ACCA FM · Chapter 4 · Question 12 of 12
Which of the following is the LEAST appropriate way for a company to manage the risk of a new credit customer failing to pay?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Offering the customer a longer credit period than normal to encourage a first order
Explanation
Credit risk is managed by assessing creditworthiness before granting credit (bank and trade references, credit agency reports and financial statements) and by controlling exposure through credit limits. Offering a new customer longer credit increases exposure to a customer whose reliability has not yet been established, so it increases rather than manages risk.
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