(b) Medium - Those customers with a history of late payments only. These customers
usually arrange ahead of time with the LGU in settling balances in arrears, and when
payments are made, the outstanding amounts (including interest) are settled in full;
and
(c) Low - Those customers with a significant history of defaults. The balances of these
customers are rarely settled in full. The recovery of outstanding balances from these
customers is problematic.
Investments
The LGU limits its exposure to credit risk by investing with only reputable financial
institutions that have a sound credit rating (rated BB and above), which are within the
specific guidelines set in accordance with the LGU’s Finance Committee and the
Sanggunian-approved investment policy. Consequently, the LGU does not consider there
to be any significant exposure to credit risk.
Receivables
Receivables are amounts owed by consumers and are presented net of impairment losses.
The LGU has a credit risk policy in place, and the exposure to credit risk is monitored on
an ongoing basis. The LGU is compelled, by its constitutional mandate, to provide all of
its residents with basic minimum services, without recourse to an assessment of
creditworthiness. There were no material changes in the exposure to credit risk and its
objectives, policies, and processes for managing and measuring the risk during the year
under review.
The LGU’s maximum exposure to credit risk is represented by the carrying value of each
financial asset in the statement of financial performance. The LGU has no significant
concentration of credit risk, with exposure spread over a large number of consumers, and
is not concentrated in any particular sector or geographic area.
The LGU establishes an allowance for impairment that represents its estimate of
anticipated losses in respect of receivables.
The average credit period on services rendered is 30 days from date of invoice. Interest is
raised at the three-month government bond rate plus 1% on any unpaid accounts after the
due date. The LGU provided fully for all receivables outstanding over 365 days where
there was no evidence of expected recovery. Receivables up to 365 days are provided for
based on estimated irrecoverable amounts, determined by reference to past default
experience.
Cash and cash equivalents
The LGU limits its exposure to credit risk by investing cash and cash equivalents with only
reputable financial institutions that have a sound credit rating, and within specific
guidelines set in accordance with the Sanggunian’s approved investment policy.
Consequently, the LGU does not consider there to be any significant exposure to credit
risk.
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