KASNEB CCP cheat sheet

Credit policy components: credit standards, credit terms, collection policy, and cash discount structure.

5 Cs of credit: Character, Capacity, Capital, Collateral, Conditions - used to screen applicant quality.

Net credit cost = (Discount % / (100 − Discount %)) × (365 / (Credit period − Discount period)); compare to cost of borrowing.

Offering credit increases sales but adds carrying costs: financing cost, bad debt loss, administration, and discount cost.

Marginal decision rule: extend credit while incremental contribution margin exceeds incremental cost of credit.

Average collection period (ACP) = (Accounts receivable / Credit sales) × 365 days.

Aging schedule classifies receivables by days outstanding; higher proportion beyond terms signals deteriorating collection.

Credit terms 2/10 net 30 means 2% discount if paid within 10 days, full amount due in 30 days.

Factoring transfers receivables to a third party at a discount; invoice discounting uses receivables as security while borrower retains collection.

Liquidity ratios: current ratio = current assets / current liabilities; quick ratio excludes inventory.

Leverage: debt-to-equity = total debt / equity; interest cover = EBIT / interest expense.

Profitability: gross margin, net margin, return on assets (net income / total assets), return on equity.

Activity: inventory turnover = COGS / average inventory; receivables turnover = credit sales / average receivables.

Cash flow analysis: operating cash flow must service debt; free cash flow = operating cash flow − capital expenditure.

Projected debt service cover ratio (DSCR) = cash available for debt service / total debt service; lenders typically require DSCR above 1.0–1.25.

Loan structuring: amount, purpose, tenor, repayment schedule (equal instalments, balloon, bullet), pricing, and covenants.

Lending decision frameworks: 5 Cs, CAMPARI (Character, Ability, Margin, Purpose, Amount, Repayment, Insurance), and LAPP.

Security valuation: forced-sale value and margin of security determine maximum loan against collateral.

Contract essentials: offer, acceptance, consideration, intention to create legal relations, capacity, and legality.

A guarantee is a secondary obligation to pay another's debt; a contract of indemnity is a primary independent obligation.

Suretyship defences may include discharge by variation of the principal contract without surety consent.

Lien: right to retain property until a debt is paid; a pledge transfers possession as security; a mortgage charges property without transfer of possession.

Set-off allows a creditor to net mutual debts; assignment of receivables must comply with notice requirements to the debtor.

Statute of limitations bars recovery after a prescribed period (commonly 6 years for simple contract debts) unless acknowledged.

Consumer credit regulation typically mandates disclosure of effective interest rate, total cost of credit, and pre-contractual information.

Data protection laws restrict processing of borrower personal data and require lawful basis, accuracy, and security.

Anti-money-laundering duties: customer due diligence, beneficial ownership identification, record keeping, and suspicious transaction reporting.

Expected loss = probability of default (PD) × loss given default (LGD) × exposure at default (EAD).

Credit risk mitigation: collateral, guarantees, credit derivatives, netting, and covenants.

Risk grading models segment obligors by default probability; scorecards use weighted financial and behavioural factors.

Concentration risk arises from exposure to a single borrower, sector, or geography; limits cap such exposure.

Loan loss provisioning: specific provisions for identified impaired loans; general provisions for portfolio expected losses.

Non-performing loan (NPL) ratio = non-performing loans / total gross loans; higher ratio signals asset quality deterioration.

Recovery tools: restructuring, rescheduling, forbearance, legal enforcement, receivership, liquidation, and debt sale.

Watch-list and early-warning systems use arrears, limit utilisation, and account conduct indicators to flag deterioration.

Stress testing assesses portfolio resilience under adverse scenarios such as rate rises or economic contraction.

Credit policy components: credit standards, credit terms, collection policy, and cash discount structure.

5 Cs of credit: Character, Capacity, Capital, Collateral, Conditions - used to screen applicant quality.

Net credit cost = (Discount % / (100 − Discount %)) × (365 / (Credit period − Discount period)); compare to cost of borrowing.

Offering credit increases sales but adds carrying costs: financing cost, bad debt loss, administration, and discount cost.

Marginal decision rule: extend credit while incremental contribution margin exceeds incremental cost of credit.

Average collection period (ACP) = (Accounts receivable / Credit sales) × 365 days.

Aging schedule classifies receivables by days outstanding; higher proportion beyond terms signals deteriorating collection.

Credit terms 2/10 net 30 means 2% discount if paid within 10 days, full amount due in 30 days.

Factoring transfers receivables to a third party at a discount; invoice discounting uses receivables as security while borrower retains collection.

Liquidity ratios: current ratio = current assets / current liabilities; quick ratio excludes inventory.

Leverage: debt-to-equity = total debt / equity; interest cover = EBIT / interest expense.

Profitability: gross margin, net margin, return on assets (net income / total assets), return on equity.

Activity: inventory turnover = COGS / average inventory; receivables turnover = credit sales / average receivables.

Cash flow analysis: operating cash flow must service debt; free cash flow = operating cash flow − capital expenditure.

Projected debt service cover ratio (DSCR) = cash available for debt service / total debt service; lenders typically require DSCR above 1.0–1.25.

Loan structuring: amount, purpose, tenor, repayment schedule (equal instalments, balloon, bullet), pricing, and covenants.

Lending decision frameworks: 5 Cs, CAMPARI (Character, Ability, Margin, Purpose, Amount, Repayment, Insurance), and LAPP.

Security valuation: forced-sale value and margin of security determine maximum loan against collateral.

Contract essentials: offer, acceptance, consideration, intention to create legal relations, capacity, and legality.

A guarantee is a secondary obligation to pay another's debt; a contract of indemnity is a primary independent obligation.

Suretyship defences may include discharge by variation of the principal contract without surety consent.

Lien: right to retain property until a debt is paid; a pledge transfers possession as security; a mortgage charges property without transfer of possession.

Set-off allows a creditor to net mutual debts; assignment of receivables must comply with notice requirements to the debtor.

Statute of limitations bars recovery after a prescribed period (commonly 6 years for simple contract debts) unless acknowledged.

Consumer credit regulation typically mandates disclosure of effective interest rate, total cost of credit, and pre-contractual information.

Data protection laws restrict processing of borrower personal data and require lawful basis, accuracy, and security.

Anti-money-laundering duties: customer due diligence, beneficial ownership identification, record keeping, and suspicious transaction reporting.

Expected loss = probability of default (PD) × loss given default (LGD) × exposure at default (EAD).

Credit risk mitigation: collateral, guarantees, credit derivatives, netting, and covenants.

Risk grading models segment obligors by default probability; scorecards use weighted financial and behavioural factors.

Concentration risk arises from exposure to a single borrower, sector, or geography; limits cap such exposure.

Loan loss provisioning: specific provisions for identified impaired loans; general provisions for portfolio expected losses.

Non-performing loan (NPL) ratio = non-performing loans / total gross loans; higher ratio signals asset quality deterioration.

Recovery tools: restructuring, rescheduling, forbearance, legal enforcement, receivership, liquidation, and debt sale.

Watch-list and early-warning systems use arrears, limit utilisation, and account conduct indicators to flag deterioration.

Stress testing assesses portfolio resilience under adverse scenarios such as rate rises or economic contraction.

Credit policy components: credit standards, credit terms, collection policy, and cash discount structure.

5 Cs of credit: Character, Capacity, Capital, Collateral, Conditions - used to screen applicant quality.

Net credit cost = (Discount % / (100 − Discount %)) × (365 / (Credit period − Discount period)); compare to cost of borrowing.

Offering credit increases sales but adds carrying costs: financing cost, bad debt loss, administration, and discount cost.

Marginal decision rule: extend credit while incremental contribution margin exceeds incremental cost of credit.

Average collection period (ACP) = (Accounts receivable / Credit sales) × 365 days.

Aging schedule classifies receivables by days outstanding; higher proportion beyond terms signals deteriorating collection.

Credit terms 2/10 net 30 means 2% discount if paid within 10 days, full amount due in 30 days.

Factoring transfers receivables to a third party at a discount; invoice discounting uses receivables as security while borrower retains collection.

Liquidity ratios: current ratio = current assets / current liabilities; quick ratio excludes inventory.

Leverage: debt-to-equity = total debt / equity; interest cover = EBIT / interest expense.

Profitability: gross margin, net margin, return on assets (net income / total assets), return on equity.

Activity: inventory turnover = COGS / average inventory; receivables turnover = credit sales / average receivables.

Cash flow analysis: operating cash flow must service debt; free cash flow = operating cash flow − capital expenditure.

Projected debt service cover ratio (DSCR) = cash available for debt service / total debt service; lenders typically require DSCR above 1.0–1.25.

Loan structuring: amount, purpose, tenor, repayment schedule (equal instalments, balloon, bullet), pricing, and covenants.

Lending decision frameworks: 5 Cs, CAMPARI (Character, Ability, Margin, Purpose, Amount, Repayment, Insurance), and LAPP.

Security valuation: forced-sale value and margin of security determine maximum loan against collateral.

Contract essentials: offer, acceptance, consideration, intention to create legal relations, capacity, and legality.

A guarantee is a secondary obligation to pay another's debt; a contract of indemnity is a primary independent obligation.

Suretyship defences may include discharge by variation of the principal contract without surety consent.

Lien: right to retain property until a debt is paid; a pledge transfers possession as security; a mortgage charges property without transfer of possession.

Set-off allows a creditor to net mutual debts; assignment of receivables must comply with notice requirements to the debtor.

Statute of limitations bars recovery after a prescribed period (commonly 6 years for simple contract debts) unless acknowledged.

Consumer credit regulation typically mandates disclosure of effective interest rate, total cost of credit, and pre-contractual information.

Data protection laws restrict processing of borrower personal data and require lawful basis, accuracy, and security.

Anti-money-laundering duties: customer due diligence, beneficial ownership identification, record keeping, and suspicious transaction reporting.

Expected loss = probability of default (PD) × loss given default (LGD) × exposure at default (EAD).

Credit risk mitigation: collateral, guarantees, credit derivatives, netting, and covenants.

Risk grading models segment obligors by default probability; scorecards use weighted financial and behavioural factors.

Concentration risk arises from exposure to a single borrower, sector, or geography; limits cap such exposure.

Loan loss provisioning: specific provisions for identified impaired loans; general provisions for portfolio expected losses.

Non-performing loan (NPL) ratio = non-performing loans / total gross loans; higher ratio signals asset quality deterioration.

Recovery tools: restructuring, rescheduling, forbearance, legal enforcement, receivership, liquidation, and debt sale.

Watch-list and early-warning systems use arrears, limit utilisation, and account conduct indicators to flag deterioration.

Stress testing assesses portfolio resilience under adverse scenarios such as rate rises or economic contraction.