ABA Credit & Collections Management Flashcards
6 cards from real ABA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 ABA Credit & Collections Management flashcards as text
What is the Five Cs of Credit framework used for?
Answer: Evaluating a borrower's creditworthiness
The Five Cs of Credit (Character, Capacity, Capital, Collateral, Conditions) is a framework used to assess a borrower's creditworthiness.
Which of the Five Cs of Credit refers to a borrower's ability to repay a loan from income?
Answer: Capacity
'Capacity' in the Five Cs of Credit refers to a borrower's ability to repay the debt based on their income and existing financial obligations.
What is a credit limit?
Answer: The maximum amount of credit extended to a customer
A credit limit is the maximum amount of credit a lender or business will extend to a customer at any given time.
What is 'factoring' in accounts receivable management?
Answer: Selling accounts receivable to a third party at a discount
Factoring involves selling accounts receivable to a financial intermediary (factor) at a discount in exchange for immediate cash.
Which report helps management identify customers who consistently pay late?
Answer: Accounts receivable aging report
An accounts receivable aging report shows outstanding invoices categorized by age, making it easy to identify consistently late-paying customers.
What happens to a business's cash flow when Days Sales Outstanding (DSO) increases?
Answer: Cash flow decreases because collections are slower
When DSO increases, customers are taking longer to pay, which slows cash collections and reduces available cash flow.