Future Business Leaders of America (FBLA) Entrepreneurship Practice Test

Which one of the following is not a factor in managing Accounts Receivable?

1. Setting credit limits for customers

2. Conducting thorough customer credit checks

3. Paying creditors for purchases timely

4. Collections procedures for overdue accounts

The correct answer is: Paying creditors for purchases timely

Managing Accounts Receivable focuses on the strategies and practices an organization employs to ensure that it collects payments owed to it by customers on credit sales. The correct response reflects a practice related to managing liabilities rather than receivables. Setting credit limits for customers is essential as it helps control risk by establishing maximum amounts that can be sold on credit. Conducting thorough customer credit checks allows businesses to assess the likelihood of timely payments, thus minimizing defaults. Establishing collections procedures for overdue accounts is crucial for recovering outstanding debts and maintaining cash flow, making all these actions central to effective accounts receivable management. In contrast, paying creditors for purchases timely pertains to managing Accounts Payable, which involves obligations the business has to its suppliers and lenders. Understanding the distinction between Accounts Receivable and Accounts Payable is fundamental for effective financial management, as they encompass different aspects of a business's financial obligations and cash flow dynamics.