AAT L4 Credit and Debt Management 2

Question 1

A credit controller is assessing a new customer applying for £50,000 credit. Which of the 'Five Cs of Credit' considers the economic environment and market conditions in which the customer operates?

Accepted Answer

Conditions

Answer

The 'Conditions' element of the Five Cs considers external factors such as the state of the economy, industry trends, and market conditions that may affect the customer's ability to pay.

Question 2

A company has annual credit sales of £1,800,000 and average receivables of £250,000. What is the receivables collection period (in days, using a 365-day year)?

Accepted Answer

50.7 days

Answer

Receivables collection period = (Average receivables ÷ Annual credit sales) × 365 = (£250,000 ÷ £1,800,000) × 365 = 0.1389 × 365 = 50.7 days.

Question 3

Under the Late Payment of Commercial Debts (Interest) Act 1998, what is the statutory interest rate payable on overdue business-to-business invoices?

Accepted Answer

8% above Bank of England base rate

Answer

The Late Payment of Commercial Debts (Interest) Act 1998 prescribes a statutory interest rate of 8% above the Bank of England base rate for overdue B2B debts.

Question 4

A factoring company offers to advance 80% of invoice value immediately, charging a service fee of 2% of turnover and interest of 6% per annum on advances. A business has monthly sales of £100,000 and average collection period of 60 days. What is the immediate cash advance available?

Accepted Answer

£80,000

Answer

The factor advances 80% of the value of invoices raised. Monthly sales are £100,000, so the immediate advance = 80% × £100,000 = £80,000.

Question 5

Which document forms the primary legal basis for a retention of title clause in a sale of goods contract?

Accepted Answer

The Sale of Goods Act 1979

Answer

The Sale of Goods Act 1979 governs the transfer of title (ownership) in sales contracts. Section 17 allows parties to agree when title passes, enabling retention of title (Romalpa) clauses to be included.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Credit and Debt Management 2