CPP CPP Treasury & Cash Management in Payments 2 — Questions and Answers
Question 1: What is 'days sales outstanding' (DSO) and why is it relevant to payment professionals?
- The average number of days it takes to collect payment after a sale, reflecting collection efficiency (Correct answer)
- The number of days between card authorization and final settlement
- The average time for a chargeback to be resolved
- The number of days a merchant reserve is held before release
Correct answer: The average number of days it takes to collect payment after a sale, reflecting collection efficiency
DSO measures how quickly a company converts receivables into cash; payment professionals optimize DSO by accelerating collection through efficient payment acceptance and processing.
Question 2: What is a 'virtual account' in treasury and B2B payments?
- A unique account number assigned to a specific payer or purpose, allowing automated reconciliation without separate physical accounts (Correct answer)
- An online-only savings account with no physical branch
- A tokenized version of a merchant's bank account number
- A credit line extended to a corporate card program
Correct answer: A unique account number assigned to a specific payer or purpose, allowing automated reconciliation without separate physical accounts
Virtual accounts (or virtual IBANs) are unique account numbers mapped to a master account, enabling precise incoming payment identification and automated reconciliation without opening multiple bank accounts.
Question 3: What does 'prefunding' mean in the context of payment processing?
- A payment processor requires the merchant or sender to deposit funds before transactions can be processed (Correct answer)
- Funds are advanced to the merchant before card transactions are settled
- The issuer pre-approves a set credit limit before a card is issued
- The acquirer pre-funds the merchant's reserve account
Correct answer: A payment processor requires the merchant or sender to deposit funds before transactions can be processed
Prefunding requires the originating party to deposit funds upfront before transactions are sent, commonly used in cross-border payments and high-risk ACH to eliminate credit risk.
Question 4: In cash management, what is a 'zero-balance account' (ZBA)?
- A subsidiary account that is automatically swept to zero at end of day by transferring funds to/from a master account (Correct answer)
- An account that earns no interest regardless of balance
- A merchant account with no minimum balance requirement
- An account used exclusively for refund processing
Correct answer: A subsidiary account that is automatically swept to zero at end of day by transferring funds to/from a master account
A ZBA automatically sweeps its balance to zero each day, transferring excess funds up to a concentration account or drawing from it to cover disbursements, centralizing liquidity management.
Question 5: What is 'payment reconciliation' and why is it critical in payments treasury?
- The process of matching transaction records across systems (POS, processor, bank) to ensure accuracy and identify discrepancies (Correct answer)
- The process of reversing failed transactions
- The regulatory reporting of payment volumes to central banks
- The process of calculating interchange fees owed to networks
Correct answer: The process of matching transaction records across systems (POS, processor, bank) to ensure accuracy and identify discrepancies
Payment reconciliation compares transaction data from multiple sources — POS, payment processor, and bank statements — to confirm amounts match and flag errors, chargebacks, or missing settlements.
Question 6: What is 'FX settlement risk' in cross-border payments?
- The risk that exchange rate movements between trade execution and settlement cause unexpected gains or losses (Correct answer)
- The risk that a foreign counterparty defaults before settlement
- The risk of regulatory penalties for improper FX reporting
- The risk that correspondent banks misroute cross-border wires
Correct answer: The risk that exchange rate movements between trade execution and settlement cause unexpected gains or losses
FX settlement risk (also called Herstatt risk) arises when one leg of a currency exchange is settled while the other has not yet settled, exposing the party that paid first to potential loss.
CPP CPP Treasury & Cash Management in Payments 2
What is 'days sales outstanding' (DSO) and why is it relevant to payment professionals?