XYZ Ltd. extends credit terms of 40 days to its customers. Its credit collection would be considered poor if its average collection period is.......

More than 40 days

The correct answer is Option (3) - more than 40 days.

The average collection period is the average number of days it takes for a company to collect payments from its customers after a sale has been made. In this case, XYZ Ltd. extends credit terms of 40 days to its customers.

If the average collection period is less than the credit term (40 days), it indicates that the company is collecting payments faster than the credit terms, which is generally considered good. On the other hand, if the average collection period is more than the credit term, it suggests that the company is taking longer to collect payments than the agreed credit terms, which may be a sign of poor credit collection. So, the correct answer would be "more than 40 days."

If the average collection period is 35 days, it is less than the credit term of 40 days, which would be considered good credit collection.