CCM CCM Credit Policy & Procedures 2

Question 1

Which of the following BEST describes a credit application's purpose?

Accepted Answer

A tool to collect financial and trade reference information for underwriting

Answer

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:

Accepted Answer

An individual owner assumes personal liability for the business debt

Answer

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?

Accepted Answer

To provide insight into how the applicant pays other creditors

Answer

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:

Accepted Answer

A 2% discount if paid within 10 days; full amount due in 30 days

Answer

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?

Accepted Answer

Segregation of duties between billing, cash application, and collections

Answer

Segregation of duties ensures no single person controls all steps in the cash cycle, reducing fraud and error risk.

(CCM) Certified Credit Manager Practice Test