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      Question

      Which of the following is likely to increase the trade

      receivables collection period? 
      A An increasing volume of credit sales during an accounting period Correct Answer Incorrect Answer
      B Loose credit control procedures by a business Correct Answer Incorrect Answer
      C Offering credit customers, a significant discount for settlement within seven days of receipt of invoice Correct Answer Incorrect Answer
      D Higher trade payables period negotiated by company Correct Answer Incorrect Answer
      E All of the above Correct Answer Incorrect Answer

      Solution

      As an isolated factor, an increase in the volume of credit sales will not affect the trade receivables collection period, as it also increases the trade receivables in that proportion. Loose credit control will increase the collection period if the credit policy allows longer credit, or reduced collection efforts. Application of effective credit controls is likely to reduce the trade receivables collection period.  If a significant discount is offered to credit customers, they are likely to take advantage of this, which will reduce the trade receivables collection period.  The period taken to pay trade payables will not affect the trade receivables collection period. 

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