Strategic Planning & Analysis 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 Strategic Planning & Analysis flashcards as text
Which of the following best describes a 'credit policy' in the context of strategic planning?
Answer: A formal set of guidelines governing how credit is granted, monitored, and collected
A credit policy is a formal document that defines criteria for extending credit, credit limits, payment terms, and collection procedures, aligning credit operations with corporate strategy.
A company experiencing rapid growth in credit sales but flat gross margin should strategically focus on:
Answer: Analyzing whether incremental credit sales are generating adequate net contribution after bad debt costs
Rapid credit sales growth with flat margins requires ensuring that bad debt and financing costs don't erode net profitability on incremental sales.
What is the primary purpose of establishing a credit risk appetite statement in strategic planning?
Answer: To define the maximum level of credit risk the organization is willing to accept in pursuit of its objectives
A risk appetite statement formally communicates how much credit risk senior leadership accepts, guiding credit policy and limit-setting decisions across the organization.
When benchmarking DSO against industry peers, a credit manager discovers the company's DSO is 15 days higher than the industry median. The most appropriate strategic response is to:
Answer: Investigate root causes and develop an action plan to improve collections and/or tighten credit terms
A DSO significantly above industry median warrants investigation into billing accuracy, collection effectiveness, and credit terms to identify and address the underlying drivers.
In credit strategy, 'concentration risk' refers to:
Answer: Excessive credit exposure to a single customer, industry, or geographic region
Concentration risk arises when a large portion of the receivables portfolio is exposed to a single entity or correlated group, amplifying losses if that group defaults.
Which metric would a credit manager most likely use to evaluate the effectiveness of a revised collections strategy after six months?
Answer: Change in DSO and bad debt write-off rate compared to the prior period
DSO and bad debt write-off rate directly reflect collections effectiveness and receivables quality, making them the most relevant KPIs for evaluating a collections strategy change.
A strategic credit analysis reveals that a key customer represents 30% of total receivables. The recommended action is to:
Answer: Develop a concentration risk mitigation plan, such as credit insurance or payment plan restructuring
High concentration in a single customer requires risk mitigation tools like credit insurance, security, or structured payment plans rather than abrupt termination or increased exposure.