16958 Evaluate Credit Worthiness

Explanatory notes

1This unit standard is intended for trade credit applications where the nature of the application and element of risk warrants higher standards of evaluation. For people who require outcomes relating to consumer credit, friendly societies, and small business transactions Unit 16757, Determine applicant’s suitability for credit is recommended.

2Legislation applicable to this unit standard includesthe Personal Properties Security Act 1999, Credit Contracts and Consumer Finance Act 2003, Credit (Repossessions) Act 1997, Privacy Act 1993, and their subsequent amendments.

3Definitions

Applicant indicates commercial entities.

Organisational practiceincludes documented policies, procedures, and practices, and policy and procedure manuals pertaining to credit.

Terms of trade include any conditions of purchase, credit limit billing cycles, payment due dates, discounts for prompt payment, repossession under the Romalpa clause, and any trade card conditions.

Romalpa clause includes any terms of trade statement that refers to retention of title made and agreed to by both parties before delivery of goods.

Credit facility is the amount and type of credit that is being applied for and includes set and/or flexible credit limits.

Credit approval authority is the authority to approve credit to a specific financial limit. Several credit approval authorities may be in place within an organisation.

Dun and Bradstreet Report is a generic business information report produced by Dun and Bradstreet on request to give information pertaining to a company’s operations, profitability and stability. It is used to evaluate the experience of the business and the business background of its principles.

Industry practice includes policies, procedures and standards that competent practitioners in the industry recognise as current industry best practice.

4This unit standard may be assessed on-job in the workplace using naturally occurring evidence or in off-job simulated work situations designed to draw upon similar performance to that required in work in a credit administration and/or credit management context.

5All evidence is in accordance with organisational practice where possible, otherwise evidence may be based on industry practice.

Outcomes and evidence requirements

Outcome 1

Obtain trade credit information.

Evidence requirements

1.1Obtain legal identification and contact details of the applicant.

Rangelegal name, company number, registered office, billing address, fax and telephone numbers.

1.2Obtain financial data of the applicant.

Rangeincome and expenditure account, balance sheet, cash flow statement.

1.3Obtain business information about the applicant.

Rangemay include but is not limited to – business plan, trade references, shareholding.

1.4Explain conditions of purchase and terms of trade to applicant for acceptance.

1.5Obtain credit checks and reports on the applicant in accordance with legislative requirements and organisational practice.

Rangemay include but is not limited to – Dun and Bradstreet Report, credit bureau rating.

Outcome 2

Analyse financial information.

Evidence requirements

2.1Establish trends in owners’ equity

Rangenet worth, growth of net worth, net profit growth.

2.2Calculate the debt to equity ratio.

2.3Establish cash flow of the business.

Rangecurrent ratio, quick ratio.

2.4Evaluate risk of business failure.

Rangemay include but is not limited to – business plan, z-score, gearing, Dun and Bradstreet Report, credit rating.

Outcome 3

Manage risk of credit.

Evidence requirements

3.1Describe elements of risks.

Rangesuccess probability, potential losses, potential sales turnover.

3.2Evaluate methods of reducing risk.

Rangeprogressive billing, personal guarantees, security, liens, factoring, credit insurance.

3.3Assess inducements to pay on time.

Rangepenalty clauses, penalty interest, cash discounts.

3.4Appraise rights to repossess goods in accordance with legislative requirements.

3.5Set credit and transaction limits appropriate to the risks involved.

Rangecash only customer, billing cycle, payment due date, terms of trade, conditions of purchase.

Outcome 4

Process credit decisions.

Evidence requirements

4.1Determine credit classification.

4.2Assess the credit facility applied for as to which credit approval authority is applicable.

4.3Communicate the outcome of credit application to the applicant.

Rangepayment terms, terms of trade, conditions of purchase, Romalpa clause, Security Interest registration.

4.4Process and record credit details in accordance with legislative requirements and organisational practice.

Status information and last date for assessment for superseded versions

This CMR can be accessed at

Please note

Providers must be granted consent to assess against standards (accredited) by NZQA, before they can report credits from assessment against unit standards, or deliver courses of study leading to that assessment.

Industry Training Organisations must be granted consent to assess against standards by NZQA before they can register credits from assessment against unit standards.

Providers and Industry Training Organisations, which have been granted consent and which are assessing against unit standards must engage with the moderation system that applies to those standards.

Requirements for consent to assess and an outline of the moderation system that applies to this standard are outlined in the (CMR). The CMR also includes useful information about special requirements for organisations wishing to develop education and training programmes, such as minimum qualifications for tutors and assessors, and special resource requirements.

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