CCE Trade Credit & Accounts Receivable Management 2

Question 1

What is accounts receivable factoring?

Accepted Answer

Selling accounts receivable to a third party (factor) at a discount for immediate cash

Answer

Pledging receivables as collateral for a bank loan while retaining ownership

Answer

Securitizing receivables into asset-backed securities for capital markets

Answer

Transferring collection responsibilities to a collection agency without selling the debt

Question 2

The 'dilution rate' in accounts receivable management refers to:

Accepted Answer

Reductions to gross receivables from credits, returns, discounts, and allowances

Answer

The percentage of receivables written off as uncollectible

Answer

The interest rate charged on overdue accounts

Answer

The proportion of receivables collected within the discount period

Question 3

A lockbox system PRIMARILY benefits a company by:

Accepted Answer

Accelerating the collection and posting of customer payments to reduce float

Answer

Reducing the need for credit insurance on receivables

Answer

Automating the generation of customer invoices

Answer

Eliminating the need for an accounts receivable aging schedule

Question 4

Under a recourse factoring arrangement, the selling company retains:

Accepted Answer

The risk of customer non-payment if the factor cannot collect

Answer

Ownership of the receivables but transfers collection responsibility

Answer

The right to buy back receivables at the original face value

Answer

Full responsibility for billing and invoicing customers

Question 5

The Collection Effectiveness Index (CEI) differs from DSO in that CEI:

Accepted Answer

Measures the quality of collections relative to the amount that was collectible in the period

Answer

Only measures collection performance on past-due accounts

Answer

Is expressed as a ratio rather than a number of days

Answer

Focuses exclusively on domestic receivables

Question 6

When a company places a customer account on 'credit hold,' it means:

Accepted Answer

New shipments or services are suspended until the account is brought current or resolved

Answer

The customer's credit limit is permanently reduced

Answer

The account is transferred to a third-party collection agency

Answer

The customer's outstanding balance is written off as uncollectible

Question 7

Which metric BEST measures the overall efficiency of the credit and collections function?

Accepted Answer

Bad debt as a percentage of credit sales

Answer

Gross profit margin

Answer

Current ratio

Answer

Inventory turnover