CCM CCM Credit Policy & Procedures 1

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

A written credit policy provides consistent guidelines ensuring all credit decisions align with company objectives and risk tolerance.

Question 2

Which element is MOST critical when setting customer credit limits?

Accepted Answer

Customer's payment history and financial strength

Answer

Payment history and financial strength are the most critical factors because they directly reflect the customer's ability and willingness to pay.

Question 3

A credit hold is BEST used when:

Accepted Answer

A customer's account is significantly past due

Answer

A credit hold is placed on significantly past-due accounts to stop further exposure until the delinquency is resolved.

Question 4

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

Accepted Answer

Days Sales Outstanding (DSO)

Answer

DSO measures how quickly a company collects receivables, making it the primary metric for evaluating credit department effectiveness.

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

Credit policies must be updated immediately when economic conditions or business strategy shift to ensure risk parameters remain appropriate.

(CCM) Certified Credit Manager Practice Test