a.

Mr. Gerrard is referring to the time value of money concept.  By allowing several accounts receivable balances to become long overdue, the company has, in effect, made interest-free loans to its customers for indefinite periods of time.  If these same accounts had been collected promptly, the company’s cash flow would have improved and the additional inflows of cash could have been used to pay down debt or to make investments in income-producing assets.