Which of the following would best explain an increase in receivables turnover? A. The company adopted new credit policies last year and began offering credit to customers with weak credit histories. B. Due to problems with

B. Due to problems with an error in its old credit scoring system, the company had accumulated a substantial amount of uncollectible accounts and wrote off a large amount of its receivables.

Explanation:

The complete options are

A. The company adopted new credit policies last year and began offering credit to customers with weak credit histories.

B. Due to problems with an error in its old credit scoring system, the company had accumulated a substantial amount of uncollectible accounts and wrote off a large amount of its receivables.

C. To match the terms offered by its closest competitor, the company adopted new payment terms now requiring net payment within 30 days rather than 15 days, which had been its previous requirement.

Receivables turnover is a measure of how quickly the company is able to receive cash from customers that have made purchases on account/credit. It is given as the ratio of net credit sales to average receivables. Hence any measure that tends to increase the average receivable reduces the receivables turnover. As such, writing off receivables reduces the average receivables and in turn increases the receivables turnover.

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