CCM Trade Credit & Accounts Receivable Flashcards
6 cards from real CCM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CCM Trade Credit & Accounts Receivable flashcards as text
What is a letter of credit (LC) primarily used for in trade credit?
Answer: To guarantee payment to the seller by a bank on behalf of the buyer
A letter of credit is a bank's promise to pay the seller on the buyer's behalf if specified documentary conditions are met, reducing payment risk.
Credit insurance on accounts receivable primarily protects a company against:
Answer: Buyer default or insolvency
Trade credit insurance reimburses the insured seller for losses when a buyer fails to pay due to insolvency, protracted default, or political risk.
Which of the following actions is MOST effective in reducing bad debt losses?
Answer: Proactive credit monitoring and early intervention when warning signs appear
Proactive monitoring and early collection intervention catch deteriorating accounts before they become uncollectable, minimizing bad debt.
A key difference between a secured and unsecured trade creditor in a customer bankruptcy is:
Answer: Secured creditors have a priority claim on specific collateral, while unsecured creditors do not
Secured creditors can recover from pledged collateral before unsecured creditors receive any distribution in bankruptcy.
The Order-to-Cash (O2C) cycle in accounts receivable begins with:
Answer: Receiving a customer purchase order
The O2C cycle starts when a customer places a purchase order and ends when cash is applied to the account.
Electronic invoicing (e-invoicing) benefits accounts receivable management primarily by:
Answer: Accelerating invoice delivery and reducing processing errors, speeding up collections
E-invoicing delivers invoices instantly and accurately, shortening the payment cycle and reducing disputes caused by lost or incorrect paper invoices.