have included Toronto, Brunei (S.E. Asia) and Jamaica.


Tell us how you have dealt with 'Vitamin C' deficiency in your assessment of customers' credit-worthiness.

Please sign in or create an account to leave a reply.

0 Replies
Posted November 27, 2018 by Andre R. Brooker
Please reply to this post to ask a question or start your own discussion. 
  • Click on General Forum
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Last reply on August 13, 2020 by Marci Adams
3 Replies
Posted September 11, 2017 by Andre R. Brooker
As the retail landscape changes and bankruptcies of brink and mortar stores are becoming ever more present, what reforms would you like to see in place that would fairly protect both the interest of employees and creditors of companies that file for bankruptcy or protection?
pexels-photo-207489 x2.png
Last reply on September 11, 2017 by Nawshad Khadaroo, CCP
1 Reply
Posted June 30, 2017 by Andre R. Brooker

Being able to offer highly flexible payment terms can give you a competitive edge with your
international customers. But if your terms are too lenient, you may increase your risk of payment
problems that could undermine your cash flow. This paper examines how you can choose payment
strategies that will attract overseas buyers while keeping your financial risks under control.

Read the full whitepaper

0 Replies
Posted September 27, 2016 by Nawshad Khadaroo, CCP
Can a creditor take security on intellectual property?
Last reply on September 27, 2016 by Tony Lengua, MBA,CCP,CCE,CICP,CRM
1 Reply
Posted August 17, 2016 by Nawshad Khadaroo, CCP
Has anyone ever used a "negative pledge letter security? Banks' have used this in the past in the event that a customer won't sign over security. This letter essentially outlines what they agree to and should they fail to follow through, you can then put security in place. Seems a little odd.  Please share your thoughts on this.
Last reply on October 29, 2019 by Ruth Storms, CCP
4 Replies
Posted August 15, 2016 by Andre R. Brooker
A stock buyback affects a company's credit rating when it uses debt to repurchase its own shares.
Last reply on August 27, 2016 by Sean Raymond Monaghan, CCP,CPA,CMA
2 Replies

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