This week's Tip is a bit different than what we have tried before. How you use it is up to you.

We have been covering various aspects of career development recently, such as alternative ways to train you as a Credit Manager and your staff. Answering the following questions could be another way to add to staff training and have some fun doing it.

These are questions that anyone in a credit department should be able to answer. Often, we may assume that these important components of our job are thoroughly understood by everyone. Frankly, that is unlikely.

You will find a comprehensive list to choose from below. Pick them all or choose the ones you think will be most beneficial to you and your team.

Here are suggestions on how you can use this as a training opportunity:

• Make a game of it at a team meeting. Offer a prize for the individual who can answer the greatest number of questions you select, thoroughly and accurately, with no advance preparation. You can complete or provide answers when needed.
• Divide the questions among your staff. Have them do the research necessary to come up with the answers to those assigned to them. After giving them adequate time, have a team meeting where each person will provide their answers to the team. This should lead to valuable learning and discussions.
• It may be interesting to invite Salespeople, or even your boss to weigh in on what they know. You both may be surprised. It could be a good learning experience for them as well. It could break down misunderstandings between Credit and Sales.

Answer the Following Questions:

Credit Approval and Financial Statement Analysis:

1. What are the “Five “C's” of Credit,” what does each reveal about a customer's creditworthiness?
2. How is working capital calculated?
3. What defines a company as insolvent?
4. What are the major components of a Balance Sheet?
5. How do you calculate the “Quick Ratio”?
6. What is the purpose of a Profit and Loss Statement?
7. What is a “Hurdle Rate,” and how does your company calculate it?
8. What are the components of and how do you calculate the “Cash Conversion Cycle”?
9. Name Porter's 5 Forces and explain how they relate to a customer's creditworthiness?

Understanding Your Company:

1. What is the targeted profit margin on sales?
2. What is the interest rate your company pays on borrowing?
3. What does the acronym LIBOR stand for?
4. What is the revenue forecast for the coming year?
5. What is the cash forecast for the coming year”?
6. What is the DSO target for the coming year”?
7. What are two ways to calculate DSO? Which does your company use? At is the reduction of one day of DSO translated into “Cashflow”?

Forms of AR Securitization/Risk Mitigation:

1. What is a Banker's Acceptance?
2. What is a Performance Bond?
3. What are the major components of a Promissory Note?
4. What are the advantages and disadvantages of a “Personal Guarantee”?
5. In basic terms, what is Factoring?
6. What is a “Contra Account”
7. What is a “Garnishment”?
8. What is a “Keeper”?
9. What is the purpose of a “Mechanic's Lien” and when is it used by a creditor?

Collections:

1. How do you differentiate between an objection and a danger sign when collecting from a customer?
2. What are the advantages of a “Win-Win Negotiation”?
3. What does the acronym CEI stand for?
4. What does the acronym BPDSO stand for?
5. After an unsuccessful attempt to collect a balance, how many days past the invoice date is the optimal time to refer an account to third-party collections?

Bankruptcy:

1. What is a “Preference Claim” in a Bankruptcy proceeding?
2. What is a “Proof of Claim”?
3. What is a “Reclamation”?
4. What is the difference between a Chapter 11 a Chapter 7, and a Chapter 13?

Legal Regulations and Considerations:

1. What is Escheatment?
2. What are the major objectives of the Fair Debt Collection Practices Act?
3. What is the Uniform Commercial Code?
4. What are the major requirements of the “Equal Credit Opportunity Act”?
5. What are the advantages of an “Out of Court Settlement”?
6. Explain the difference between “Arbitration” compared to “Mediation”?
7. What are the major components of the “Fair Credit Reporting Act”?