Free CICM Credit Management (Trade Export and Consumer) (7AO) Practice Questions

Sample Practice Questions

Try these 10 sample questions from the CICM Credit Management (Trade Export and Consumer) (7AO) practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1Which objective best describes the credit management function across the customer relationship?

   1. A.Maximise invoiced sales without assessing repayment prospects.
   2. B.Secure repayment while supporting continuing customer business.Correct answer: B
   3. C.Transfer responsibility for sales contracts to the customer's bank.
   4. D.Replace customer account management with year-end reporting.

   Explanation: The source states "secure repayment of the credit provision on time". Credit management combines safe, profitable transactions and timely repayment with ongoing business. Sales alone, transferring contract responsibility and restricting work to year-end reporting each omit that objective.

   Reference: CICM: What is Credit Management and How do you do it well? — What is Credit Management?

2. 2Sales staff are rewarded for volume while credit staff are trying to reduce avoidable defaults. Which action most directly addresses the resulting departmental conflict?

   1. A.Let each team use separate customer records and objectives.
   2. B.Require credit staff to approve every sale regardless of exposure.
   3. C.Agree shared objectives through joint sales and credit discussions.Correct answer: C
   4. D.Remove payment performance from discussions with the sales team.

   Explanation: CICM states "a collaborative approach between the sales team and credit control". Joint understanding of sales and payment objectives supports mutually beneficial outcomes. Separate records and excluding payment issues preserve the conflict; unconditional approvals discard credit control rather than resolve competing objectives.

   Reference: CICM: 13 Best Practices in Credit Management — Be Aligned

3. 3A sole trader incurs an unpaid trade debt in the course of business. What is the ordinary liability position?

   1. A.Only a separately incorporated trading company is responsible.
   2. B.The sole trader is personally responsible for the business debt.Correct answer: B
   3. C.The debt is limited to the value of the trader's original stock.
   4. D.The trader's liability is capped at the business's annual turnover.

   Explanation: GOV.UK states the sole trader is "personally responsible for all of the debts". There is no separate incorporated company in this structure. Neither original stock value nor annual turnover imposes the proposed cap on the trader’s personal business-debt responsibility.

   Reference: GOV.UK: Set up a business — Compare the differences, Legal risks or liability

4. 4What is the sound objective of credit-risk control when a business wants to retain the benefits of selling on credit?

   1. A.Refuse every application that contains any uncertainty.
   2. B.Approve every sale that increases turnover.
   3. C.Balance acceptable risk with the commercial reward.Correct answer: C
   4. D.Treat bad-debt losses as unrelated to credit decisions.

   Explanation: The source states "an acceptable balance of risk and reward". Controls should preserve beneficial sales while limiting downside. Zero-uncertainty rejection sacrifices benefits; indiscriminate approvals and ignoring losses abandon the balance.

   Reference: CICM: 4 Steps to Effectively Mitigate Credit Risk — Concluding risk and reward discussion

5. 5What information is a customer master record principally intended to hold for the credit function?

   1. A.Standing customer details and credit-control settings.Correct answer: A
   2. B.Only individual invoice and cash-receipt transactions.
   3. C.Only unapproved one-off accounting journal entries.
   4. D.Only historic totals grouped into overdue-age bands.

   Explanation: The source states "master data for your customers". The master holds standing settings such as credit limits and payment terms. Transaction postings, journal queues and ageing summaries have different functions.

   Reference: Microsoft Learn: Manage credit and collections — Introduction, master-data configuration

6. 6A collections supervisor needs to identify accounts already overdue for immediate review. Which report is the most direct starting point?

   1. A.A report listing approved credit limits for each customer.
   2. B.An aged-debt report showing outstanding balances.Correct answer: B
   3. C.A cash-receipt forecast for expected future payments.
   4. D.A list of customer names without balances or due dates.

   Explanation: CICM says an aged-debt report can "identify which accounts are overdue". It shows outstanding debt by age for the requested immediate review. Approved limits, future receipt forecasts and names without balances or dates do not identify which actual outstanding accounts are already overdue.

   Reference: CICM: 13 Best Practices in Credit Management — Understanding Metrics

7. 7A wholesaler supplies goods to a retailer on agreed payment terms. Which customer relationship is this?

   1. A.Business to consumer credit.
   2. B.Consumer to consumer credit.
   3. C.Business to business credit.Correct answer: C
   4. D.Government to consumer credit.

   Explanation: The source states "B2B (business to business)". Both the supplier and the retailer act as businesses, so the credit is B2B trade credit. The other relationships require a consumer or government party absent here.

   Reference: CICM: Understanding Credit Risk — Credit Risk in B2C vs. B2B

8. 8In a large credit department, customers are passed between staff because nobody knows who owns each ledger. Which organisational change directly addresses this problem?

   1. A.Define and maintain account-handler roles and responsibilities.Correct answer: A
   2. B.Let staff handle whichever account arrives without assigning ownership.
   3. C.Rotate all account handlers without recording their ledger assignments.
   4. D.Use a shared contact list without showing responsibility for each ledger.

   Explanation: CICM recommends "identify roles and responsibilities". Named, maintained ledger responsibilities resolve the uncertainty about who owns each account. First-available handling, unrecorded rotations and an undifferentiated contact list leave that ownership unclear.

   Reference: CICM: How to make an effective Credit Policy — Account Handler contact details

9. 9Goods are sold to a limited company in its own name. No director has given a guarantee, and no separate basis for personal liability is present. Who is the contractual customer liable for the purchase price?

   1. A.The company itself.Correct answer: A
   2. B.Its largest shareholder automatically.
   3. C.Its purchasing director personally.
   4. D.Every employee involved in ordering.

   Explanation: The official source states "legally separate from the people who own it". The company is a separate legal person and the stated contracting customer. Ownership, directorship and participation in ordering do not by themselves make the listed individuals the debtor.

   Reference: GOV.UK: Set up a business — Limited companies

10. 10A supplier's receivables are heavily concentrated in one customer and one industry. Which change most directly reduces that concentration exposure?

    1. A.Spread future credit business across customers and sectors.Correct answer: A
    2. B.Raise the single customer's limit to match forecast sales.
    3. C.Replace monthly statements with weekly statements only.
    4. D.Treat multiple invoices to that customer as independent customers.

    Explanation: The source states "Diversify your customer base". Diversification spreads debtor and sector exposure. A higher limit increases concentration, statement frequency does not diversify and invoice count does not change debtor concentration.

    Reference: CICM: 4 Steps to Effectively Mitigate Credit Risk — Spread the Risk