Question

In response to market expectations, the credit period has been increased from 45 days to 60 days. This would result in a _____________.

• A. Decrease in sales
• B. Decrease in debtors
• C. Increase in bad debts
• D. Increase in average collection period

Answer 1

The correct option is D Increase in average collection period

Credit policy of an organization consists of various elements like cash discount, collection period etc. Collection period means the period of credit allowed to the customer by the organization against the credit sales.

If the credit period is increased from 45 days to 60 days, this will result more blockage of funds and will increase in average collection period.