Tag Archives: Credits

Contras – Month end balances may not be enough

I recently completed an audit where the lender was backed into an over advance through contras. (the over advance occurred before ECG was called in)  The way that this occurred is pretty interesting.  When I was involved with training audit staffs, we often cautioned against this very thing happening.  This is one of the few times  that I have actually seen it occur. Continue reading

Accruals and Dilution

When performing exams, a recurring conversation that we have with borrowers (and sometimes lenders) is the idea that accruals for potential offsets such as co-op advertising and volume rebates should not be reserved for because the subsequent credits are captured in dilution.  This is not the case.

The example below illustrates why the accrual should always be reserved for. Continue reading

Credit Memo Lag and Dilution


Often examiners recommend adding a “Credit Memo Lag”  ineligible to a prospect or existing client’s borrowing base.  It seems that just as often this recommendation is argued against by the borrower and/or the account manager.  Usually the argument goes something like “credits are the major component of dilution and as long as they are captured in dilution, then a reserve is not needed.”  Other times the recommendation is adjusted to reserve for only the lag up to the eligibility period (i.e. 90 days).  This post will discuss and illustrate why this is not a good idea.  We will also discuss some of the variations we’ve seen used to calculate this reserve and the merits of the various treatments.

There are basically two ways to measure credit memo lag: Continue reading