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 credit files be retained for a minimum of seven years after account closure. This requirement is PRIMARILY driven by:
Answer: Legal, regulatory, and audit trail requirements
Retention periods for credit files are largely dictated by legal statutes of limitation, tax regulations, and audit requirements.
Which scenario MOST warrants an immediate revision to an existing credit policy?
Answer: A significant increase in customer bankruptcy filings within the company's industry sector
A spike in sector bankruptcies signals rising systemic risk that existing credit criteria and limits may no longer adequately address.
A credit policy includes a clause that trade discounts are offered at 2/10 net-30. A customer takes the discount on day 20. What is the correct policy-driven response?
Answer: Issue a deduction dispute and request the discount amount be reinstated
Discounts taken outside the allowed period are unauthorized deductions; policy requires recovering the unearned discount through a formal dispute process.
What is the purpose of including a 'force majeure' provision in credit policy and customer agreements?
Answer: To define circumstances beyond either party's control that may excuse or delay payment obligations
Force majeure clauses address extraordinary events such as natural disasters or pandemics that may prevent customers from meeting payment obligations through no fault of their own.
A credit policy assigns risk rating categories from 1 (low risk) to 5 (high risk). A customer newly rated 4 currently has a $200,000 credit limit. What action is MOST consistent with sound policy application?
Answer: Review the limit for potential reduction and consider requiring security or COD terms
A high-risk rating signals elevated default probability, warranting limit reduction and possible security requirements before a loss occurs.
When a credit policy includes a 'right of offset' provision, what does this allow the creditor to do?
Answer: Apply funds owed by the company to the customer against the customer's outstanding invoice balance
Right of offset allows a creditor to net amounts payable to a customer against amounts the customer owes, reducing net credit exposure.
Which of the following BEST describes the role of a credit policy in supporting a company's sales growth objectives?
Answer: It defines the risk appetite framework that allows credit to be extended efficiently to qualified customers, supporting revenue growth
A well-designed credit policy enables revenue growth by defining clear, consistent criteria under which credit can be extended safely to a broad customer base.