Here are 15 multiple-choice questions (MCQs) on Credit Management:
1. What is credit management?
A) The process of giving out loans without evaluation
B) The strategy used by businesses to grant credit, set payment terms, and
collect payments
C) A government policy for regulating credit card usage
D) The practice of investing in stocks
Answer: B) The strategy used by businesses to grant credit, set payment
terms, and collect payments
2. Which of the following is a key component of credit risk management?
A) Ignoring customer credit history
B) Assessing a borrower’s ability to repay
C) Granting credit to all customers without evaluation
D) Avoiding all forms of credit
Answer: B) Assessing a borrower’s ability to repay
3. What does the “5 Cs of Credit” stand for?
A) Character, Capacity, Capital, Conditions, and Collateral
B) Cost, Credit, Calculation, Capital, and Condition
C) Cash, Collateral, Credit, Conditions, and Character
D) Credit, Capital, Currency, Collateral, and Calculation
Answer: A) Character, Capacity, Capital, Conditions, and Collateral
4. What is the purpose of a credit limit?
A) To determine the minimum amount a customer can borrow
B) To prevent customers from overspending beyond their ability to repay
C) To eliminate the need for credit checks
D) To ensure customers always pay in cash
Answer: B) To prevent customers from overspending beyond their ability to
repay
5. What is the primary role of a credit manager in a company?
A) To manage the sales team
B) To assess and control credit risk
C) To eliminate the need for customer credit
D) To issue stock market recommendations
Answer: B) To assess and control credit risk
6. Which document is used to formally approve and outline the terms of
credit for a customer?
A) Invoice
B) Credit agreement
C) Balance sheet
D) Annual report
Answer: B) Credit agreement
7. What is an example of unsecured credit?
A) Mortgage loan
B) Auto loan
C) Personal loan
D) Equipment financing
Answer: C) Personal loan
8. What is the main risk associated with extending credit?
A) Increase in cash flow
B) Potential for customer default
C) Growth in customer base
D) Higher interest income
Answer: B) Potential for customer default
9. What is a common method used to evaluate a customer’s
creditworthiness?
A) Social media analysis
B) Credit scoring models
C) Random selection
D) Lottery system
Answer: B) Credit scoring models
10. What does the term “bad debt” refer to?
A) A debt that has been fully repaid
B) A debt that is unlikely to be collected
C) A loan with low-interest rates
D) A temporary credit approval
Answer: B) A debt that is unlikely to be collected
11. What action should a credit manager take if a customer frequently delays
payments?
A) Increase their credit limit
B) Offer additional credit without evaluation
C) Review and adjust their credit terms
D) Ignore the delays
Answer: C) Review and adjust their credit terms
12. What is a benefit of maintaining good credit management practices?
A) Higher default rates
B) Improved cash flow and reduced risk of bad debts
C) Increased loan rejection rates
D) Lower sales and revenue
Answer: B) Improved cash flow and reduced risk of bad debts
13. Which of the following can negatively impact a company’s credit rating?
A) Timely payment of debts
B) High levels of outstanding debt with missed payments
C) Diversified sources of income
D) Increased customer satisfaction
Answer: B) High levels of outstanding debt with missed payments
14. What is the role of a credit bureau?
A) To provide loans to businesses and individuals
B) To track and report credit history and scores
C) To sell financial products to customers
D) To manage government debt
Answer: B) To track and report credit history and scores
15. Why is it important for businesses to conduct credit risk analysis?
A) To avoid making sales to customers
B) To identify customers who are likely to default on payments
C) To increase their expenses
D) To discourage customers from applying for credit
Answer: B) To identify customers who are likely to default on payments
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