Credit Management Flashcards

1
Q

“Remember, that money is of prolific, generating nature. Money can beget money, and its offspring can beget more, and so on… The more there is of it, the more there is of it, the more it produces every turning, so that the profits rise quicker and quicker”

A

Benjamin Franklin

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2
Q

the discipline of reviewing, analyzing and setting the term of requests for credit for a business

A

Credit Management

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3
Q

series of interlinked processes and workflows that allow your accounts receivable team to manage business’s cash flow by following up on payments and collecting overdue invoices ASAP

A

Credit Management

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4
Q

involves pursuing the payment of debts that are past due, process of contacting the borrower who owes the debt and negotiating a payment plan or requesting immediate payment in full

A

Debt Collections

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5
Q

Main Components of Credit Management

A

Assessing an approving new clients, Setting Payment terms, Extending credit to existing customers, Tracking customer credit

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6
Q

Primary Objective of Credit Management

A

Avoidance of excessive debt

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7
Q

Key objectives of Credit Management

A

Safeguarding Customer Risk, Settlement of outstanding balances, Improving cash flow

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8
Q

Functions of the Credit Department

A

Gathering Credit Information, Analyzing Credit Information, Credit Checking and authorization, Filing and Recoding, Credit Adjustments, Collection Correspondence

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9
Q

In charge of applying the standard tests and measurements for performance

A

Credit Analyst

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10
Q

Risk of repayment, the possibility that an obligor will fail to perform as agreed

A

Credit Risk

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11
Q

also a source of liquidity when used as collateral for borrowings

A

Loans

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12
Q

present primarily in the loan disbursements and credit administration processes

A

Transaction Risk

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13
Q

Risk associated with lending

A

Credit
Liquidity
Transaction
Compliance
Reputation

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14
Q

Primary Advantage of Credit Management

A

Business Continuity

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15
Q

Ensure that delinquent accounts are reconciled and paid in a timely, cost-effective manner

A

Collection Department

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16
Q

Factors to Consider in Deciding the Collection Department Structure

A

Based on Operational Duties,
Based on Skills

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17
Q

Based on Operational Duties

A

Frontline Contact Centre,
Back office,
Control Team

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18
Q

deals directly with customers

A

Frontline Contact Centre

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19
Q

Accounting and Settlement Tasks

A

Back Office

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20
Q

Centralizes all processes at the firm

A

Control Team

21
Q

Based on Skills

A

Evaluation of the operation volumes,
Evaluation of the responsibilities on all credit and collection procedure

22
Q

RACI Matrix

A

Responsible
Accountable
Consulted
Informed

23
Q

Customer Care Department

A

Responsible

24
Q

Finance

A

Accountable

25
IT, Marketing Sales
Consulted
26
VP Sales, Marketing, Finance
Informed
27
Common staff of collection Department
Credit Analyst AR Manager AR Analyst/Collection Analyst/Collection Specialist Collector/Collection Officer Compliance Analyst/Collection Risk Management Specialist Collections Consultant/ Treasurer
28
Parameters that influence collection department structure
Volume of Invoices, Payments, Receivable Accounts Number of Active Customers Payment Methods
29
Measure of the average number of days that it takes a company to collect payment for a sale
Day Sales Outstanding
30
Importance of DSO
A key driver of cash flow, A key indicator of a company's financial health, Factors that lenders and investors consider when evaluating a company's creditworthiness, Used to assess customer satisfaction
31
(AR/Total Credit Sales) x Number of Days
DSO
32
Ideal DSO
45 days
33
DSO can be affected by:
Seasonal Fluctuations and Changes in credit terms
34
He should know and understand the goals, objectives, and policies of the company, of the other company, of the other departments in the organization, and of his own department.
Competence and Capability
35
A good credit man must have the ability to effectively convey his ideas.
Communication
36
putting your attention on advantageous solutions, attempting to forge relationships that benefit both parties, and bringing value to the company. He must take a proactive and constructive stance when managing credit and collections.
Constructiveness
37
He must keep pace with changing times and changing conditions.
Creativity
38
He must be devoted and dedicated to his job.
Conscientiousness
39
He must be consistent in making credit decisions.
Consistency
40
He must not only act with certainty and accuracy but also with swiftness and speed.
Certitude and Celerity
41
A credit man must have good skip tracing skills, maybe in the field or online, in order to gather and verify the information given by the customer.
Contact
42
He must also have character, honesty, integrity, and reliability.
Character
43
He must be trusted by the debtor to have reciprocity of confidence between the credit man and the customer.
Confidence
44
He must have basic knowledge of computers and the ins and outs of information technology.
Computer Literate
45
people equipped with pleasing personalities.
Congeniality
46
handling the concern of customers regarding the credit process makes them feel that they are respected.
Considerateness
47
He should have the fundamental capacity for perception, understanding, and judgment that is possessed by almost everyone.
Common Sense
48