ICANBusiness, Management and FinanceWorking Capital Management2025

Eko Distributors Plc reported annual credit sales of ₦72,000,000. The average trade receivables balance during the year was ₦12,000,000. If the company wishes to reduce its receivables collection period by 15 days, what would be the new target receivables balance? (Assume a 360-day year.)

A₦9,000,000CORRECT
B₦8,000,000
C₦10,000,000
D₦6,000,000
AI
Toaster Teacher
Why the answer is A, and why the others tempt you.
Current receivables days = (₦12,000,000 ÷ ₦72,000,000) × 360 = 60 days. New target = 60 - 15 = 45 days. New receivables balance = (45 ÷ 360) × ₦72,000,000 = ₦9,000,000. Reducing the collection period frees up working capital for operational use.
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