Question

Approximately 85% of the customers at hanson's furniture store purchase furniture using store credit. the store's average collection period is 75 days. however, the store must pay their vendors within 30 days. what is the store's best option for maintaining their minimum cash balance?

Answer 1

With a Net 30 payment policy, but an average collection period of 75 days with customers, Hanson's furniture store, should either reduce their store credit option, and encourage approximately 45% of their store credit customers to pay upon receipt, or shorten their operating cycle.