CCP Credit Policy & Procedures 3

Question 1

A credit policy specifies net-30 payment terms as standard. A new customer requests net-60. Under what condition would granting net-60 BEST align with sound credit practice?

Accepted Answer

The customer's industry standard is net-60 and their financials support extended terms

Answer

Extended terms should be granted only when the customer's financial strength and industry norms justify the longer exposure period.

Question 2

Which document is MOST commonly used to communicate credit policy requirements to new customers during onboarding?

Accepted Answer

A credit application

Answer

A credit application collects the financial and reference information needed to evaluate new customers under the terms of the credit policy.

Question 3

A company's credit policy requires personal guarantees for all closely held companies with less than three years of operating history. A two-year-old LLC applies for credit. What applies?

Accepted Answer

A personal guarantee from the principal owner is required per policy

Answer

Policy explicitly covers closely held companies under three years old; LLC structure does not exempt the applicant from the guarantee requirement.

Question 4

What metric is MOST directly used to evaluate whether a credit policy is achieving its receivables management objectives?

Accepted Answer

Days Sales Outstanding (DSO)

Answer

DSO measures the average number of days to collect payment and directly reflects the effectiveness of credit terms and collection procedures.

Question 5

A credit policy includes a clause requiring annual financial statement submission from all accounts over $500,000. A key customer refuses to provide statements, claiming confidentiality. What is the appropriate response?

Accepted Answer

Explain the policy requirement and, if refused, reduce credit exposure or place on COD

Answer

Policy requirements for financial disclosure are a condition of credit extension; noncompliance justifies reducing exposure or requiring cash-in-advance terms.

(CCP) Certified Credit Professional Practice Test

(CCP) Certified Credit Professional Practice Test

CCP Credit Policy & Procedures 3