Question 1

Efficient cash managers:

Accepted Answer

Efficient cash managers set up a payment calendar for paying bills on time and taking advantage of cash discounts for early payment. This helps maintain a steady cash flow for the company and reduces costs. Disregarding trade discounts or using expressions like "the check is in the mail" are not sound financial practices, and avoiding credit cards altogether may not be feasible for some businesses.

Question 2

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 3

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 4

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

Accepted Answer

The answer of A collection agency typically takes ________ percent...

Question 5

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

Accepted Answer

According to a survey conducted by Nav in 2018, only 45% of small businesses reported checking their own credit score and only 29% reported reviewing a potential customer or partner's credit score. Therefore, few small businesses take the time to conduct a credit check.

Question 6

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 the customer, Oxmoor Gardens, can take a 2% discount on the invoice if they pay within 10 days. If they don't take the discount, they must pay the full amount within 30 days.

Question 7

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 8

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 payments. This includes calling them at unreasonable hours, using abusive language, and making false statements about their debt. The other choices (B, C, D) are not prohibited by the Act, but may be subject to other laws or regulations.

Question 9

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

According to the American Collectors Association, if a business is writing off more than 5 percent of its sales as bad debts, it needs to tighten its credit and collection policies.

Question 10

The cost to check a potential customer's credit at a reporting service starts at:

Accepted Answer

The answer of The cost to check a potential customer's...

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

The "big three" of cash management include:

Accepted Answer

The "big three" of cash management, also known as the "cash conversion cycle," include managing accounts receivable (money owed to the company from customers), accounts payable (money owed by the company to suppliers), and inventory (managing levels of stock). Option A is incorrect because overhead is not directly related to cash flow management. Option B is incorrect because taxes are not necessarily a part of day-to-day cash management, although they can affect it in the long run. Option D is incorrect because prices are not a factor in managing cash flow, although expenses are.

Question 13

The fact that the cash budget illustrates the flow of cash in a business helps the owner to:

Accepted Answer

The answer of The fact that the cash budget illustrates...

Question 14

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

Accepted Answer

It is important for small business owners to follow up with customers who have past due accounts. However, it is not necessary to turn the account over to a collection agency immediately or resort to harassing and threatening behavior. The first step should be to send a "second notice" letter requesting immediate payment. This serves as a reminder to the customer and gives them one last chance to pay before further action is taken.

Question 15

Small businesses selling on credit find that:

Accepted Answer

Small businesses selling on credit face several challenges such as the high cost of credit sales, the effort required to manage credit, and the risk of bad debt. It also requires a thorough understanding of the customer's creditworthiness, credit policies, and legal requirements.

Question 16

An effective approach to successful collections includes:

Accepted Answer

Timely communication of payment expectations and keeping good documentation helps to set clear expectations and avoid misunderstandings. This also helps in developing a good relationship with the customer, facilitating trust and understanding. Abrupt, in-your-face communication or automation without personal intervention can damage the relationship and make the situation worse. Waiting until a payment problem exists may also delay the collections process and potentially compromise cash flow.

Question 17

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

Accepted Answer

Planning cash needs ahead of time usually allows a small business to make the most efficient use of available cash, finance seasonal business needs, and provide funds for expansion. However, it does not necessarily provide the opportunity to forgo quantity and cash discounts as those discounts may be more beneficial in the long run.

Question 18

An entrepreneur can potentially improve collections by:

Accepted Answer

All of the choices listed can potentially improve collections. Contacting the customer to verify the bill ensures that they received it and that there are no errors or disputes causing the delay in payment. Negotiating payment allows the customer to make smaller payments over time or settle for a lower amount if they are unable to pay the full amount on time. Developing a rapport with the customer leads to trust and respect between both parties, which can lead to prompt payment and future business opportunities.

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 gives a business selling an asset on credit a security interest in that asset as collateral. This protects the seller's legal rights in the event that the buyer fails to pay.

Question 20

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

Accepted Answer

All of the choices are important for encouraging credit customers to pay invoices promptly. Clear, accurate, and timely invoices help customers understand what they owe and when it is due. Including a description of the goods or services purchased and an account number can help customers easily identify the invoice and ensure proper payment. Providing a telephone number and a contact person in case of questions or disputes can help resolve issues quickly and prevent delays in payment.

Quiz 12: Managing Cash Flow