CMA Intermediate · Financial Management and Business Data Analytics · Receivable Management
Which of the following is the set of 'Five Cs' commonly used to evaluate the creditworthiness of a customer applying for trade credit?
The Five Cs of credit are Character, Capacity, Capital, Collateral and Conditions. They assess a customer's willingness to pay, ability to generate cash, financial strength, security offered and the wider economic environment before trade credit is granted.
- ACharacter, Capacity, Capital, Collateral, ConditionsCorrect
- BCash, Cost, Credit, Control, Collection
- CCapital, Currency, Contract, Control, Compliance
- DCharacter, Cost, Capacity, Cash, Commission
Explanation
The traditional credit evaluation framework uses Character (willingness to pay), Capacity (ability to pay from cash flows), Capital (net worth), Collateral (security offered) and Conditions (economic environment). The other sets mix in terms that are not part of this framework.
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