Credit Policy & Procedures Flashcards
7 cards from real CCP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Credit Policy & Procedures flashcards as text
A credit policy mandates that all orders from accounts on credit hold must be released by the credit manager before shipment. The warehouse ships an order for a held account without authorization. This is BEST described as:
Answer: A breach of internal controls that must be documented and corrected
Unauthorized release of held orders is a control failure that exposes the company to uncollectible receivables and must be formally addressed.
Which of the following BEST describes a 'credit policy exception'?
Answer: An approval granted outside normal policy parameters for a specific customer or transaction
A credit policy exception is a documented, authorized deviation from standard policy for a specific situation, requiring management sign-off.
When drafting a credit policy, which of the following should define the scope of customers covered?
Answer: All customers receiving goods or services on account regardless of size or location
Credit policy should apply to all customers receiving credit to ensure consistent risk management across the entire receivables portfolio.
A credit policy requires credit references from all new applicants. A prospect says all their suppliers are on COD terms. What should the credit analyst do?
Answer: Request bank references and financial statements as alternative verification
When trade references are unavailable, bank references and financial statements are acceptable alternative sources to assess creditworthiness.
In the context of credit policy, what does 'credit exposure' refer to?
Answer: The total amount owed by a customer at any given time, including outstanding invoices and unfulfilled orders
Credit exposure includes both billed receivables and unbilled orders in process, representing the full financial risk if the customer defaults.
A credit policy sets maximum payment terms at net-45. A sales manager promises a key customer net-90 to close a deal. Who has the authority to authorize this deviation?
Answer: A designated credit policy exception authority such as the CFO or credit director
Exceptions beyond policy limits require authorization from a senior designated official, not the sales team, to preserve policy integrity.
What is the key distinction between 'credit terms' and 'credit conditions' in a credit policy?
Answer: Credit terms define payment timing; credit conditions define requirements the customer must meet to maintain credit privileges
Credit terms specify when payment is due, while credit conditions outline obligations such as financial reporting or maintaining certain ratios to retain credit access.