An increase in a firm's average collection period generally indicates that:
A)the cash flows of the firm have increased
B)the majority of a firm's receivables are delinquent
C)an increased number of customers are taking advantage of the cash discount offered
D)at least some customers are taking longer to pay
E)customers are paying more promptly

Question

Quizplus · Accepted Answer

An increase in a firm's average collection period indicates that at least some customers are taking longer to pay than they previously have. This could be due to a variety of reasons, such as financial difficulties, disputes over the quality of goods or services provided, or simply a lack of discipline on the part of customers. Whatever the reason may be, an increase in the average collection period suggests that the firm is facing increased risk of default or bad debts, as well as reduced cash flow and profitability.

An Increase in a Firm's Average Collection Period Generally Indicates