AP8

Agriculture Management, Economics, & SalesCustomer Credit

Unit: Agribusiness Planning & Analysis

Lesson Title: Customer Credit

Standards

ABS.06.05.01.b. Develop effective customer relations using approaches that are consistent and comprehensive.ABS.06.05.02.b. Devise sales practices to achieve goals effectively and efficiently.

Missouri Personal Finance SC.4 Analyze the benefits and cost of consumer credit.Missouri Personal Finance SC.6 Evaluate the terms and conditions of credit cards and consumer loans.

CCSS.ELA-Literacy.SL.11-12.5 Make strategic use of digital media (e.g., textual, graphical, audio, visual, and interactive elements) in presentations to enhance understanding of findings, reasoning, and evidence and to add interest.CCSS.ELA-Literacy.L.11-12.1 Demonstrate command of the conventions of standard English grammar and usage when writing or speaking.CCSS.ELA-Literacy.L.11-12.2 Demonstrate command of the conventions of standard English capitalization, punctuation, and spelling when writing.

Student Learning Objectives

Slide 2 in AP8 Customer Credit Lesson ObjectiveAfter completing the lesson on customer credit, students will demonstrate their ability to apply the concept in real-world situations by obtaining a minimum score of 80% on Customer Credit Portfolio.

Enabling ObjectivesAs a result of this lesson, the student will…

Page 2

1. Define customer credit and identify one advantage and one disadvantage to extending credit to customers.

2. Construct a sample credit policy.3. Describe how students, as business owners, would determine credit standing for their

customers.

Time: Approximately 125 minutes

List of ResourcesBacon K., Boren N., Kirkwood V., Birkenholz R., Plain R., Rohrbach N.

(1988). Agriculture Management and Economics Instructor Guide.Columbia, MO: Instructional Materials Laboratory.

Bacon K., Boren N., Kirkwood V., Birkenholz R., Plain R., Rohrbach N. (1988). Agriculture Management and Economics Student Reference Guide. Columbia, MO: Instructional Materials Laboratory.

BizFilings. (2012). Building a Credit Policy That Works. Retrieved from http://www.bizfilings.com/toolkit/sbg/finance/basic-accounting/building-credit-policy-that-works.aspx.

Dell Financial Services. (n.d.). Dell Business Credit. Retrieved from https://dfs.dell.com/Pages/DBC.aspx.

First Tennessee. (n.d.). Visa Platinum Credit Card Terms and Conditions. Retrieved from https://www.firsttennessee.com/Personal/Banking/Credit-Cards/Platinum-Visa-Terms/.

Inc. Staff. (2009). How to Create a Smart Credit Policy. Retrieved from http://www.inc.com/magazine/20090301/how-to-create-a-smart-credit-policy.html.

Nielsen, T. (2014). Setting out good terms and conditions for your small business. Retrieved from http://www.guardian.co.uk/small-business-network/2013/feb/06/terms-and-conditions-small-business.

Nordstrom. (n.d.). Nordstrom Rewards. Retrieved from http://shop.nordstrom.com/c/nordstrom-card-disclosure-summary.

Premium Business Credit. (2013). Terms and Conditions. Retrieved from http://www.premiumbusinesscredit.com/terms.

SBA.gov. (n.d.). Extending Credit to Your Customers. Retrieved from http://www.sba.gov/content/extending-credit-your-customers.

Agribusiness Planning & Analysis AP8 Customer Credit

Page 3

Staples. (2013). Staples Credit Center. Retrieved from http://www.staples.com/sbd/cre/programs/credit/.

Summit Electric Supply. (2013). Terms & Conditions of Business Credit. Retrieved from http://www.summit.com/about-us/Terms-and-Conditions.php.

List of Tools, Equipment, and SuppliesAP8 PowerPoint PresentationAP8 Activity Sheet and Evaluation PacketNote cards or small sheets of paper for review activity

Key TermsSlide 3 in AP8 Customer Credit

The following terms are presented in this lesson (shown in bold italics):CreditCharacterCollateralCash Flow

Agribusiness Planning & Analysis AP8 Customer Credit

Page 4

Interest Approach: Use an interest approach that will prepare the students for the lesson. Teachers often develop approaches for their unique class and student situations. A possible approach is included here.

Slide 4 in AP8 Customer CreditWhat Should We Have Done Differently? Cut up one scenario from AP8.1 for each student. After reading the scenarios, have them decide what could have been done in their scenario to insure the business would not go bankrupt and customers would have been able to pay their accounts? Suggest to students they write these ideas on the back of their scenarios and be prepared to discuss ideas as a class.

Listen for students to suggest: The business to not allow people to charge The business sending monthly bills to charge accounts and charging interest on unpaid

accounts Not allowing the customer to continue business with the company until all debts are

paid Limit the amount a customer can charge without paying some of the balance down Charging customers and getting payment prior to completing work

Agribusiness Planning & Analysis AP8 Customer Credit

Page 5

Summary of Content and Teaching Strategies

Objective 1: Define customer credit and identify one advantage and one disadvantage to extending credit to customers.

Teaching Strategies Related Content1. Begin using the word “credit” and its

characteristics throughout interest approach to introduce the word and concept to students.

2. Ask students to share the definition of credit.

Slide 5 in AP8 Customer Credit

3. Entertain a class discussion on the advantages and disadvantages of customer credit. Make a list on the writing surface.

Slide 5 in AP8 Customer Credit

Customer credit A method of obtaining goods or

services with a promise to pay later

Advantages to customer credit Convenient for customers Increased sales Spreads out sales during the year

Disadvantages to customer credit Bad debts (uncollected amounts) Increases paperwork = increased time

and labor Ties up operating capital of business

Objective 2: Construct a sample credit policy.

Teaching Strategies Related Content1. Recall interest approach scenarios and

ask students, “What kind of credit policies should have been put in place in these situations?”

Slide 6 in AP8 Customer Credit

Creating a credit policy Terms of sale – Amount of time debtor

has to pay for goods and penalties for late payment

Credit eligibility – Established set of standards for each business; Allow for a quick and fair decision when customers apply for credit

Limitations on credit – Limits may vary between customers and are based on history of the customer’s account and financial condition

Billing and collection procedures – Designed to try to collect the payments

Agribusiness Planning & Analysis AP8 Customer Credit

Page 6

2. Locate an article or articles from the Internet on creating credit policies. Some examples are: http://www.inc.com/magazine/20090301/how-to-create-a-smart-credit-policy.html, http://www.bizfilings.com/toolkit/sbg/finance/basic-accounting/building-credit-policy-that-works.aspx, http://www.sba.gov/content/extending-credit-your-customers, http://www.guardian.co.uk/small-business-network/2013/feb/06/terms-and-conditions-small-business

3. Divide students into small groups or pairs, assign them an article to read, and have them create a credit policy and/or identify the components they would include in a credit policy. When all students are finished, have them share their ideas with the class. AP8.2 is available for students to capture their credit policy ideas.

4. If students in the activity above noted billing or collection procedures in their credit policy, point that out before introducing this slide.

Slide 7 in AP8 Customer Credit

5. If students in the activity above noted delinquent credit procedures in their credit policy, point that out before introducing this slide.

Slide 8-9 in AP8 Customer Credit

without losing the customer Written agreements – Used for large

purchases; Include place, time, method of payment, and interest rate; Promissory notes

Security – Loans backed with collateral

Billing and collection procedures Customers await statements before

paying – Must have a regular schedule for sending out payments

First statement is sent when purchase is entered in records, second when it is due, and third when it is delinquent

Delinquent credit1. After 30 days overdue, owner makes

telephone calls and sends letters2. Personal visit by business employee,

usually credit manager3. Hiring a collection agency4. Have an attorney file a lawsuit –

Usually only for large accounts because of great expense involved

Agribusiness Planning & Analysis AP8 Customer Credit

Page 7

6. Have students modify their credit policies to include billing and collection procedures and delinquent credit if it was not already included.

Objective 3: Describe how students, as business owners, would determine credit standing for their customers.

Teaching Strategies Related Content1. Have students brainstorm things about

an individual that could help them as business owners determine the customer’s credit standing.

Slide 10 in AP8 Customer Credit

2. Facilitate a class discussion to gain ideas on what sources they as business owners could use to determine an individual’s credit information.

Slide 11 in AP8 Customer Credit

3. Have each student locate and print a credit application from the Internet. Next, give them five minutes to complete what they can of the application. When finished, discuss with students: Were you able to complete the form in just five minutes? What information were you surprised to see on the form? What benefit does this information provide to a business owner? If you created this form, what other questions would you ask? What questions do not seem relevant to you? Why?

Determining credit standing – 3 C’s Character – Honesty and responsibility

of individual applying for credit – Based on past performance of meeting payments and other obligations

Collateral – Assets the individual or firm can offer as security for the loan; If individual fails to make loan payment, collateral is forfeited to lender

Cash flow – The ability of individual or firm to make all credit payments and still be able to pay normal expenses on a regular basis

Credit Information Credit application form The individual’s employer Credit bureau Personal interview Other creditors or banks the individual

has borrowed from

Agribusiness Planning & Analysis AP8 Customer Credit

Page 8

4. Complete AP8.3 having students identify how they as a business owner would determine their customer’s credit standing.

Review/SummarySlide 12 in AP8 Customer Credit

Customer credit is a method for obtaining goods or services with a promise to pay later. A business should have a set policy for handling customer credit. Delinquent accounts add up and can be expensive for the business to collect.

Review:

Slide 13 in AP8 Customer Credit Students will review the assigned credit terms and conditions. Samples can be found below: http://www.summit.com/about-us/Terms-and-Conditions.php, http://www.premiumbusinesscredit.com/termshttps://www.firsttennessee.com/Personal/Banking/Credit-Cards/Platinum-Visa-Terms/http://shop.nordstrom.com/c/nordstrom-card-disclosure-summaryhttp://www.staples.com/sbd/cre/programs/credit/Students should label or note the sections of the terms and conditions they would expect to find for all businesses and identify (in a different way) those sections they feel are business-specific. Next, as a class, decide the credit term and condition commonalities and differences. For the differences, facilitate a discussion on why some businesses would have those pieces in their terms and conditions and why some would not.

Slide 14 in AP8 Customer CreditExit cards: Students will answer the following questions on a note card or small slip of paper and hand to teacher as they exit:

What did you learn today about customer credit? What questions do you still have about customer credit?

Application

Extended Activities

Practice crafting letters requesting overdue accounts to be paid. Collect sample letters from local businesses. After comparing and contrasting letters, have students craft one they would feel comfortable sending customers if they owned a business.

Agribusiness Planning & Analysis AP8 Customer Credit

Page 9

Examine personal or sample Supervised Agricultural Experience Programs for opportunities to create credit policies. These SAE Programs would need to be for customer work, agribusinesses, etc. who provide customers and service and collect payment. Have students create a credit policy, delinquent account policy, sample notices, and a credit application. Before implementing these policies, visit with FFA advisor during your next SAE visit.FFA bills are sometimes difficult to collect from members. Have students develop a delinquent bill policy for the local FFA chapter. Provide samples of notes or letters that would be sent to members with outstanding bills. In addition, provide detailed timelines of when letters/notices would be sent and/or when the advisor and/or administration would get involved. Complete a timeline for each activity that may present outstanding bills: fruit sales, National FFA Convention, FFA shirt purchases, etc.

EvaluationCustomer Credit Portfolio AP8.4

Alternate - Paper-pencil Quiz Evaluation AP8.5

Answers to EvaluationEvaluation AP8.4Answers will vary. Use scoring guide on AP8.4 to assess student work.

Alternate Evaluation AP8.51. Answers should include three of the following: Credit application form, the individual’s

employer, credit bureau, personal interview, other creditors or banks the individual has borrowed from

2. Answers should include one advantage and one disadvantage: a. Advantages to customer credit

Convenient for customers Increased sales Spreads out sales during the year

b. Disadvantages to customer credit Bad debts (uncollected amounts) Increases paperwork = increased time and labor Ties up operating capital of business

3. Answers should include three of the following: terms of sale, credit eligibility, limitations on credit, billing and collection procedures, written agreements, security

4. After 30 days overdue, owner makes telephone calls and sends letters; Personal visit by business employee, usually credit manager; Hiring a collection agency; Have an attorney file a lawsuit – Usually only for large accounts because of great expense involved

5. A method of obtaining goods or services with a promise to pay later

Agribusiness Planning & Analysis AP8 Customer Credit