Collections & Recovery Flashcards
7 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 7 Collections & Recovery flashcards as text
A 'charge-off' in accounts receivable management means:
Answer: The creditor writes the balance off as uncollectible for accounting purposes but retains the legal right to collect
Charging off a receivable is an accounting treatment that removes it from active assets; the underlying legal obligation of the debtor remains intact.
Which collection technique involves sending progressively more urgent written notices at defined intervals after an invoice becomes past due?
Answer: Dunning letter series
A dunning letter series is a systematic escalation of written payment demands sent at scheduled intervals as an account ages.
A creditor obtains a wage garnishment order. Under federal law, what is the maximum percentage of a debtor's disposable earnings that can generally be garnished per week?
Answer: 25% of disposable earnings or the amount exceeding 30 times the federal minimum wage, whichever is less
The Consumer Credit Protection Act limits garnishment to 25% of disposable earnings or the excess above 30 times the federal minimum hourly wage, whichever is less.
In commercial credit, 'preference payments' in bankruptcy are significant because:
Answer: A trustee may recover payments made to creditors within 90 days before bankruptcy filing
The bankruptcy trustee can 'avoid' (claw back) payments made to creditors within 90 days of filing if they gave that creditor more than it would receive in liquidation.
Which of the following is a key purpose of sending a formal demand letter before initiating legal action?
Answer: Documenting collection efforts, potentially satisfying legal prerequisites, and prompting voluntary payment
A formal demand letter creates a documented record of the collection attempt and may fulfill jurisdictional prerequisites for suit while giving the debtor a final chance to pay.
An aging report shows a large concentration of receivables in the 90+ day bucket. Which action is most appropriate for the collections manager?
Answer: Prioritize those accounts for immediate escalation, including collection agency placement or legal referral
Accounts in the 90+ day bucket have significantly lower recovery probability, requiring immediate escalation to preserve recovery potential.
A debtor offers a lump-sum settlement for less than the full balance owed. Which factor is least relevant when evaluating whether to accept?
Answer: The original salesperson's commission on the underlying sale
The original salesperson's commission is not relevant to the collections decision, which should focus on net recovery economics.