Financial Management for Project Managers Accounts Payable/Receivable 3 — Questions and Answers
Question 1: A client disputes a $15,000 invoice claiming the deliverables were incomplete. What is the best first step for the project manager?
- Immediately write off the receivable as a bad debt
- Escalate to legal counsel without contacting the client
- Review the contract deliverables and meet with the client to resolve the dispute (Correct answer)
- Issue a credit memo for the full amount
Correct answer: Review the contract deliverables and meet with the client to resolve the dispute
Reviewing contract terms and engaging the client directly is the best first step to resolve a billing dispute before escalating.
Question 2: What is a credit memo in accounts receivable management?
- A document that increases the amount owed by the customer
- A document that reduces the amount owed by the customer due to returns or errors (Correct answer)
- A bank document confirming receipt of payment
- A legal notice of nonpayment
Correct answer: A document that reduces the amount owed by the customer due to returns or errors
A credit memo reduces the customer's balance, typically issued for returns, billing errors, or agreed adjustments.
Question 3: In project financial management, what does 'stretching accounts payable' mean?
- Paying vendors early to capture discounts
- Delaying payments to vendors to preserve cash, within acceptable terms (Correct answer)
- Negotiating longer contract durations
- Increasing the number of approved vendors
Correct answer: Delaying payments to vendors to preserve cash, within acceptable terms
Stretching payables means deliberately paying vendors at the latest allowable date to maximize the time cash is retained.
Question 4: Which of the following is a common internal control for accounts payable to prevent duplicate payments?
- Allowing any team member to approve invoices
- Requiring vendor invoices to be stamped 'paid' upon processing (Correct answer)
- Paying all invoices on the same day each month
- Using a single approver for all transactions
Correct answer: Requiring vendor invoices to be stamped 'paid' upon processing
Stamping or marking invoices as paid upon processing prevents the same invoice from being submitted and paid twice.
Question 5: A project has $200,000 in accounts receivable. Historical data shows 3% will be uncollectible. What amount should be recorded as the allowance for doubtful accounts?
- $3,000
- $6,000 (Correct answer)
- $60,000
- $197,000
Correct answer: $6,000
3% of $200,000 equals $6,000, which is the estimated uncollectible amount to be recorded as the allowance.
Question 6: What is the effect on a project's cash flow when days sales outstanding (DSO) increases?
- Cash flow improves because revenue is recognized sooner
- Cash flow worsens because customers are taking longer to pay (Correct answer)
- No effect because DSO is a non-cash metric
- Cash flow improves because fewer invoices are outstanding
Correct answer: Cash flow worsens because customers are taking longer to pay
A higher DSO means customers take longer to pay, which delays cash inflows and puts pressure on project liquidity.
Question 7: A vendor offers net 45 payment terms but your project needs materials immediately. What should you negotiate to improve project cash flow?
- Request net 15 terms to pay faster
- Request extended terms such as net 60 or net 90 (Correct answer)
- Request consignment terms
- Request prepayment terms
Correct answer: Request extended terms such as net 60 or net 90
Negotiating longer payment terms (net 60 or 90) keeps cash available longer, improving project working capital.
Financial Management for Project Managers Accounts Payable/Receivable 3
A client disputes a $15,000 invoice claiming the deliverables were incomplete.
What is the best first step for the project manager?