Credit Management Practice May 2012

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A detailed book on managing credit practices

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  • 1

    SOUTH AFRICAN INSTITUTE OF MANAGEMENT

    Credit Management Practice

    Time: 13h00 16h00 Date: 28th May 2012

    Mark allocation: 100 marks Number of pages: 3

    Examiners instructions:

    1. Answer all questions in Section A and Section B and two (2) questions from Section C.

    2. Lay your work out clearly, using headings, sub-headings and paragraph numbers.

    3. The examination should be conducted in strict silence.

    4. This is a closed book exam. No books or notes may be consulted during the exam by a student,

    except a simple dual language translation dictionary e.g. English/Xhosa, English/Afrikaans etc..

    5. Ensure that your SAIM number and your ID number are both indicated on your examination book.

    No names should be recorded anywhere on the examination book.

    6. Failure to observe the rules and regulations set down by the SAIM will be considered cheating and

    you will be disqualified from this examination and any future SAIM examinations.

  • 2

    Credit Management Practice

    May 2012 Exam

    Section A: Answer ALL questions (25 marks)

    Question 1 (10 marks)

    a) List the factors that when considered could affect the implementation (5 marks)

    of a collections policy.

    b) List 5 items that must be covered in a collections policy (5 marks)

    Question 2 (15 marks)

    Credit insurance companies offer both domestic and export credit insurance. In the context of credit management, discuss abnormal loss cover; external trade cover; and post-shipment cover under the following headings:

    a) Purpose

    b) Risks covered

    c) Who will it benefit

    Section B

    Answer ALL questions (35 marks)

    Question 1 (10 marks)

    Use a timetable to explain how a credit collections process is managed.

    Question 2 (15 marks)

    What are the credit risks associated with the following types of legal entities:

    1) A sole proprietor,

    2) A partnership and

    3) A private company

    Question 3 (10 marks)

    Tabulate the pros and cons of a centralized credit department and a decentralized credit department.

  • 3

    Section C

    Answer Two (2) questions only (40 marks)

    Question 1 (20 marks)

    Financial statements are a useful source of information to an astute credit manager. The assessment of the financial

    statement should form part of the process of credit granting. Explain how the following ratios would be calculated and

    using examples explain how one would interpret them. (You need to explain in each case the meaning and effect of a

    bigger and smaller answer. Example a current ratio of 2:1 vs a current ratio of 1:2)

    a) Accounts payable (creditors)

    b) Stock turnover

    c) Current ratio

    d) Debt equity ratio

    e) Acid test

    Question 2 (20 marks)

    As a credit manager you have been asked to share with the members of the credit fraternity your step-by-step process

    of establishing a credit sales policy. In your sharing you are required to cover all factors from establishment to

    application through to review; cover the key factors only with a brief explanation of its objective/purpose.

    Question 3 (20 marks)

    List and discuss the factors that need to be considered by the credit manager in point scoring and provide an example

    of how it would work.