QuestionQuestion

Business firm sells on term 3/10, net 30.
Gross sales are 1,200,000
Collection dept.estimates that 30% of customers will pay on the 10th day and takes discounts
40% will pay on the 30th day.
Remaining 30% will pay on average 40 days after purchase (assume 360 day per year)

a. what is the firms average collection period?
b. what is the firms current receivable balance?
c. what would be the firms new receivable balance if the firm toughened up the collection policy if all discounted customers paid on the 30th day
d. suppose the firms cost of carrying receivable was 8% annually. how much would the toughened credit policy save the firm in annual receivable carrying expense (assume that the entire amount of receivable had to be financed)

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