CCM Strategic Planning & Analysis 3

Question 1

Which of the following best describes a 'credit policy' in the context of strategic planning?

Accepted Answer

A formal set of guidelines governing how credit is granted, monitored, and collected

Answer

A credit policy is a formal document that defines criteria for extending credit, credit limits, payment terms, and collection procedures, aligning credit operations with corporate strategy.

Question 2

A company experiencing rapid growth in credit sales but flat gross margin should strategically focus on:

Accepted Answer

Analyzing whether incremental credit sales are generating adequate net contribution after bad debt costs

Answer

Rapid credit sales growth with flat margins requires ensuring that bad debt and financing costs don't erode net profitability on incremental sales.

Question 3

What is the primary purpose of establishing a credit risk appetite statement in strategic planning?

Accepted Answer

To define the maximum level of credit risk the organization is willing to accept in pursuit of its objectives

Answer

A risk appetite statement formally communicates how much credit risk senior leadership accepts, guiding credit policy and limit-setting decisions across the organization.

Question 4

When benchmarking DSO against industry peers, a credit manager discovers the company's DSO is 15 days higher than the industry median. The most appropriate strategic response is to:

Accepted Answer

Investigate root causes and develop an action plan to improve collections and/or tighten credit terms

Answer

A DSO significantly above industry median warrants investigation into billing accuracy, collection effectiveness, and credit terms to identify and address the underlying drivers.

Question 5

In credit strategy, 'concentration risk' refers to:

Accepted Answer

Excessive credit exposure to a single customer, industry, or geographic region

Answer

Concentration risk arises when a large portion of the receivables portfolio is exposed to a single entity or correlated group, amplifying losses if that group defaults.

(CCM) Certified Credit Manager Practice Test

(CCM) Certified Credit Manager Practice Test

CCM Strategic Planning & Analysis 3