AAT L4 Credit and Debt Management 2

Question 1

A credit controller is assessing a new customer applying for £50,000 credit. Which of the 'Five Cs of Credit' considers the economic environment and market conditions in which the customer operates?

Accepted Answer

Conditions

Answer

Character

Answer

Capacity

Answer

Collateral

Question 2

A company has annual credit sales of £1,800,000 and average receivables of £250,000. What is the receivables collection period (in days, using a 365-day year)?

Accepted Answer

50.7 days

Answer

45.0 days

Answer

56.4 days

Answer

72.0 days

Question 3

Under the Late Payment of Commercial Debts (Interest) Act 1998, what is the statutory interest rate payable on overdue business-to-business invoices?

Accepted Answer

8% above Bank of England base rate

Answer

5% above Bank of England base rate

Answer

10% flat rate per annum

Answer

Base rate only, with no additional premium

Question 4

A factoring company offers to advance 80% of invoice value immediately, charging a service fee of 2% of turnover and interest of 6% per annum on advances. A business has monthly sales of £100,000 and average collection period of 60 days. What is the immediate cash advance available?

Accepted Answer

£80,000

Answer

£100,000

Answer

£160,000

Answer

£133,333

Question 5

Which document forms the primary legal basis for a retention of title clause in a sale of goods contract?

Accepted Answer

The Sale of Goods Act 1979

Answer

The Insolvency Act 1986

Answer

The Companies Act 2006

Answer

The Consumer Credit Act 1974

Question 6

A business sends a customer a 'Letter Before Action' (LBA). What is the purpose of this letter?

Accepted Answer

To formally notify the debtor of the intention to pursue legal action if payment is not made

Answer

To terminate the trading relationship permanently

Answer

To report the customer to HMRC for tax evasion

Answer

To initiate bankruptcy proceedings against the debtor