CA Intermediate · Financial Management and Strategic Management · Management of Receivables
Which of the following is one of the 'five Cs' of credit used to assess the creditworthiness of a customer while framing a credit policy?
Capacity is one of the five Cs of credit. The five Cs are Character, Capacity, Capital, Collateral and Conditions, and capacity measures the customer's ability to repay dues from its operating cash flows, which is why it is examined while assessing creditworthiness.
- ACapacityCorrect
- BCollection
- CCommission
- DCurrency
Explanation
The five Cs of credit are Character, Capacity, Capital, Collateral and Conditions. Capacity refers to the customer's ability to repay out of its cash flows. Collection, commission and currency are not part of this framework.
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