Credit & Account Management Flashcards

Among the Five C's of credit, which one refers to an applicant's track record and willingness to repay debts?

Answer: Character

Character reflects the borrower's reputation and payment history, indicating willingness to repay.

An invoice carries terms of "2/10 net 30." What does this mean?

Answer: A 2% discount applies if paid within 10 days; otherwise the full amount is due in 30 days

The first number is the discount percentage, the second the discount window, and net 30 is the full-payment deadline.

Which formula correctly calculates Days Sales Outstanding (DSO)?

Answer: (Accounts receivable / Total credit sales) x Days in period

DSO divides ending receivables by credit sales for the period and multiplies by the number of days.

The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against applicants on the basis of which factor?

Answer: Marital status

ECOA bars discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.

Under ECOA and Regulation B, a creditor generally must notify an applicant of adverse action on a completed application within how many days?

Answer: 30 days

Regulation B requires notice of action taken within 30 days after receiving a completed application.

What is the primary purpose of an accounts receivable aging report?

Answer: To classify outstanding receivables by how long they have been unpaid

An aging report groups balances into buckets such as current, 31-60, and 61-90 days to highlight collection risk.

A customer's order volume is rising, but they now pay 45 days beyond terms. What is the most prudent account management response?

Answer: Review the account and consider reducing the limit or requiring security

Rising exposure combined with slowing payments signals higher risk and calls for a limit review or added security.