AAT Level 4 - Professional Diploma in Accounting Credit and Debt Management Questions and Answers

Question 1

A UK business is owed a commercial debt of £1,200 which is now 40 days overdue.
Under the Late Payment of Commercial Debts (Interest) Act 1998, what is the total of statutory interest and the fixed compensation sum the business can claim? Assume the Bank of England base rate is 5%.

Accepted Answer

£14.14 interest plus £70 compensation

Answer

£13.15 interest plus £40 compensation

Answer

£9.86 interest plus £70 compensation

Answer

£7.89 interest plus £40 compensation

Question 2

A company is experiencing severe financial distress and its directors believe it cannot be rescued as a going concern. They decide to cease trading and close the company in an orderly manner to pay creditors from the sale of assets. Which UK insolvency procedure would the directors voluntarily initiate for this purpose?

Accepted Answer

Creditors' Voluntary Liquidation (CVL)

Answer

Administration

Answer

Compulsory Liquidation

Answer

Members' Voluntary Liquidation (MVL)

Question 3

What is the primary difference between invoice factoring and invoice discounting for a UK business seeking to improve its cash flow?

Accepted Answer

In factoring, the provider manages the sales ledger and collects the debt; in discounting, the business retains control of collections.

Answer

Factoring is a form of loan, whereas discounting is a sale of the debt.

Answer

Discounting provides a higher percentage of the invoice value upfront.

Answer

Factoring is only available for domestic sales, while discounting can be used for international trade.

Question 4

A creditor is owed an undisputed debt of £10,000 by a UK limited company. Despite repeated requests for payment, the debt remains unpaid. The creditor wishes to use a formal legal process that serves as a final warning and, if ignored, can be used as evidence of insolvency to petition for the company's closure. Which of the following should be served on the company?

Accepted Answer

A Statutory Demand

Answer

A County Court Judgment (CCJ)

Answer

A Letter Before Action

Answer

An Attachment of Earnings Order

Question 5

Which of the following is a fundamental first step in establishing an effective credit control policy for a business before offering credit terms to a new customer?

Accepted Answer

Conducting a thorough credit check using a reputable credit reference agency.

Answer

Preparing a cash flow forecast for the next quarter.

Answer

Sending a standardised 'Letter Before Action' template.

Answer

Arranging invoice discounting facilities with a finance provider.

Question 6

A UK company has sent several reminders for an overdue invoice of £3,000 to a business customer, with no response. Before it can issue a claim in the County Court, what formal step must the company take in compliance with the Pre-Action Protocol for Debt Claims?

Accepted Answer

Send a formal 'Letter Before Action' giving the debtor a final opportunity to pay.

Answer

Report the debt to a credit reference agency.

Answer

Apply for a Third-Party Debt Order.

Answer

Serve a Statutory Demand on the debtor's registered office.

A UK business is owed a commercial debt of £1,200 which is now 40 days overdue.Under the Late Payment of Commercial Debts (Interest) Act 1998, what is the total of statutory interest and the fixed compensation sum the business can claim? Assume the Bank of England base rate is 5%.

A UK business is owed a commercial debt of £1,200 which is now 40 days overdue.
Under the Late Payment of Commercial Debts (Interest) Act 1998, what is the total of statutory interest and the fixed compensation sum the business can claim? Assume the Bank of England base rate is 5%.