The increase in sales is an indication to the better performance of the company. But sales are not complete till the money is collected. Therefore the company should immediately calculate the following ratios – - Accounts receivable turnover ratio -Average collection period
Work Step by Step
Since the collection period has increased from 17 days to 38 days, it shows that more stocks have been pushed in the market, with easy credit terms. The ageing statements need to be made immediately and analysis should be made for uncollectable debts.