Question 1

To encourage credit customers to pay invoices promptly,a business owner should:

Accepted Answer

All options A, B, and C are important in encouraging credit customers to pay invoices promptly. Clear, accurate, and timely invoices reduce confusion and delay in payment. Providing a description of goods or services and an account number ensures that customers know what they owe and where to direct payment. Including a contact person and telephone number makes it easy for customers to get in touch with any questions or disputes, which can help to resolve payment issues quickly.

Question 2

The Fair Debt Collection Practices Act prohibits business owners from:

Accepted Answer

The Fair Debt Collection Practices Act prohibits business owners from harassing people who are past due on their debts. This includes calling them excessively, using abusive language, and making threats. The other options (sending invoices the same day product is shipped, hiring debt collection attorneys, and referring past due bills to collection agencies) are not prohibited under this act, but may be subject to other regulations or laws.

Question 3

Patel Industries recently filled an order from one of its customers,Oxmoor Gardens,a small garden supply store.Oxmoor's owner recently received an invoice from Patel for $1,278.64 with selling terms of "2/10,net 30." Therefore:

Accepted Answer

The selling terms "2/10, net 30" indicate that Oxmoor Gardens can take a 2 percent discount if the bill is paid within 10 days, otherwise the full amount of the invoice is due in 30 days.

Question 4

________ small businesses take the time to conduct a credit check.

Accepted Answer

According to studies, only a few small businesses take the time to conduct a credit check before lending money to their customers or allowing them to purchase on credit.

Question 5

Efficient cash managers:

Accepted Answer

Setting up a payment calendar allows for efficient cash management as it ensures that payments are made on time while also taking advantage of cash discounts for early payment. Disregarding trade discounts and using expressions like "the check is in the mail" are not effective strategies for cash management, while the avoidance of credit cards may not be necessary depending on the specific needs of the business.

Question 6

An effective approach to successful collections includes:

Accepted Answer

Timely and well-communicated payment expectations along with well-documented records are key to successful collection efforts. It is important to establish a clear payment process and communicate it to customers from the beginning. Invoicing promptly and following up on late payments with professional and respectful communication can also help to maintain positive customer relationships. An automated system may be helpful, but personal intervention may still be necessary in certain cases.

Question 7

An entrepreneur can potentially improve collections by:

Accepted Answer

All of the options listed can potentially improve collections. Contacting the customer to confirm receipt of the bill can ensure that there are no misunderstandings and can prompt payment. Negotiating payment plans can make it easier for customers to pay and can reduce the likelihood of default. Building a good relationship with the customer can result in prompt payment and may also lead to repeat business. Overall, using a combination of strategies can help an entrepreneur to improve collections and manage cash flow effectively.

Question 8

The cost to check a potential customer's credit at a reporting service typically ranges from:

Accepted Answer

The cost to check a potential customer's credit at a reporting service typically ranges from $15 to $85. Choice A is too low, while choices C and D are too high.

Question 9

Once a credit account becomes past due,a small business owner should:

Accepted Answer

The best choice would be to send a "second notice" letter requesting immediate payment. This is a professional and respectful way to remind the customer of their overdue payment while giving them a chance to resolve the issue before escalating it further. Option A is not recommended because it gives the impression that late payments are acceptable. Option B might be too aggressive and can damage the relationship with the customer. Option D is illegal and unprofessional.

Question 10

Experts estimate that ________ percent of industrial and wholesale sales are on credit,while ________ percent of retail sales are on credit.

Accepted Answer

The answer of Experts estimate that ________ percent of industrial...

Question 11

According to the American Collector's Association,only ________ of accounts more than 90 days delinquent will be paid voluntarily.

Accepted Answer

According to the American Collector's Association, only 5 percent of accounts more than 90 days delinquent will be paid voluntarily.

Question 12

By planning cash needs ahead of time,a small business is able to achieve all but which of the following?

Accepted Answer

By planning cash needs ahead of time, a small business can make the most efficient use of available cash, finance seasonal business needs, and provide funds for expansion. However, planning cash needs does not provide the opportunity to forgo quantity and cash discounts. In fact, by not taking advantage of these discounts, a small business may be spending more money than necessary and negatively impacting cash flow.

Question 13

Small businesses selling on credit find that:

Accepted Answer

Selling on credit can be expensive because it requires providing products or services without immediate payment, which can create cash flow problems. It also requires effort to manage and collect outstanding debts. Additionally, there is always a risk of non-payment, which can further impact a small business's finances.

Question 14

Once a small business has established a firm written credit policy and has clearly communicated it,the next step in building an effective credit policy is to:

Accepted Answer

The answer of Once a small business has established a...

Question 15

According to the American Collectors Association,if a business is writing off more than ________ of its sales as bad debts,it needs to tighten its credit and collection policies.

Accepted Answer

The American Collectors Association suggests that if a business is writing off more than 5 percent of its sales as bad debts, it needs to review and tighten its credit and collection policies. Anything above this percentage suggests that the business is extending credit to high-risk customers or not effectively collecting payments, which can negatively impact cash flow and profitability.

Question 16

The "big three" of cash management include:

Accepted Answer

The "big three" of cash management refer to the three most important components of managing cash flow in a business. These include managing accounts payable (money owed to suppliers and vendors), accounts receivable (money owed to the business by customers), and inventory (managing the level of inventory to ensure optimal cash flow). Option A and D are not correct as they include overhead, prices and expenses which are not part of the "big three" of cash management. Option B only includes accounts payable and accounts receivable, which are two important components, but not the complete "big three".

Question 17

One recent study showed that only about ________ of small businesses used formal techniques such as cash budgets to track their cash balances.

Accepted Answer

The answer of One recent study showed that only about...

Question 18

An important source of credit information that collects information on small businesses that other reporting services ignore is:

Accepted Answer

The answer of An important source of credit information that...

Question 19

A contract in which a business selling an asset on credit gets a security interest in that asset (the collateral),protecting its legal rights in case the buyer fails to pay is a:

Accepted Answer

A security agreement is a contract that creates a security interest in the collateral, allowing the seller to repossess or foreclose on the asset if the buyer fails to pay. It is a way for the seller to protect their legal rights and ensure they receive payment for the asset.

Question 20

A collection agency typically takes ________ percent of the amounts they collect on past due accounts.

Accepted Answer

Collection agencies typically charge between 25% to 50% of the amounts they collect on past due accounts as their fee.

Quiz 12: Managing Cash Flow