CCP Trade Credit Terms & DSO 3 — Questions and Answers
Question 1: A customer with net 30 terms has an invoice dated March 15. Adding a 3-day mail float, the expected payment receipt date is approximately:
- April 14
- April 17 (Correct answer)
- April 20
- March 30
Correct answer: April 17
Net 30 from March 15 = April 14 due date; adding 3-day mail float puts expected receipt at April 17.
Question 2: Which DSO benchmark method compares the current AR balance only against the most recent months of sales?
- Days Sales Outstanding ratio
- Best Possible DSO
- Countback (rollback) method (Correct answer)
- Average collection period
Correct answer: Countback (rollback) method
The countback (rollback) method matches the AR balance against the most recent months' sales, eliminating distortion from seasonal sales swings.
Question 3: Terms of 'net 60 MOM' mean the invoice is due:
- 60 days from invoice date
- 60 days from middle of the month
- 60 days from end of the month of invoice (Correct answer)
- 60 days from receipt of goods
Correct answer: 60 days from end of the month of invoice
MOM (middle of month) or EOM variants anchor the due date to month-end; net 60 MOM = 60 days after the last day of the invoice month.
Question 4: A company's Best Possible DSO is 22 days and its actual DSO is 38 days. The Delinquency DSO is:
- 60 days
- 22 days
- 38 days
- 16 days (Correct answer)
Correct answer: 16 days
Delinquency DSO = Actual DSO − Best Possible DSO = 38 − 22 = 16 days, representing avoidable collection delays.
Question 5: Which payment term is most common in international trade to minimize seller credit risk before shipment?
- Open account net 60
- Documents against acceptance (D/A)
- Cash in advance (CIA) (Correct answer)
- Documents against payment (D/P)
Correct answer: Cash in advance (CIA)
Cash in advance eliminates seller credit risk entirely because payment is received before goods are shipped.
Question 6: A credit manager notices DSO has risen 10 days while sales volume and credit terms are unchanged. The most likely cause is:
- An increase in product quality
- A deterioration in customer payment behavior (Correct answer)
- A decrease in accounts receivable
- A reduction in the discount offered
Correct answer: A deterioration in customer payment behavior
If sales and terms are constant but DSO rises, customers are paying more slowly, indicating deteriorating payment behavior.
Question 7: Under 'net 10th prox' terms, an invoice dated February 3 is due on:
- February 10
- February 13
- March 10 (Correct answer)
- March 3
Correct answer: March 10
Prox (proximo) terms mean payment is due on the specified day of the NEXT month; net 10th prox on a Feb invoice = March 10.
CCP Trade Credit Terms & DSO 3
A customer with net 30 terms has an invoice dated March 15.
Adding a 3-day mail float, the expected payment receipt date is approximately: