11.07.2019 in Exploratory

Gahala Book Report Sample

Book Report


Credit Management: Principles and Practices is a book by Charles Gahala in which provides a comprehensive insight into the credit management profession. In the book, the author is generous enough to provide a guideline with respect to the nature of credit management as a profession and also on the global scene. These, among others are the highlights of the book and will be discussed in the subsequent sections. The book however consists of twelve chapters that cover eleven relatively broad concepts, each of which is specifically significant in the Credit Management profession. Charles Gahala is a remarkable individual in the Credit Management field and thus his work is not only a benchmark in the Credit Management industry but also one of the most comprehensive resources that can be found for the subject. This paper discusses three interesting chapters in the book. These chapters include the second and ninth chapters as well as the twelfth chapter.      

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Book Summary

In Credit Management: Principles and Practices, the author starts by addressing the potential contentions within the Credit Management field. Gahala (2003) takes his time in the first chapter to introduce the basics of Credit Management and show how it is changing with the present times. This chapter is rather dedicated to the Credit Management student who is yet to grasp the concept effectively as it is a much clearer introduction than can be found anywhere else. The book then goes ahead to dispel some myths and remove the mystiques surrounding Credit Management as a professional practice. Gahala (2003) also considers the ethics and expectations of the profession. Generally, it can be noted that the first chapter is a foundation for understanding the rest of the book and the Credit Management profession in its entirety. The second chapter covers the concept of organizing the credit function within an organization with respect to activities like benchmarking, developing job specifications, motivating the personnel and outsourcing as well as automating the credit activities among others.  The third chapter then discusses credit management in the global market place where there are different legal, political and cultural as well as economic implications that determine the credit management practices in use. The twelfth chapter of the book covers the subject of bankruptcy and liquidation where the present day laws and trends are discussed in detail, as are the problems and issues that come with declaring bankruptcy with relevance to credit management. The other chapters in this book are also quite informative and they include concepts such as managing credit policy, legislation and regulation pertinent to business credit decision making, conducting credit investigation, business credit reporting, effective collection activity, financial statement analysis, cash flow analysis and valuation essentials and secured credit arrangements and letters of credit. All these concepts are very vital to the credit management professional and the book covers them with immense accuracy and detail for the benefit of the credit management profession.     

Chapters Analysis 

Chapter 2: Organizing the Credit Function

The main activities discussed in this chapter include benchmarking, developing job specifications, motivating the personnel and outsourcing as well as automating the credit activities. Benchmarking here is defined as a mechanism of evaluating the credit management activities especially with respect to their relevance and effectiveness within the organization (Gahala, 2003). When it comes to aspects of benchmarking and determining the focal points by which the department can be evaluated with reference to either external organizations or historical performance records within the organization. Regardless of the chosen approach for a given organization, it is important to appreciate the need for effective credit management and thus monitoring the department is a mandatory concept. When developing job specifications for the credit management positions, it is considerably important to determine the needs of the organization with respect to credit management. Depending on the needs and deficiencies of the credit management department within an organization, the credit function should be diverse to include analysis, valuation and collection among other things.  This means that the organization should be able to find the right placement for all the required functions within the department seeing, as credit management is highly dependent upon effectiveness and cost efficiency to the company in question. On motivating the personnel, the book encourages a situation in which the individuals within this department are given the opportunity to grow their careers and positions and to make ethical decisions within the organization. In addition, while the importance of monetary rewards and benefits isn’t entirely emphasized as a standalone aspect, bonuses and pay rises are encouraged within the premise of performance related compensation practice. Credit management requires intrinsic motivation and thus the extrinsic motivation must be in line with personal goals other than just making more money. Outsourcing as a way of improving credit management is seen as a reserve for the much smaller companies that cannot fund a credit management department while for large organizations, an in house department is much better and more effective seeing as there is a lot that needs to be done within their credit management department.

Chapter 9: Financial Statement Analysis

The analysis of financial statements has in recent years become the most critical function in financial institutions in as far as credit management is concerned. The fact that there was a time when companies doctored their financial statements in order to swindle not only their shareholders but also their creditors brought the spotlight onto being able to analyze the financial statement and being able to spot any fabrications that could have been made. In this chapter, the author speaks of the source of financial statements, the common size analysis, ratio analysis, financial tools of analysis and international financial reporting standards as well as problems using financial statements (Besley & Brigham, 2007). In the international financial reporting standards, he mentions the concept of financial reporting as a way of publicizing the welfare of the company in order to qualify their listing on public financial markets.  Companies that fail to comply with laid down regulations in terms of financial reporting are unable to be listed in the financial markets and thus as a credit management professional, understanding these international standards is key as it enables one to understand most if not all financial reports given the importance of being listed in public financial markets to these companies (Besley & Brigham, 2007). The GAAP is considered as the widely accepted version in financial statements today but some companies are yet to fully apply this concept. In addition, when dealing with oil and gas companies, there continues to be a debate over whether full cost reporting should take prevalence over successful efforts reporting. Regardless of how this argument is resolved, the credit management professionals should be able to analyze either types of reports and provide an accurate evaluation of the company in order to avoid giving wrong values in terms of credit and collateral. Financial statements are a big deal in the financial industry and thus being able to analyze them effectively is one of the most primary functions of the credit management professional.      

Chapter 12: Bankruptcy

There are two distinct categories under bankruptcy that must be understood in credit management and these are chapter 7 and chapter 11. Chapter 7 is about liquidation, where the company in question is unable to continue and must thus be liquidated to pay its debts. The chapter 11 on the other hand is more of a request for reorganization where the company needs an overhaul to keep functioning and to take a new direction in terms of its management (Brigham & Ehrhardt, 2010). More often than not, the creditor is the most affected party whether the company qualifies for a chapter 7 or a chapter 11. This means that another primary function of the credit management profession is to understand the technicalities of either chapters and thus help their organization to get their money back in either case. The trick here is to be able to navigate both situations successfully and more often than not, this is only possible for the professions who are very keen with the laws and regulations of bankruptcy. The author here further advises an open mind where the company is evaluated for any possibilities of bankruptcy well before they are given the credit. This enables the credit management team to craft a reasonable bargain with the company in question to avoid losing their money when the company goes under.     


Credit Management: Principles and Practices is a great book based on its simplicity and effectiveness in providing information the author manages to provide a classic insight into the world of credit management without locking out the beginners with complicated terms and concepts. He sets out to discuss the credit management function, financial statement analysis and bankruptcy with such ease and eloquence that make it easy to understand even for the lower level learner in this field. His main insights involve the span of activities that are undertaken within the credit management department, the importance of financial statement analysis in the wake of occupational fraud in some major companies, and the technicalities of filing for bankruptcy and how the creditor can benefit rather than losing out in such an incident. Conclusively, the book is very impactful in as far as credit management is concerned.

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