What financial problems may occur if a company has:
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What financial problems may occur if a company has:
- a high average collection period
- has a history of paying its accounts payable late
- a cash-only sales policy and it doesn't offer or accept any credit
- a high percentage of bad debts,
- reputation for having a substantial backlog of orders
- and often takes twice as long as its competitors to deliver orders
- and high percentage of merchandise returned by customers because of product quality defects.
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What financial problems may occur if a company has:
- a high average collection period
- has a history of paying its accounts payable late
- a cash-only sales policy and it doesn't offer or accept any credit
- a high percentage of bad debts,
- reputation for having a substantial backlog of orders
- and often takes twice as long as its competitors to deliver orders
- and high percentage of merchandise returned by customers because of product quality defects.
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a company has a high average collection period
-- This is going to create a backup of cash because the cash isn't being collected in a timely manner. Their liquidity will remain high because they have the money tied up in A/R, but since they're not collecting the accounts effectively, they're going to have to look to other sources for needed cash until they can collect from their customers. They need to either increase their credit standards before extending credit to customers, or they need to increase their collection efforts.
has a history of paying its accounts payable late
-- This is going to decrease their credit rating if they're paying banks, financial institutions, or others that report to credit agencies. In addition, the suppliers and vendors they pay late will start extending them less credit because they are considered late payers, and the creditors know that the money will take a longer than average time to reach the supplier. The creditors ...
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