AAT L4 Credit Management

Question 1

The primary objective of a credit management function is to:

Accepted Answer

Manage credit risk to maximise profitable sales while minimising bad debts and overdue collections

Answer

Maximise the number of credit customers

Answer

Grant credit to all customers who request it

Answer

Collect all debts regardless of the cost of collection

Question 2

A credit scoring model is used to:

Accepted Answer

Assess the creditworthiness of a new customer by systematically scoring key risk factors to determine whether and how much credit to offer

Answer

Calculate the interest rate charged on late payments

Answer

Prepare the aged receivables report

Answer

Automate the sending of statements to customers

Question 3

Which of the following documents is used to assess the financial health of a potential trade credit customer?

Accepted Answer

The customer's most recent audited financial statements and credit agency report

Answer

The customer's staff handbook

Answer

A copy of the customer's marketing brochure

Answer

The customer's order history with other suppliers only

Question 4

A retention of title clause (Romalpa clause) in a contract:

Accepted Answer

Means ownership of goods does not pass to the buyer until full payment is made, allowing the seller to reclaim goods in a buyer's insolvency

Answer

Prevents the customer from using the goods until full payment is received

Answer

Guarantees the quality of the goods supplied

Answer

Requires the buyer to insure the goods immediately on delivery

Question 5

The role of a credit insurance policy in credit management is to:

Accepted Answer

Protect the business against bad debt losses on insured customers up to a policy limit

Answer

Cover the cost of chasing overdue debts

Answer

Guarantee that all customers will pay within agreed terms

Answer

Replace the need for any credit control procedures

Question 6

A personal guarantee from a company director is sought because:

Accepted Answer

It makes the director personally liable for the company's debt if the company cannot pay, providing additional security

Answer

It increases the credit limit automatically

Answer

It is required by law for all credit agreements

Answer

It reduces the interest rate charged on overdue accounts