If you were given the average collection period of a firm was currently 45 days, that the average collection of the firm for the past 3 years was 30 days and that the average collection period of the firm's industry for the past few years and currently was 30 days, would you want to know any other information to evaluate the effectiveness of the firm's credit and collection policies?
A) No, the firm obviously has a problem with its credit and collection policies.
B) Yes, you would also want to know what the firm's credit terms are and especially if they had recently changed from 30 to 45 days.
C) No, the firm does not seem to have any issues with its credit and collection policies.
D) Yes, you would want to know what the average collection period was for the past few years and currently of the market in general.

Question

Quizplus · Accepted Answer

Knowing the firm's credit terms and if they recently changed from 30 to 45 days can provide insight into why the average collection period has increased. Other factors such as economic conditions, customer base, and payment methods should also be considered when evaluating the effectiveness of credit and collection policies. Comparing the firm's collection period to the industry's general trend can also provide useful information.

If You Were Given the Average Collection Period of a Firm