CCM CCM Credit Policy & Procedures

Question 1

What is the primary purpose of a written credit policy in an organization?

Accepted Answer

To establish consistent guidelines for extending credit

Answer

To reduce the number of customers

Answer

To eliminate all credit risk

Answer

To replace the credit manager

Question 2

Which element is MOST critical when setting customer credit limits?

Accepted Answer

Customer's payment history and financial strength

Answer

Customer's geographic location

Answer

Customer's number of employees

Answer

Customer's years in business only

Question 3

A credit hold is BEST used when:

Accepted Answer

A customer's account is significantly past due

Answer

A new order is placed by any customer

Answer

A customer requests a higher credit limit

Answer

Sales volume decreases

Question 4

Which metric is most commonly used to evaluate the effectiveness of a credit department?

Accepted Answer

Days Sales Outstanding (DSO)

Answer

Number of credit applications denied

Answer

Total number of customers

Answer

Sales growth percentage

Question 5

When a credit policy review is recommended, what should trigger an immediate update?

Accepted Answer

Significant changes in economic conditions or business strategy

Answer

A change in office location

Answer

Hiring of new sales staff

Answer

Annual calendar schedule only

Question 6

What does a tiered credit approval process typically involve?

Accepted Answer

Delegating approval authority based on dollar amount thresholds

Answer

Approving all credit requests at the same level

Answer

Requiring board approval for all credit decisions

Answer

Outsourcing all credit approvals