Collection Strategies & Risk Assessment Flashcards

A company's DSO is 52 days and its Best Possible DSO is 38 days. What is its Average Days Delinquent (ADD)?

Answer: 14 days

ADD equals DSO minus Best Possible DSO, so 52 − 38 = 14 days.

Which metric measures the percentage of collectible receivables actually collected during a period?

Answer: Collection Effectiveness Index (CEI)

CEI compares amounts collected to amounts available for collection, with 100% being perfect.

A collector segments accounts by propensity-to-pay score. Which segment should generally receive the lightest-touch treatment, such as automated reminders?

Answer: High score, recently past due

High-propensity, early-stage accounts usually self-cure, so low-cost automated contact is most efficient.

Under the 'five Cs of credit,' which C refers to the borrower's ability to repay from cash flow?

Answer: Capacity

Capacity evaluates whether the borrower's income or cash flow can support repayment.

A roll rate analysis shows 40% of 30-day delinquent accounts move to 60 days. What does this primarily help a collection manager do?

Answer: Forecast future delinquency and charge-offs

Roll rates track migration between delinquency buckets to predict losses and allocate resources.

Which situation most strongly justifies placing a commercial customer on credit hold?

Answer: The customer has multiple invoices beyond terms and missed a promised payment

Sustained past-due balances plus a broken promise signal elevated risk warranting a hold.

In a champion/challenger collection strategy, what is the purpose of the challenger?

Answer: To test an alternative treatment against the current strategy on a sample

The challenger strategy is tested on a subset so its results can be compared with the incumbent champion.