CCE Trade Credit & Accounts Receivable Management 3

Question 1

A deduction management program in accounts receivable is designed to:

Accepted Answer

Identify, validate, and resolve short payments or unauthorized deductions taken by customers

Answer

Reduce the company's tax liability through accelerated depreciation

Answer

Negotiate early payment discounts with large customers

Answer

Automate the write-off of uncollectible balances

Question 2

Securitization of accounts receivable involves:

Accepted Answer

Pooling receivables and selling interests in the pool to investors through a special purpose entity

Answer

Insuring receivables against buyer default with a credit insurance policy

Answer

Pledging receivables as collateral for a revolving bank credit facility

Answer

Outsourcing collections to a third-party servicer

Question 3

A 'best possible DSO' (BPDSO) is calculated using ONLY current (non-past-due) receivables. If actual DSO is significantly higher than BPDSO, this indicates:

Accepted Answer

A large proportion of the AR balance is past due, signaling collection problems

Answer

The company offers excessively generous credit terms

Answer

The company's credit terms are too restrictive

Answer

Customers are consistently taking early payment discounts

Question 4

Under the Uniform Commercial Code (UCC), Article 9 governs:

Accepted Answer

Secured transactions, including the use of accounts receivable as collateral

Answer

The sale of goods between merchants

Answer

Negotiable instruments and payment systems

Answer

International sale of goods contracts

Question 5

The 'cash application' process in accounts receivable refers to:

Accepted Answer

Matching incoming customer payments to the specific open invoices they are intended to settle

Answer

Approving cash advances to customers with good payment history

Answer

Calculating the cash discount available to customers for early payment

Answer

Transferring collected cash from the lockbox to the operating account

Question 6

A credit executive is evaluating whether to extend credit to a new business customer. Which of the following is the MOST reliable indicator of the customer's ability to pay?

Accepted Answer

Audited financial statements showing cash flow from operations

Answer

The customer's marketing materials and website quality

Answer

The customer's stated years in business

Answer

References from the customer's existing suppliers without verification

Question 7

When is it MOST appropriate to write off an account receivable as uncollectible?

Accepted Answer

After all reasonable collection efforts have been exhausted and the account is deemed uncollectible

Answer

Immediately after the invoice passes the due date

Answer

When the customer requests a payment plan

Answer

When the account balance is below the company's established minimum collection threshold