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Credit memo examples4/15/2024 That may not sound like much, but this additional time can add up over the course of a year. How much easier does it make it to have a consistent format? Our internal analysis shows that altering format takes an additional 20 minutes of review time per loan and presumably decreases analytical accuracy. It turns out that the average bank uses about 5% more positive words than negative which is probably right about where you want to be.īe Consistent: There are many good credit memo layouts (there are also some poor layouts). Once a bank adopts its internal format, resist the urge to change the format unless necessary. We see different formats and outlines from the same bank (drafted by different bankers at that bank). Changing formats confuses readers, who can no longer rely on context to find certain information within the credit memo. Board members and bank executives have little time to review the credit memo, maintaining a uniform format makes it easy to find information quickly. In a similar vein, we have run sentiment analysis on a variety of credit memos and have presented our analysis HERE. The writer of the credit memo should be persuading the reader to approve the credit however, the credit memo must lay out the pros and cons of the loan fitting the bank’s credit framework. In other words, a credit memo is an opportunity for a lender to be an advocate for the borrower using objective analysis and logical reasoning. Advocacy loses its persuasion if the analysis is based on feelings, is biased, or is simplistic. The credit memo should serve to persuade while acknowledging that every loan has risks. Persuasive: The main theme in a credit memo should be objective persuasion. Therefore, it is not a pertinent risk of a specific loan. Good credit memos will identify the top three to five risks and then show how each risk is protected or mitigated in the structure, pricing, cash flow, collateral or other support. Risks Upfront: The overarching objective of the credit memo is to outline the pertinent risks of the loan and identify the mitigating factors to those risks. Every loan has some risks, and some loans have more risks than others. However, credit adjudicators (executive management, loan committees and board of directors) do not want to see ten main risks. The drafter’s job is to identify three to five main risks and then identify and explain fully those risks and the mitigation to those risks. We sometimes see memos with a laundry list of risks, but a drafter’s job is to identify the pertinent risks for that credit. Further, risks that affect all credits need not be mentioned. A recession will impact every borrower’s ability to repay the loan. These recommendations are not related to underwriting or credit analysis, but rather on the general content, style, and layout of the effective credit memo. Write the amount under the sales tax amount and label the line "Total.We review hundreds of credit memorandums every month from a wide variety of community banks across the country. Generally, the credit memos are carefully considered, well planned and appropriately formatted. We read memos from banks ranging in asset size from $100mm to over $10B and loans ranging from $250k up to just over $50mm. We look at memos for annual reviews and submission for new CRE and C&I loans. While most bankers are skilled and proficient at formatting and arranging the layout of the credit memo, we would like to share our top recommendations for bankers for drafting better credit memos. Write the amount under the subtotal and label the line "Sales Tax."Īdd the sales tax to the subtotal. Label the line "Subtotal."Ĭalculate the sales tax for the credited items by multiplying the subtotal by your state's sales tax amount. Label each column with its appropriate name.Īdd all of the prices in the fifth column and write the total at the bottom of the memo. Multiply the item's price by the quantity to calculate the line total for the fifth column. Write the quantity of each credited item in the first column, your item identification number in the second column describe the item and the reason for the credit in the third column and the price of the item in the fourth column. The memo's number is a unique number assigned by you.ĭivide the center of the page into five columns. Include the date that you are issuing the memo, the credit memo's number, the original invoice number and the payment terms on the left side of the page or in the spaces provided by the template. Include any number or code that you use to identify the customer within your company. Use the appropriate blanks if using a template. Type your customer's information on the right side of the page if you are making your own memo.
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