AAT L4 Credit Management 2

Question 1

The calculation of receivables days (debtor days) is:

Accepted Answer

Receivables / Annual sales revenue × 365

Answer

Receivables days = (Trade receivables / Annual credit sales) × 365. It measures the average number of days customers take to pay, enabling comparison against credit terms and monitoring trends.

Question 2

An effective collections strategy for overdue accounts typically follows which sequence?

Accepted Answer

Friendly reminder, formal demand letter, final notice, legal action, or referral to a debt collection agency

Answer

A graduated collections process escalates proportionately: begin with a polite reminder, escalate to formal demand letters, issue a final notice before legal action, then pursue through the courts or collection agencies as a last resort.

Question 3

Which of the following ratios indicates that a customer may be experiencing liquidity difficulties?

Accepted Answer

Current ratio consistently below 1:1

Answer

A current ratio below 1:1 means current liabilities exceed current assets — the customer may be unable to meet short-term obligations, suggesting potential payment difficulties for creditors like your business.

Question 4

Under the Late Payment of Commercial Debts (Interest) Act 1998, a creditor is entitled to charge statutory interest at:

Accepted Answer

Bank of England base rate plus 8% per annum

Answer

The statutory interest rate under LPCD(I)A 1998 is 8% over the Bank of England base rate. It applies automatically to qualifying business-to-business debts where no contractual late payment rate is specified.

Question 5

A county court judgment (CCJ) obtained against a debtor:

Accepted Answer

Is a court order confirming the debt is owed; if unpaid it can be enforced through various methods (e.g., bailiffs, charging order)

Answer

A CCJ is a county court order confirming that the named individual or company owes the specified amount. If unpaid within the specified time, it can be enforced using enforcement tools such as enforcement agents (bailiffs), attachment of earnings, or a charging order on property.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Credit Management 2