TOPIC 5: CREDIT MANAGEMENT

Question 1

is the process of overseeing a company’s credit policies, assessing how reliable customers are in paying their debts, extending credit, and collecting payments. The goal is to ensure that customers pay on time, which helps maintain a healthy cash flow and reduces the risk of bad debts.

Answer 1

Credit Management

Question 2

is the process of gathering and analyzing information about a potential borrower’s financial history and ability to repay debt.

Answer 2

Credit investigation

Question 3

is the evaluation process where the gathered information is analyzed to make an informed decision about granting credit.

Answer 3

Credit appraisal

Question 4

refers to the various activities and responsibilities involved in managing customer credit accounts within a business. This encompasses everything from assessing credit applications to monitoring customer accounts and ensuring timely payments.

Answer 4

credit work

Question 5

a set of guidelines and rules established by a business to govern the process of extending credit to customers. It outlines the criteria for granting credit, the terms and conditions of credit arrangements, and the procedures for managing credit accounts. The purpose of a credit policy is to minimize risk while maximizing sales and maintaining healthy cash flow.

Answer 5

credit policy

Question 6

Specifies the standards customers must meet to qualify for credit.

Answer 6

Credit Criteria

Question 7

Defines the maximum amount of credit that can be extended to each customer.

Answer 7

Credit Limits

Question 8

Outlines the repayment terms, interest rates, and payment schedules associated with the credit offered.

Answer 8

Terms and Conditions

Question 9

Describes the steps involved in evaluating and approving credit applications.

Answer 9

Approval Process

Question 10

Specifies how customer accounts will be monitored for payment behavior and creditworthiness over time.

Answer 10

Monitoring and Review

Question 11

Outlines the steps to be taken when customers fail to make timely payments, including reminders, follow-ups, and potential escalation to collection agencies.

Answer 11

Collections Procedures

Question 12

Identifies measures to mitigate potential credit risks, such as requiring collateral or personal guarantees for high-risk customers.

Answer 12

Risk Management Strategies

Question 13

Ensures that the credit policy adheres to relevant laws and regulations governing credit practices.

Answer 13

Legal Compliance

Question 14

a comprehensive record that contains all relevant information about a customer’s credit history and current credit status. It serves as a central repository for documenting the details of credit applications, agreements, payment histories, and any communication regarding the customer’s credit account.

Answer 14

credit file

Question 15

Basic details about the customer, such as name, address, contact information, and business registration details (if applicable)

Answer 15

Customer Information

Question 15

The initial application submitted by the customer requesting credit.

Answer 15

Credit Application

Question 15

A report generated by credit bureaus that details the customer’s credit history, including previous loans, payment behaviors, and credit scores.

Answer 15

Credit Report

Question 16

The approved credit limit for the customer and the specific terms of the credit arrangement.

Answer 16

Credit Limit and Terms

Question 17

A record of all payments made by the customer against their credit account.

Answer 17

Payment History

Question 18

Documentation of all interactions with the customer regarding their credit account, including reminders, follow-ups, and discussions about payment issues.

Answer 18

Communication Records

Question 19

Records of any collection efforts made for overdue payments, including notes on any agreements or payment plans established

Answer 19

Collections Information

Question 20

Any legal agreements, contracts, or court documents related to the credit account.

Answer 20

Legal Documents

Question 21

formal guidelines and procedures established by businesses to govern the extension of credit to customers. These policies outline how credit decisions are made, the terms of credit offered, and the measures taken to manage risk associated with credit sales.

Answer 21

Credit policies of commercial houses

Question 22

The steps involved in assessing and approving credit applications

Answer 22

Credit Approval Process

Question 23

The maximum amount of credit that can be extended to each customer.

Answer 23

Credit Limits

Question 24

The conditions under which credit is extended, including payment terms and interest rates.

Answer 24

Terms of Credit

Question 25

The factors considered when assessing the creditworthiness of potential customers.

Answer 25

Risk Assessment Criteria

Question 26

Guidelines for continuously monitoring customer accounts for changes in credit risk.

Answer 26

Monitoring and Review Procedures

Question 27

Processes for managing overdue accounts, including steps for reminders, follow-ups, and escalations to collection agencies.

Answer 27

Collections Procedures

Question 28

Guidelines to ensure that credit policies comply with relevant laws and regulations.

Answer 28

Legal and Compliance Considerations

Question 29

Policies for training employees involved in credit management and ensuring clear communication of credit terms to customers.

Answer 29

Training and Communication

Question 30

refers to the process by which a business extends credit to a customer, allowing them to purchase goods or services with a promise to pay later. This process involves assessing the customer’s creditworthiness, determining appropriate credit limits, and setting terms for repayment.

Answer 30

Granting credit

Question 31

refers to the systematic approach to overseeing a business's credit policies and practices to minimize risk while maximizing revenue. It involves evaluating, extending, and monitoring credit in a way that protects the business's financial health and fosters positive customer relationships.

Answer 31

Sound credit management

Question 32

refers to illegal activities in which individuals or organizations manipulate the credit system to obtain goods, services, or financial benefits through deceitful means. This can involve identity theft, misrepresentation of information, or falsification of documents to gain access to credit that the perpetrator would not be eligible for under legitimate circumstances.

Answer 32

Credit fraud

Question 33

Unauthorized use of someone else's personal information (such as Social Security number, credit card numbers, or bank account information) to open new credit accounts or make fraudulent purchases.

Answer 33

Identity Theft

Question 34

Submitting false information on a credit application to obtain credit that the applicant would not qualify for if honest information were provided. This can include inflated income, false employment status, or falsified documentation

Answer 34

Application Fraud

Question 35

Gaining access to an existing credit account by stealing the victim's login information or personal details. The fraudster can then make purchases or transfer balances without the account holder's knowledge

Answer 35

Account Takeover

Question 36

Unauthorized use of a credit card to make purchases, often involving stolen card details obtained through hacking, phishing, or physical theft.

Answer 36

Credit Card Fraud

Question 37

Falsifying information on loan applications (for personal loans, mortgages, etc.) to secure funds. This may include providing fake documentation or using another person's identity.

Answer 37

Loan Fraud

Question 38

Creating a new identity using a combination of real and fictitious information (e.g., using a real Social Security number combined with a fake name or birth date) to apply for credit.

Answer 38

Synthetic Identity Fraud

Question 39

Scams where companies promise to improve a person's credit score in exchange for a fee but do not deliver on their promises or engage in unethical practices that can worsen the consumer's credit standing.

Answer 39

Credit Repair Fraud