Average Collection Period shows the number of day’s worth of sales. This period is compared to the firm’s credit terms to judge the efficiency of credit management of the company. Some company’s are rather conservative in credit granting so they might loose on to some desirable sales.
Tesco’s average collection period for 2005 was 11days, 2006 was 7 days, 2007 was 8days, 2008 was 8days again and in 2009 it has increased to 12 days. This collection period is good enough when compared to the credit period and shows good credit management of the company. This also shows that Tesco had rather reduced the period to around 8 days due to the average financial position of the company during 2007 and 2008 but in 2009 it has managed to increase to 12 days which shows the company is now stronger financially and can grant more days for collection plus avoid to loose on to desirable sales as a result.
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