AAT L4 Credit Management 3

Question 1

Net credit days (days sales outstanding — DSO) differs from standard debtor days because:

Accepted Answer

It accounts for settlements and discounts to more accurately reflect the timing of actual cash receipt

Answer

DSO (or net credit days) may be refined by stripping out VAT, adjusting for credit notes and settlement discounts, and weighting recent sales more heavily — giving a more accurate picture of actual collection timing.

Question 2

A business accepts a bill of exchange from a customer in settlement of a trade debt. The bill of exchange is:

Accepted Answer

An unconditional written order to pay a specified sum on a specified date — the business holds this as an asset until it falls due

Answer

A bill of exchange is a negotiable instrument — an unconditional written order requiring the drawee (customer) to pay the specified sum on demand or at a specified future date; the holder (business) can discount it at a bank if early cash is needed.

Question 3

Export credit risk is more complex than domestic credit risk because:

Accepted Answer

Additional risks include country risk, currency risk, and legal system differences making debt recovery more difficult

Answer

Export credit introduces additional risks beyond normal trade credit: country/political risk (government actions, war), currency risk (exchange rate movements), and cross-border legal complexity (enforcing judgments in foreign jurisdictions).

Question 4

In the context of credit management, a 'netting agreement' allows:

Accepted Answer

A business and its customer/supplier (where both owe each other) to offset mutual balances and settle only the net difference

Answer

A netting agreement between two parties who buy from and sell to each other allows them to offset payables against receivables and settle only the net balance — reducing gross cash flows and credit exposure.

Question 5

Predictive analytics in credit management can be used to:

Accepted Answer

Identify customers with increased probability of default based on payment behaviour patterns and financial data

Answer

Predictive models (using machine learning or statistical analysis) analyse patterns in payment behaviour, financial ratios, and external data to flag customers showing early signs of financial distress before they default.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Credit Management 3