ABA ABA Credit & Collections Management 3

Question 1

What is the Five Cs of Credit framework used for?

Accepted Answer

Evaluating a borrower's creditworthiness

Answer

Calculating interest rates on loans

Answer

Determining sales discounts

Answer

Setting collection agency fees

Question 2

Which of the Five Cs of Credit refers to a borrower's ability to repay a loan from income?

Accepted Answer

Capacity

Answer

Character

Answer

Capital

Answer

Collateral

Question 3

What is a credit limit?

Accepted Answer

The maximum amount of credit extended to a customer

Answer

The minimum purchase amount required to use credit

Answer

The interest rate charged on outstanding balances

Answer

The time period for which credit is valid

Question 4

What is 'factoring' in accounts receivable management?

Accepted Answer

Selling accounts receivable to a third party at a discount

Answer

Dividing receivables into equal monthly payments

Answer

Adding interest to overdue accounts

Answer

Sending invoices in batches

Question 5

Which report helps management identify customers who consistently pay late?

Accepted Answer

Accounts receivable aging report

Answer

Income statement

Answer

Balance sheet

Answer

Cash flow forecast

Question 6

What happens to a business's cash flow when Days Sales Outstanding (DSO) increases?

Accepted Answer

Cash flow decreases because collections are slower

Answer

Cash flow improves because more sales are recorded

Answer

Cash flow is unaffected by DSO

Answer

Cash flow increases because customers pay more interest