Mixed Deck — All CCP Topics Flashcards

A 'skip tracing' process in collections is used to:

Answer: Locate debtors who have changed contact information without notification

Skip tracing uses data sources such as credit bureaus, public records, and social media to find updated contact information for debtors who have become unreachable.

What does a 'waterfall' structure in a syndicated credit facility determine?

Answer: The priority order in which different tranches of lenders receive principal and interest payments or recoveries

A payment waterfall defines the sequence of distributions — senior secured lenders are paid first, followed by junior lenders, mezzanine, and equity in descending priority.

What is the importance of credit policy compliance?

Answer: It ensures all credit decisions are fair and within regulatory standards.

Compliance with a credit policy is vital because it ensures that all credit-related decisions are made consistently, objectively, and in adherence to established internal guidelines and external legal and regulatory requirements. This protects both the organization from legal repercussions and financial losses, and customers from discriminatory or unfair practices, fostering trust and operational integrity.

Which document is MOST commonly used to communicate credit policy requirements to new customers during onboarding?

Answer: A credit application

A credit application collects the financial and reference information needed to evaluate new customers under the terms of the credit policy.

Accounts receivable factoring transfers credit risk to the factor in which arrangement?

Answer: Non-recourse factoring

In non-recourse factoring the factor absorbs the credit risk of buyer non-payment due to insolvency, whereas recourse factoring leaves that risk with the seller.

A company with a return on equity (ROE) of 22% and a return on assets (ROA) of 8% is most likely:

Answer: Using significant financial leverage to amplify equity returns

When ROE substantially exceeds ROA, it indicates the company is using debt (financial leverage) to boost returns to equity holders beyond what assets alone generate.

What is 'electronic invoice presentment and payment' (EIPP)?

Answer: A platform allowing suppliers to deliver invoices and receive payments electronically

EIPP platforms digitize the entire invoice-to-payment cycle, enabling faster delivery, automated matching, and electronic remittance.

What does the D&B Viability Rating measure?

Answer: The likelihood a business will remain active and meet financial obligations

The D&B Viability Rating predicts whether a business will remain active and financially solvent over the near term.

Which document in an LC transaction serves as title to the shipped goods?

Answer: Negotiable bill of lading

A negotiable bill of lading is a document of title; whoever holds the original endorsed copy has the right to claim the goods from the carrier.

Which of the following BEST describes 'springing' financial covenants?

Answer: Covenants that only become active when a triggering event occurs, such as exceeding a borrowing threshold

Springing covenants remain dormant until a specific condition is met (e.g., utilization exceeds 35% of the revolver), at which point they activate and must be tested.

The D&B Supplier Risk Manager score primarily helps companies assess:

Answer: Risk of supply chain disruption from a vendor

D&B Supplier Risk Manager scores evaluate the likelihood that a supplier will experience business failure or financial distress.

A secured party who fails to file a termination statement within 20 days of the debtor's authenticated demand after the debt is paid is subject to:

Answer: Liability for $500 plus any actual damages suffered by the debtor

Under UCC § 9-625, a secured party who wrongfully fails to file a termination statement is liable to the debtor for a $500 statutory penalty plus any actual loss caused by the failure.

What is credit risk mitigation?

Answer: Using collateral, guarantees, or insurance to reduce risk.

Credit risk mitigation involves strategies and tools employed by lenders to reduce their exposure to potential losses from a borrower's default. Common methods include requiring collateral (assets pledged as security), obtaining guarantees from third parties, or purchasing credit insurance. These measures provide a safety net, making the lending transaction less risky for the creditor.

What is the main benefit of supply chain finance (reverse factoring) from a credit risk management perspective?

Answer: It leverages the buyer's strong credit rating to provide sellers with early payment at low discount rates

Reverse factoring uses the buyer's creditworthiness so the seller can access early payment at funding costs close to the buyer's borrowing rate, reducing both liquidity and credit risk for the seller.

A 'clean' collection differs from a 'documentary' collection in that a clean collection involves:

Answer: Transfer of financial documents only, without shipping documents

Clean collections involve only financial instruments (drafts, promissory notes) without accompanying commercial or shipping documents, typically used for non-trade payments.

When a buyer's balance sheet shows a significant amount of 'related party receivables,' a credit professional should:

Answer: Discount or exclude them from liquidity analysis as they may not be collectible at arm's length

Related party receivables may not be collectible on normal terms and often represent inter-company balances or owner transactions that won't generate real cash in a stress scenario.

A credit policy states that all accounts over $50,000 must be reviewed quarterly. A $75,000 account has been stable for three years with no late payments. What should the credit analyst do?

Answer: Complete the quarterly review as required by policy

Credit policies apply uniformly regardless of account history; stable accounts should still be reviewed to confirm conditions have not changed.

Which statement about FICO score 'inquiries' is accurate for rate-shopping scenarios?

Answer: Multiple mortgage inquiries within a 45-day window are treated as a single inquiry

FICO models recognize rate-shopping by treating multiple inquiries for mortgages, auto loans, or student loans within a 45-day window as one inquiry.

Which of the following would INCREASE a company's operating cash flow without affecting net income?

Answer: An increase in depreciation expense

Depreciation is a non-cash expense that reduces net income but is added back in the indirect method, so an increase in depreciation raises operating cash flow without changing cash net income.

Under UCC Article 9, a 'termination statement' is filed when:

Answer: The secured obligation is paid off and the secured party no longer claims a security interest

A termination statement is filed to indicate that the secured party no longer claims an interest under the financing statement, typically after the debt is fully paid.