This period is the average length of time from a sale

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Unformatted text preview: l business and those customers who need a little prodding to stay current. The second component of the cash conversion cycle is the average collection period. This period is the average length of time from a sale on credit until the payment becomes usable funds for the firm. The average collection period has two parts. The first part is the time from the sale until the customer mails the payment. The second part is the time from when the payment is mailed until the firm has the collected funds in its bank account. The first part of the average collection period involves managing the credit available to the firm’s customers, and the second part involves collecting and processing payments. This section of the chapter discusses the firm’s accounts receivable credit management. The objective for managing accounts receivable is to collect accounts receivable as quickly as possible without losing sales from high-pressure collection techniques. Accomplishing this goal encompasses three topics: (1) credit selection and standar...
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