Financial Management for Project Managers Accounts Payable/Receivable 5

Question 1

A project's largest customer consistently pays 45 days late. What is the best long-term solution?

Accepted Answer

Renegotiate contract payment terms or add late payment penalties

Answer

Renegotiating terms or adding contractual late fees creates a financial incentive for the customer to pay on time.

Question 2

In project financial management, what is a retainage clause in accounts receivable?

Accepted Answer

A percentage of each payment withheld until project completion as a performance guarantee

Answer

Retainage is a portion (typically 5-10%) of each progress payment held back by the client until the project is satisfactorily completed.

Question 3

Which approach best helps a project manager reduce the risk of bad debts in accounts receivable?

Accepted Answer

Conducting credit checks before extending credit to new clients

Answer

Credit checks assess a client's ability to pay before credit is extended, reducing the likelihood of future bad debts.

Question 4

A project manager discovers that the same vendor invoice was paid twice. Which internal control failure most likely allowed this?

Accepted Answer

Lack of a three-way match process

Answer

A three-way match between the PO, receiving report, and invoice would have flagged the duplicate before the second payment was processed.

Question 5

When a project uses milestone-based billing, how does this affect accounts receivable timing?

Accepted Answer

Invoices are issued only when defined project milestones are achieved

Answer

Milestone billing ties invoice generation to the completion of specific deliverables, meaning AR is created only at those defined points.

Financial Management for Project Managers Practice Test