WITHER AN OVER-EXTENDED CLIENT?"

A medium-sized transportation company initially purchased a total of seven (7) transportation units on installment basis. It paid a nominal down payment equivalent to 20% of the cost of the vehicles and executed a promissory note for the balance for a total of 24 monthly installments. The promissory note was secured by chattel mortgage on the vehicles together with the public utility franchise.

The account ran for months and payment experience has been rather slow. Thus, total arrearages at one point amounted to 23 installments on each vehicle. With the status of the account thus standing, the transportation company applies for 4 additional units and offers to pay a down payment equivalent to 15% of the cost of the vehicles. The additional, purchase is necessary to fill in the total number of units authorized under the franchise; otherwise, the Board of Transportation will penalize the operator. The customer-company admits that they are not in a position to update the present accounts. They argue, however, that if the new application for 4 units is approved and their new operations expanded correspondingly, they will not only be able to pay the installments more religiously, but they can even partially cover for the overdue installments on the previous accounts.

The initial reaction of the credit manager of the selling company is to reject the new proposal unless the previous accounts are updated. But the Sales Department appeals strongly and cautious that if the new application for 4 units is rejected, the customer will surely get from a competitor company which has agreed to supply the needed equipment under the terms proposed. Assume that the customer buys from the competitor, what would be the chances of collecting the first overdue account?

1. GRANTING:

a. probably get better collection results since the four (4) units being brand new will generate more income;

b. no problem on competitors getting collections;

c. get additional collaterals to protect equity;

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