Training Glossary for Credit Management

This document serves as a comprehensive glossary of terms related to credit management, providing clear definitions for key concepts and practices within the financial sector. It is designed to assist individuals in understanding the terminology used in credit products, risk assessment, and financial management. Each term is defined succinctly to facilitate quick reference and enhance learning.

Glossary of Terms

• Impairment/Provision: Money set aside to cover the expected losses on services rendered, and/or goods sold and delivered on terms
• Credit Services rendered and/or goods sold and delivered on terms known as trade receivables
• ECL (Expected Credit Loss): The expected loss on a credit product, calculated using the formula: ECL = PD × EAD × LGD.
• PD (Probability of Default): The likelihood that a debtor will default on their obligation.
• EAD (Exposure at Default): The total value that a financial institution is exposed to when a debtor defaults.
• LGD (Loss Given Default): The amount of loss a financial institution incurs when a debtor defaults, expressed as a percentage of the EAD.
• Trade Receivables: Amounts owed to a business by its customers for goods or services provided on terms
• Payment Risk: The likelihood that a debtor will not make scheduled payments on time according to the terms provided. High payment risk indicates a greater chance of late or missed payments, based on factors including the debtor's previous payment history.
• Default Risk: The probability that a debtor will fail to repay the outstandings older than 90 days. High default risk suggests a higher chance of the debtor defaulting on their obligations. This is a forward-looking metric that predicts the probability of default in the next 6-12 months, based on data such as how the debtor pays other suppliers and statutory information.
• High Payment Risk: Indicates a significant likelihood of late or missed payments, requiring close monitoring and possibly proactive measures to ensure timely payments.
• Very High Default Risk: Suggests an extremely high probability of the debtor defaulting, necessitating immediate action, such as agreeing to a payment plan and increasing provisions. The recommended action is to reduce the credit limits to minimize exposure.
• Elevated Payment Risk: Indicates a moderate to high chance of late payments, where regular follow-ups and reminders may be needed to mitigate this risk.
• Medium Default Risk: Represents a moderate probability of default, where enhanced monitoring and possibly additional support to the debtor might be required.
• Application Validation Alert: A notification indicating an issue with the validation of an application for credit, requiring immediate attention to resolve the problem.
• Assumed Limits: Pre-determined credit limits assigned to accounts based on historical data and risk assessments.
• CIPC Company Codes: Codes assigned by the Companies and Intellectual Property Commission (CIPC) to identify different types of companies and their legal statuses.
• Confirm Subject Details Stage: A step in the application process where the details of the subject (debtor) are verified for accuracy.
• Credit Limit Increase: An adjustment to the maximum amount of credit extended to a debtor, which may require informing the customer.
• End Application Verification: The final step in verifying an application, which may include attaching bank financial statements. And/or financial statements
• Final Approval Step: The last stage in the approval process for an application, where the final decision is made.
• Digital Signature: An electronic method of signing documents, ensuring the authenticity and integrity of the signed content.
• Action Center: A feature in Trade Shield that provides a status report on all workflows and pending actions.
• Non-CICP Registered Company: A company that is not registered with the Companies and Intellectual Property Commission (CIPC).
• Legal Disputes: Conflicts or disagreements that require legal intervention and approval processes.
• Limit Review: The process of evaluating and potentially adjusting the credit limits assigned to a debtor.
• Reassign or Resend Application: The action of redirecting an application to a different approver or resending it for further review.
• New Credit Application Workflow: The process of submitting and processing a new credit application.
• Workflow Stage Names & Definitions: Descriptions of different stages in a workflow, such as "New Buyer" and "Application Modified."
• Full Limit Recommendation Explanation: Detailed information on how credit limit recommendations are calculated and the factors considered.
• Maximum Limit Calculation: The method used to determine the highest credit limit that can be assigned, often based on turnover multipliers.
• Minimum Limit: The lowest credit limit that can be assigned, sometimes set to R0.
• Sufficient Bank Code: A code indicating if a debtor can meet the indicated limit at a specific period in time.
• Trading on Credit: The practice of allowing customers to purchase goods or services on credit, with different considerations for sole proprietorships versus registered companies. Depending on the risk at that point in time.
• Audited Financials: Financial statements that have been reviewed and verified by an independent auditor.
• Factoring or Invoice Discounting: Financial management techniques where businesses sell their invoices to a third party at a discount to improve cash flow.
• Debtor Information: Data related to the debtor, including updates and changes in registration numbers.
• Fraud Prevention: Best practices and strategies to prevent fraudulent activities in credit management.
• POPI Act: The Protection of Personal Information Act, which governs the processing of personal information in South Africa.
• Securities and Sureties: Tangible Financial instruments and guarantees used to secure credit and manage risk.
• Business Rescue: A status indicating that a company is undergoing a process to restructure its affairs, business, property, debt, and other liabilities to avoid liquidation.
• In Liquidation: A status indicating that a company is in the process of being dissolved and its assets are being sold off to pay creditors.
• Deregistered: A status indicating that a company has been removed from the official register and is no longer recognized as a legal entity. This is processed when directors request to be deregistered. 
• In Business: A status indicating that a company is currently operating and fulfilling its legal obligations.
• Sole Proprietorship: A business structure where an individual owns and operates an unincorporated business by themselves.
• General Partnership: A business structure where two or more individuals own and operate a business together, sharing profits, losses, and responsibilities.
• Provisional Liquidation: A legal process where a court appoints a liquidator to manage a company's affairs temporarily to preserve its assets and prevent mismanagement while a final decision on its future is made.
• AR Deregistration: The process of removing a company from the official register due to non-compliance with Annual Returns and Beneficial Ownership Declarations. This is when CIPC deregisters the business.
• AR Finals Deregistration: The final step in the deregistration process for companies that have been non-compliant with Annual Returns for more than three years. This is when CIPC deregisters the business.
• Insolvency: A state of financial distress where a business or individual is unable to pay their debts.
• AR Restoration: The process of reinstating a company that has been deregistered due to non-compliance with Annual Returns, provided it meets the necessary requirements and submits all outstanding documentation.