CCM CCM Credit Policy & Procedures 2 — Questions and Answers
Question 1: Which of the following BEST describes a credit application's purpose?
- A legal contract binding the buyer to purchase
- A tool to collect financial and trade reference information for underwriting (Correct answer)
- A marketing document to attract new customers
- A billing statement
Correct answer: A tool to collect financial and trade reference information for underwriting
A credit application collects financial data and trade references needed to underwrite and set appropriate credit terms.
Question 2: A personal guarantee on a business credit account means:
- The business insures the credit manager against loss
- An individual owner assumes personal liability for the business debt (Correct answer)
- The bank guarantees payment
- Sales are guaranteed by the guarantee
Correct answer: An individual owner assumes personal liability for the business debt
A personal guarantee makes the owner personally liable for the business debt if the business cannot pay, adding a layer of security.
Question 3: What is the role of trade references in a credit application?
- To verify the applicant's marketing strategy
- To provide insight into how the applicant pays other creditors (Correct answer)
- To confirm the applicant's sales volume
- To list the applicant's product catalog
Correct answer: To provide insight into how the applicant pays other creditors
Trade references reveal the applicant's payment behavior with existing creditors, helping predict future payment performance.
Question 4: Credit terms of '2/10 net 30' mean:
- Pay within 2 days or the account is suspended for 30 days
- A 2% discount if paid within 10 days; full amount due in 30 days (Correct answer)
- 2% interest charged after 10 days up to 30 days
- Net payment of 2% due in 10 to 30 days
Correct answer: A 2% discount if paid within 10 days; full amount due in 30 days
2/10 net 30 offers a 2% early-payment discount if the invoice is paid within 10 days, with the full balance due in 30 days.
Question 5: Which procedure helps prevent duplicate payments and fraud in the credit-to-cash process?
- Increasing credit limits for all customers
- Segregation of duties between billing, cash application, and collections (Correct answer)
- Combining all AR functions into one role
- Eliminating paper invoices
Correct answer: Segregation of duties between billing, cash application, and collections
Segregation of duties ensures no single person controls all steps in the cash cycle, reducing fraud and error risk.
Question 6: What should a credit policy specify regarding new customer onboarding?
- Only the marketing welcome package
- Documentation required, credit limit starting point, and review timeline (Correct answer)
- Sales commission structure
- Product pricing tiers
Correct answer: Documentation required, credit limit starting point, and review timeline
New customer onboarding procedures in a credit policy define required documents, initial limits, and when the account will be reviewed.
CCM CCM Credit Policy & Procedures 2
Which of the following BEST describes a credit application's purpose?