Generally, the higher the small firm's average collection period ratio, the greater the chance of bad debt losses.

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The average collection period ratio measures the number of days it takes a small firm to collect its accounts receivable. A higher ratio indicates that the firm is taking longer to collect payments from its customers, which increases the risk of bad debt losses. Customers may have financial difficulties or be unwilling to pay, which can result in unpaid invoices and lost revenue for the small firm. Therefore, a higher average collection period ratio is a warning sign for potential bad debt losses.

Generally, the Higher the Small Firm's Average Collection Period Ratio