A firm's collection policy, i.e., the procedures it follows to collect accounts receivable, plays an important role in keeping its average collection period short, although too strict a collection policy can reduce profits due to lost sales.

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A firm's collection policy does have an impact on its average collection period, but if the policy is too strict, it may discourage customers from making purchases and lead to lost sales, which can ultimately harm profits.

A Firm's Collection Policy, I