Pearson Edexcel IGCSE · Commerce

Bad debts: Practice Questions

4 multiple-choice questions marked as you go, and 5 written questions with worked solutions. All on Bad debts.

9 questions26 marksFree, no account

Question 1

1 mark

What is the primary purpose of a wholesaler checking the creditworthiness of a new retailer before offering trade credit?

Question 2

1 mark

Which of the following is the most effective method for a wholesaler to reduce the risk of bad debts when offering trade credit to a new retail customer?

Question 3

1 mark

A retailer has experienced a significant increase in bad debts over the last financial year. Which strategy is best suited to minimize the recurrence of this problem in the future?

Question 4

1 mark

Which of the following is the most likely impact on a small business when a major customer is unable to pay their outstanding debts?

Question 5

2 marks

Define the term bad debts in the context of a commercial business.

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Question 6

3 marks

Explain one way in which a high level of bad debts can negatively impact a business's ability to trade effectively.

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Question 7

5 marks

Discuss how a high level of bad debts can lead to a liquidity crisis for a small commercial enterprise.

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Question 8

6 marks

A wholesaler provides trade credit to its retail customers to encourage bulk buying. However, the wholesaler has recently noticed an increase in the number of bad debts written off.

(a) Define the term bad debt. [2]
(b) Explain two ways a wholesaler can reduce the risk of bad debts when dealing with new retail customers. [4]

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Question 9

6 marks

A wholesaler allows its retail customers to buy goods on credit. Recently, several retailers have gone out of business, leading to a rise in bad debts.

(a) Explain two ways in which bad debts can negatively impact the wholesaler.
(b) Evaluate the use of credit insurance and factoring as two distinct methods the wholesaler could use to manage the risk of bad debts.

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