Question

since hiring a new sales director, tilton inc. has enjoyed a 50% increase in sales. the CEO has also noticed, however, that the company's average collection period has increased from 17 days to 38 days. What might be the cause of this increase? What are the implications to management of this increase?

Answer 1

since hiring a new sales director, tilton inc. has enjoyed a 50% increase in sales. the CEO has also noticed, however, that the company's average collection period has increased from 17 days to 38 days.

The increase in sale may have come from a much more relaxed credit reference. In the past they were paying promptly but not they are paying in twice the amount of time.

Reason for increase in collection period are-

1)poor credit decision

2)high profit levels

3)low liquidity levels

4)slow collection of account receivable.

As the CEO he needs to decide what is more beneficial for the company, making more sales or being paid promptly.