CCP Study Guide 2026

Compliance with a credit policy is vital because it ensures that all credit-related decisions are made consistently, objectively, and in adherence to established internal guidelines and external legal and regulatory requirements. This protects both the organization from legal repercussions and financial losses, and customers from discriminatory or unfair practices, fostering trust and operational integrity.

In non-recourse factoring the factor absorbs the credit risk of buyer non-payment due to insolvency, whereas recourse factoring leaves that risk with the seller.

Credit risk mitigation involves strategies and tools employed by lenders to reduce their exposure to potential losses from a borrower's default. Common methods include requiring collateral (assets pledged as security), obtaining guarantees from third parties, or purchasing credit insurance. These measures provide a safety net, making the lending transaction less risky for the creditor.

Reverse factoring uses the buyer's creditworthiness so the seller can access early payment at funding costs close to the buyer's borrowing rate, reducing both liquidity and credit risk for the seller.

Related party receivables may not be collectible on normal terms and often represent inter-company balances or owner transactions that won't generate real cash in a stress scenario.

The allowance method applies the matching principle by estimating and recording bad debt expense in the same period as the revenue, providing a more accurate picture of net realizable receivables.