Credit and Collections Policy Overview

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Questions and Answers

Match the following with their descriptions:

Credit and collections policy = Clear, written guidelines for supplying goods on credit and managing collections Credit policy = Guidelines and processes for executing corporate credit strategy Credit risk analysis = Assesses the effectiveness of a company’s credit policy and balances various interests Loan characteristics = The specifics of how an organization advances credit and lends to others

Match the following with their goals:

Credit and collections policy = Optimizing resources, reducing credit risk, and improving overall cash flow Credit policy = Ensuring new business aligns with credit risk tolerance and effectively collecting debts Credit risk analysis = Balancing various interests to achieve corporate credit strategy goals Loan characteristics = Assessing the effectiveness of a company’s policy and balancing various interests

Match the following with their focus areas:

Credit and collections policy = Customer qualification criteria and delinquency procedures Credit policy = Processes for executing corporate credit strategy Credit risk analysis = Assessing the effectiveness of a company’s policy Loan characteristics = Advancing credit and lending to others

Match the following with their functions:

Credit and collections policy = Managing daily operations and conforming to documented steps and procedures Credit policy = Effectively collecting debts to limit credit losses and safeguard assets Credit risk analysis = Balancing various interests to achieve corporate credit strategy goals Loan characteristics = Ensuring that new business aligns with credit risk tolerance Signup and view all the answers

Match the following with their definitions:

Credit and collections policy = Document with clear guidelines for supplying goods on credit and managing collections Credit policy = Complete guidelines and processes for executing corporate credit strategy Credit risk analysis = Assessment of the effectiveness of a company’s policy and balancing various interests Loan characteristics = Specifics of how an organization advances credit and lends to others Signup and view all the answers

Match the type of credit policy with its description:

Loose credit = Represents a greater willingness to extend credit to grow the business Flexible credit = Represents a willingness to extend credit depending on circumstances Tight credit = Generally means less willingness to extend credit to support revenue growth No credit = This is an unwillingness to extend credit, as a company is highly risk-averse Signup and view all the answers

Match the components of a credit policy with their descriptions:

Credit application process = Part of the components of a sound credit policy that needs to be rigorously applied Types, limits, and terms of credit = Part of the components of a sound credit policy that needs to be rigorously applied Collection, monitoring, and control = Part of the components of a sound credit policy that needs to be rigorously applied Risk management = Part of the components of a sound credit policy that needs to be rigorously applied Signup and view all the answers

Match the examples with the type of credit policy they represent:

Granting credit to below-average credit profiles with worse risk ratings = Loose credit Granting credit to a broader range of average credit profiles with a process for exceptional approval = Flexible credit Only granting credit to above-average credit risks, such as better risk ratings = Tight credit Examples include “cash only” small-dollar consumable goods or businesses with slim margins = No credit Signup and view all the answers

Match the organization's specific needs with the type of policies mentioned in the text:

Small businesses selling to customers on credit = Credit sales policy Large financial institutions lending directly to corporations = Asset-based lending policy Firm-specific framework designed by management to standardize lending decisions = Credit policy Categorizing policies based on firm-level goals and business environment = Dynamic policy Signup and view all the answers

Match the ABA report on credit conditions with its purpose:

Measures the general type of credit policy for financial institutions = Index for measuring general type of credit policy Assesses individual company's specific needs and policies = Assessment tool for individual company's specific needs and policies Provides guidelines for formulating different types of credit policies = Guidelines for formulating different types of credit policies Analyzes the impact of macroeconomic factors on overall credit conditions = Analysis tool for macroeconomic factors and overall credit conditions Signup and view all the answers

Flexible credit represents a neutral strategy that does not aggressively grow or restrict access to credit for clients.

True Signup and view all the answers