Since hiring a new sales director, Tilton Inc. has enjoyed a 50% increase in sales. The CEO has also noticed, however, that the company's average collection period has increased from 17 days to 38 days. What might be the cause of this increase? What are the implications to management of this increase?

The most reasonable answer would be that the new sales director increased the number of credit days allowed by the company. E.g. before, the company would only allow its customers 15 days of credit, and now it allows 30 days. This will generally increase total sales revenue, but at the same time it represents a cost to the company. No one gives money away for free, and it costs money to extend the number of credit days.

Under normal circumstances, the company should earn more money due to the sales increase, than the costs of extending the number of credit days.

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