CCM CCM Trade Credit & Accounts Receivable

Question 1

Trade credit is BEST defined as:

Accepted Answer

Credit extended by one business to another for the purchase of goods or services

Answer

Trade credit is the deferred payment arrangement between a seller and a buyer in a business-to-business transaction.

Question 2

Which of the following BEST describes 'open account' terms in trade credit?

Accepted Answer

Goods are shipped and invoiced with payment expected within an agreed period

Answer

Open account terms ship goods on invoice with payment expected by a due date, relying on trust and the buyer's creditworthiness.

Question 3

What is the primary advantage of factoring accounts receivable for a seller?

Accepted Answer

It converts receivables to immediate cash, improving liquidity

Answer

Factoring accelerates cash flow by selling receivables at a discount, providing immediate working capital.

Question 4

A 'recourse' factoring arrangement means:

Accepted Answer

The seller must buy back uncollected invoices from the factor

Answer

In recourse factoring, the seller retains the credit risk and must repurchase invoices the factor cannot collect.

Question 5

Which document serves as legal evidence of a buyer's obligation to pay in a trade credit transaction?

Accepted Answer

Promissory note or trade acceptance

Answer

A promissory note or trade acceptance is a legally enforceable instrument acknowledging the buyer's obligation to pay a specific sum.

(CCM) Certified Credit Manager Practice Test