Collection Strategies & Risk Assessment Flashcards

A contingency-fee agency collects $10,000 on a placed account at a 25% fee. What is the creditor's net-back?

Answer: $7,500

Net-back is collections minus fees: $10,000 − $2,500 = $7,500.

Federal bank regulators' uniform policy generally requires open-end (revolving) retail credit to be charged off when it reaches what delinquency?

Answer: 180 days

The FFIEC Uniform Retail Credit Classification policy calls for charge-off of open-end credit at 180 days past due.

Which approach best describes a risk-based collection strategy?

Answer: Prioritizing effort by balance, likelihood of payment, and risk of loss

Risk-based strategies allocate resources where expected recovery and loss exposure are greatest.

The Altman Z-score is primarily used to assess which risk?

Answer: Probability of corporate bankruptcy

The Z-score combines financial ratios to estimate a company's likelihood of bankruptcy.

A debtor offers a lump-sum settlement of 60% of the balance on a seriously delinquent account. Which factor most supports accepting it?

Answer: Litigation costs and low collectability make full recovery unlikely

Settlements make sense when the expected value of further collection or litigation is below the offer.

Which instrument transfers the risk of a foreign buyer's nonpayment to the buyer's bank?

Answer: Irrevocable letter of credit

An irrevocable letter of credit obligates the issuing bank to pay when documentary conditions are met.

Promise-to-pay (PTP) kept rate is best used to evaluate what?

Answer: The quality of commitments collectors obtain from debtors

PTP kept rate shows how often negotiated payment promises are actually honored.