Letters of Credit and Collection

The letter of credit is written to secure money or services, the payment of which is promised at a specific time n the future. A great bulk of business is done on credit. Its importance cannot be denied for it can promote trade and increase the sales volume. It enables a consumer to obtain goods even if cash is not available.

On the other hand, the creditor also runs the risk of losing, owing to unpaid debts. For this reason, the creditor evaluates the debtor’s ability to pay on three bases, also known as the three C’s of credit.

The three C’s of credit are capacity, capital and character.

Capacity

It is the ability of the individual to manage his business affairs based on education, experience, and competence. A good debtor is said to have capacity if he can settle his obligations when they are due.

Capital

It is the applicant’s financial worth or the volume of assets. This includes money, goods, or property.

Character

It is the debtor’s reputation in settling his debts. A debtor who pays his obligations promptly is said to be a good credit risk, while the opposite is said to be a poor credit risk.

Click here for sample credit letter

Close Credit Card Account Letter Sample

Letter Inviting Credit Accounts


ref: Effective Business Letters and Communication by Cynthia H. Macabuhay