📘 Top Finance and Credit Collection Terms Every Professional Should Know
If you work in finance, credit control, or collections, understanding key industry terms is essential. Whether you’re training a new team member or refreshing your own knowledge, this guide offers the most important finance and credit collection terms explained in simple language.
📌 Why This Matters
In the world of credit management, using the right terminology improves communication, compliance, and efficiency. From loan disbursements to risk ratings, every step of the lending and recovery cycle involves terms that must be clearly understood by your team.
🔹 Credit & Lending Terms
| Term | Meaning |
|---|---|
| Credit Limit | The maximum amount a lender agrees to lend to a borrower. |
| Disbursement | Release of loan funds to the borrower. |
| Installment | A scheduled payment toward a loan or debt. |
| EMI (Equated Monthly Installment) | Fixed payment amount made by a borrower to a lender at a specified date each month. |
| Grace Period | Time period after the due date during which payment can be made without penalties. |
| Revolving Credit | A type of credit that automatically renews as debts are repaid (e.g., credit cards). |
🔹 Credit Risk Management Terms
| Term | Meaning |
|---|---|
| Credit Risk | The possibility that a borrower will not repay the loan. |
| Risk Rating | Internal rating to assess the creditworthiness of borrowers. |
| Collateral | Asset pledged as security for a loan (e.g., house, car). |
| Credit Scoring | A statistical method used to assess the likelihood of a borrower defaulting. |
| Provisioning | Setting aside funds to cover potential loan losses. |
| PD/LGD/EAD | Probability of Default / Loss Given Default / Exposure at Default – core risk modeling terms. |
| KYC (Know Your Customer) | The process of verifying the identity and background of clients to prevent fraud. |
🔹 Collection & Recovery Terms
| Term | Meaning |
|---|---|
| Overdue | Payment not made by the due date. |
| Dunning Letter | A formal letter / Progressive notices reminding a customer of an overdue payment. |
| OD Letter | A formal letter informing a borrower of a missed payment. |
| Follow-up Call | Phone call made to remind or urge customers to pay dues. |
| Repayment Plan | A structured payment arrangement offered to a delinquent borrower. |
| Skip Tracing | Process of locating a borrower who has become unreachable. |
🔹 Portfolio Monitoring Terms
| Term | Meaning |
|---|---|
| PAR (Portfolio at Risk) | The total value of loans past due, expressed as a percentage of the loan portfolio. |
| NPL (Non-Performing Loan) | A loan where the borrower has stopped making interest or principal payments. |
| Write-off | When a loan is considered unrecoverable and removed from the books. |
| Restructuring | Re-negotiating loan terms with the borrower to support repayment. (e.g., extending the term, reducing interest). |
| Recovery Rate | The amount recovered from a defaulted loan as a percentage of the total default amount. |
🔹 Internal Operations & Reporting Terms
| Term | Meaning |
|---|---|
| Aging Report | A breakdown of receivables by the length of time they’ve been outstanding. |
| Bucket | Classification of overdue accounts based on days past due (e.g., 30 days, 60 days, etc.). |
| Delinquency Rate | The ratio of delinquent loans to total loans. |
| Credit Exposure | The total amount of risk the lender is exposed to at any time. |
| Covenant | Condition in a loan agreement that the borrower must comply with. |
| Early Warning Signals (EWS) | Indicators used to detect potential default risks in advance. |
| Exposure at Default (EAD) | The total value at risk at the time of borrower default. |
🧾 Bonus: Legal & Enforcement Terms
| Term | Meaning |
|---|---|
| Demand Notice | Legal notice demanding repayment before taking legal action. |
| Recovery Suit | Legal action taken to recover unpaid dues. |
| Charge Sheet | Filed when criminal intent or fraud is involved in a credit case. |
| SARFAESI (in India) | Act empowering banks to recover NPLs without court intervention. |
| Repossession | Legal taking back of collateral on defaulted loans (e.g., vehicles). |
✅ How to Use This Guide for Training
- Include it in onboarding documents.
- Use the glossary terms in weekly quizzes.
- Design role-play simulations using these definitions.
- Train customer service and collection agents to use correct terms in client communication.
📚 Best Books for Financial Leadership & Credit Management Training
To complement your learning from our glossary of credit and finance terms, here’s a curated list of must-read books for finance professionals, team leaders, and credit managers. These books are ideal for deepening your understanding of credit control, collections, financial risk, and strategic leadership in finance.
1. “Financial Intelligence: A Manager’s Guide to Knowing What the Numbers Really Mean”
Author: Karen Berman & Joe Knight
Why Read: Breaks down complex financial reports into plain English. Essential for managers and credit officers.
Free Readable: Google Books
Buy: Amazon Link
Free Readable: Google Books
2. “Credit Management Handbook”
Author: Burt Edwards
Why Read: A practical guide covering credit control, debt recovery, and credit policy creation.
PDF: Check Google Books Preview
Downloadable PDF : Atlantic International University
3. “The Essentials of Risk Management”
Author: Michel Crouhy, Dan Galai, Robert Mark
Why Read: Covers credit risk, operational risk, and financial risk management frameworks.
Downloadable PDF : Atlantic International University
4. “The Lean CFO: Architect of the Lean Management System”
Author: Nicholas S. Katko
Why Read: Offers insights into financial leadership and building efficient systems in modern finance departments.
PDF: Limited preview on Google Books
Buy: Amazon
5. “Principles of Corporate Finance”
Author: Richard A. Brealey & Stewart C. Myers
Why Read: Considered a global standard for financial leadership training in corporations.
PDF: Free Preview at Google Books
Buy: McGraw-Hill Store
🧠 Bonus Training Material (Free)
- OECD Credit Risk Management Guidelines – Download PDF
- IFC SME Credit Manual – View PDF
✅ How to Use These Books
- Use them as part of your internal training library.
- Assign chapters for weekly reading sessions with your finance team.
- Incorporate concepts into your credit policy manuals or SOPs.
- Highlight key ideas during monthly knowledge-sharing sessions.
📣 Conclusion
Clear understanding of finance and credit collection terms boosts efficiency, enhances communication, and ensures better compliance in risk and recovery operations. Use this guide as a standard part of your training toolkit.