Dakota State University
BUS 315 Credit and Collection
Spring 2002
Reading Assignment
Chapter 12: All Chapter 13: All except pp. 279-280 Chapter 14: All except p. 306 Chapter 15: Pp. 308-328
Objectives
Chapter 12: Business Use of Merchandise Credit
1. Distinguish between consumer credit and business credit in terms
of:
a) parties involved
b) where the cash to repay the loans/credit is expected to come
from
2. State the two general types of business credit.
3. State what "merchandise" usually refers to.
4. For merchandise credit state:
a) who uses it
b) what part of financial management it falls under
c) whether it is short-term or long-term credit
5. State five functions of merchandise credit.
6. Explain what is meant by the marketing chain.
7. State what a credit relationship between businesses fosters.
8. State whether the terms of sale should be in writing or not.
* 9. Explain what is meant by the following:
a) credit policy
b) credit period
c) credit discount
d) cash discount period
e) credit instruments
*10. State how the following factors may influence the terms of sale:
a) competition
b) tradition
c) standardization
d) effect on sales and profits
e) rate of stock turnover
f) location of customer and transportation facilities
g) regional differences
h) character of the goods
i) nature of the credit risk
j) class of customer
k) financial resources of the seller
l) economic conditions
11. State what condition may make sellers insist on prepayment for
merchandise.
12. Explain what the following prepayment terms mean:
a) CBD
b) COD
c) CWO
d) SD-BL
*13. Explain what the following terms mean:
a) cash terms
b) bill-to-bill
c) net terms
d) ordinary terms
e) single-payment terms (lumped-order terms)
f) season dating
g) ROG or AOG
h) sold on consignment
14. Explain what terminology like "2/10 net 30" means.
15. State whether it is advisable to take cash discounts or not and
why or why not.
16. State a general restriction about sales terms regarding
compliance with federal legislation.
17. Explain the difference between a cash discount and a trade
discount.
18. State what negotiable means in the phrase negotiable instrument.
19. State some of the requirements for an instrument to be
negotiable.
20. Explain what the following are:
a) promissory note in general
b) collateral note
c) real estate promissory note
*21. Describe each of the following types of drafts:
a) draft
b) sight draft
c) time draft
d) trade acceptance
e) certified check
f) cashier's check
Chapter 13: Financial Capital for Business Operations
22. Distinguish between merchandise credit and financial capital.
23. State some common sources (institutions) of financial capital.
24. State the relationship between rapid growth of a business and
its usual need for external sources of financing.
25. State some reasons for needing loans other than for the
acquisition of merchandise/inventory.
26. State whether debt or equity is considered the less expensive
source of financing and why.
27. Give the traditional definition of a commercial bank.
28. State some factors that influence the credit policy of commercial
banks.
29. Explain what is meant by the following commercial bank loans:
a) single-payment loan
b) business installment loan
c) line of credit
*30. Describe bank lines of credit in terms of convenience,
adjustments, obligation to borrow, compensating balances,
finance charges, cleaning up, etc.
31. Discuss the following:
a) secured loans
b) unsecured loans
c) personal guarantees of loans to corporations
d) restrictive covenants in loan agreements
32. Discuss bank interest rates including:
a) prime rate
b) actual rates charged
c) the relationship between size of business and interest rate
d) the relationship between size of the loan and interest rate
e) added-on interest
f) discount interest
33. Describe the Small Business Administration including:
a) purpose of the SBA
b) qualifications needed to qualify for an SBA loan program
c) the two basic loan programs
d) typical terms of loans
34. State the two types of financing of accounts receivable
*35. State for either type the advantage to the business of financing
its accounts receivable this way.
36. State some differences between the two types of financing.
37. Describe commercial finance companies, especially in contrast to
commercial banks.
*38. Describe loans as a source of financing of accounts receivable
including:
a) amount of loan relative to face value
b) meaning of "with recourse"
c) where payments are sent to
d) how the quality of the accounts receivable affects the loan
39. State some of the details found in contracts for loans on
accounts receivable.
40. State some factors that determine the interest rate on loans for
accounts receivable.
41. Explain why accounts receivable make better collateral than
inventory.
42. State what a specialized financial company called a factor does.
*43. For factors/factoring state:
a) an advantage for companies to use a factor in terms of
credit and collection functions
b) an advantage for companies who are in financial straits
c) whether the factoring is usually done with or without
recourse
d) several reasons to use factors
e) the typical advance
f) the typical range of fees
g) whether businesses have to factor all their accounts
receivable
h) whether long-term contracts are required or not
*44. Describe the typical procedure used in factoring in detail.
45. State some factors considered when factor fees are set.
46. Explain and describe what a lease is, including typical specifics
found in a lease contract.
47. Describe a capital lease (financing lease).
48. Describe an operating lease.
49. Describe a sale-leaseback arrangement.
*50. State the usual primary reason cited for using leasing instead of
purchase.
51. State a few other advantages of leasing over purchasing.
*52. State the big disadvantage of leasing over purchasing.
53. Describe commercial paper as a source of short-term financing.
54. State some typical sources of long-term funds.
55. Explain why companies usually rollover long-term debt rather than
pay it off.
Chapter 14: Responsibilities of the Business Credit Manager
56. State some responsibilities of a business credit manager.
57. State some qualifications of a business credit manager.
58. State several professional organizations or education and/or
certification programs associated with business credit
management.
*59. Describe what the following designations stand for, the
relative level of credit management expertise represented by
them, and what organization awards them:
a) CBA
b) CBF
c) CCE
60. State in which areas of a large company a credit department may
by located and why.
61. State and define the three usual forms of business organization.
*62. State some advantages and disadvantages of the three forms with
regard to:
a) ease of formation
b) specialization
c) access to capital
d) liability
e) continuity
f) potential for growth
63. Distinguish between internal and external business credit
information.
64. State some sources of external information.
65. State criteria to be used in selecting sources of business
credit information.
66. Elaborate on the criteria stated in 65.
67. State what direct investigation involves and what it does not
involve.
68. State factors determining how much direct investigation is
relied upon for business credit information.
69. State what is usually the first step in direct investigation in
getting business credit information.
*70. State some commonly asked for information on business credit
applications.
*71. Explain what is meant by the following as found on business
credit applications or requests to banks for credit
information:
a) DBA
b) LLC
c) SSN
d) Debtor
e) Creditor
f) EIN
g) D-U-N-S number
h) Continuing Guaranty
i) RMA
72. Explain what is meant by direct contact in getting business
credit information.
73. State some of the benefits of direct contact in getting business
credit information.
74. Explain what is meant by direct interchange in getting business
credit information.
Chapter 15: Business Credit Reporting Agencies
75. Explain what a business credit reporting agency is.
76. Give the names of several business credit reporting agencies.
77. For Dun & Bradstreet state:
a) when originally founded and in what form
* b) what D-U-N-S stands for and how it is used
c) some information about the database of businesses it
maintains
d) the three kinds of general "solutions" it offers to
businesses
e) the names of some of the common reports it provides
f) the name of the compiled book of credit ratings it
publishes
*78. Explain the D&B rating system including:
a) what the parts of the rating mean
b) how the Rating Classification is determined
c) how the Composite Credit Appraisal is determined
d) give or interpret examples of D&B ratings
79. State the major sections found in a D&B Business Information
Report.
*80. Explain what the PAYDEX number means, what its range is, and
examples of good and bad scores are.
*81. For a D&B Credit Scoring Report state:
a) a description of the credit score class system
b) a description of the credit score percentile system
c) a description of the commercial credit score system
[Unit Three Study Guide in Word format]
[BUS 315 Menu]
URL: http://www.courses.dsu.edu/finance/bus315/guides/b315unt3.htm
Last update: April 10, 2002