If a company has an average collection period of 45 days and last year it was 35 days, how would the company's accounts receivable manager see the performance of his department?
A) The trade receivables department is doing a worse job because the average collection period is increasing.
B) The trade receivables department is doing a better job because the collection period is increasing.
C) The trade receivables department is doing a better job because the collection period is decreasing.
D) The trade receivables department is doing a better job because, if normal sales terms are net 15 days, an average collection period of 45 days is acceptable.

Question

Quizplus · Accepted Answer

An increase in the average collection period from 35 to 45 days indicates that it is taking longer for the company to collect its receivables. This is generally seen as a negative performance indicator, suggesting inefficiencies or issues within the trade receivables department.

If a Company Has an Average Collection Period of 45