A company extends credit terms of 45 days to its customers. Its credit collection would be considered poor if its average collection period was...........
Answer & explanation
Correct answer: option 4
The average collection period measures the average number of days it takes for a company to collect payments from its customers. In this case, the company extends credit terms of 45 days to its customers. A poor credit collection performance would mean that, on average, the company takes longer than the credit term to collect payments from its customers. If the company's average collection period exceeds the credit term of 45 days, it would be considered to have poor credit collection. It will be poor if the period goes beyond 45 days.