CCM CCM Trade Credit & Accounts Receivable

Question 1

Trade credit is BEST defined as:

Accepted Answer

Credit extended by one business to another for the purchase of goods or services

Answer

A bank loan extended to a business

Answer

A consumer revolving credit line

Answer

A government-backed export credit facility

Question 2

Which of the following BEST describes 'open account' terms in trade credit?

Accepted Answer

Goods are shipped and invoiced with payment expected within an agreed period

Answer

Goods are shipped only after full payment is received

Answer

A letter of credit secures every shipment

Answer

Payment is made only at the end of the year

Question 3

What is the primary advantage of factoring accounts receivable for a seller?

Accepted Answer

It converts receivables to immediate cash, improving liquidity

Answer

It eliminates the need for a credit department

Answer

It guarantees zero bad debt losses

Answer

It permanently transfers customer relationships to the factor

Question 4

A 'recourse' factoring arrangement means:

Accepted Answer

The seller must buy back uncollected invoices from the factor

Answer

The factor bears all credit risk on purchased invoices

Answer

The buyer is notified of the factoring arrangement

Answer

The factor charges no fees

Question 5

Which document serves as legal evidence of a buyer's obligation to pay in a trade credit transaction?

Accepted Answer

Promissory note or trade acceptance

Answer

Purchase order

Answer

Invoice

Answer

Shipping manifest

Question 6

The Uniform Commercial Code (UCC) Article 9 is relevant to trade credit because it governs:

Accepted Answer

Secured transactions and the perfection of security interests in personal property

Answer

International trade finance rules

Answer

Sales tax collection on B2B transactions

Answer

Credit reporting agency standards