Trade Credit Terms & DSO Flashcards

A customer with net 30 terms has an invoice dated March 15. Adding a 3-day mail float, the expected payment receipt date is approximately:

Answer: April 17

Net 30 from March 15 = April 14 due date; adding 3-day mail float puts expected receipt at April 17.

Which DSO benchmark method compares the current AR balance only against the most recent months of sales?

Answer: Countback (rollback) method

The countback (rollback) method matches the AR balance against the most recent months' sales, eliminating distortion from seasonal sales swings.

Terms of 'net 60 MOM' mean the invoice is due:

Answer: 60 days from end of the month of invoice

MOM (middle of month) or EOM variants anchor the due date to month-end; net 60 MOM = 60 days after the last day of the invoice month.

A company's Best Possible DSO is 22 days and its actual DSO is 38 days. The Delinquency DSO is:

Answer: 16 days

Delinquency DSO = Actual DSO − Best Possible DSO = 38 − 22 = 16 days, representing avoidable collection delays.

Which payment term is most common in international trade to minimize seller credit risk before shipment?

Answer: Cash in advance (CIA)

Cash in advance eliminates seller credit risk entirely because payment is received before goods are shipped.

A credit manager notices DSO has risen 10 days while sales volume and credit terms are unchanged. The most likely cause is:

Answer: A deterioration in customer payment behavior

If sales and terms are constant but DSO rises, customers are paying more slowly, indicating deteriorating payment behavior.

Under 'net 10th prox' terms, an invoice dated February 3 is due on:

Answer: March 10

Prox (proximo) terms mean payment is due on the specified day of the NEXT month; net 10th prox on a Feb invoice = March 10.