a. What is its net credit position?
b. If the firm extends its average payment period from 20 days to 35 days (and all else remains the same), what is the firm's new net credit position? Has it improved its cash flow?
a. What is its net credit position? That is, compute its accounts receivable and accounts payable and subtract the latter from the former.
Accounts receivable = Average daily credit sales X Average collection ...
Illustrates how to calculate the net credit position of a firm by calculating the accounts payables and accounts receivables. The problem also shows how the changes in credit period (average collection period) changes the net credit position and its impact on cash flow position.