Question

a companys number of days to collect is higher than the length of credit period. Analyst might conclude

A. Customers dissatisfied with the product or service

b. company effictively managing its recievables.

C. company has begun estimating amount of uncollectibles using percentage of sales rather than aging the recievables

Answer 1

Understanding the Average Collection Period

The average collection period represents the average number of days between the date a credit sale is made and the date the purchaser pays for that sale. A company's average collection period is indicative of the effectiveness of its accounts receivable management practices. Businesses must be able to manage their average collection period in order to ensure they operate smoothly.

A lower average collection period is generally more favorable than a higher average collection period. A low average collection period indicates the organization collects payments faster. There is a downside to this, though, as it may indicate its credit terms are too strict. Customers may seek suppliers or service providers with more lenient payment terms.

Conclusion : In this question, company's no of days to collect receivables is higher than the lenght of credit period.In each and every scenario customer pays only after expiry of credit period. So company has begun estimating amount of uncollectibles using percentage of sales rather than aging the recievables