Final answer:
The average collection period should be low, as it indicates efficient receivable collection and positive cash flow. A high number may point to cash flow and credit policy issues.
Step-by-step explanation:
The average collection period is a metric used in business to measure the average number of days it takes for a company to collect payments from its customers after a sale has been made. Ideally, you would want this number to be low. A lower average collection period indicates that the company is collecting its receivables quickly, which is beneficial for cash flow.
Conversely, a high average collection period suggests that the company is slower in collecting receivables, which can indicate potential issues with cash flow and possibly the credit policies of the company. Companies strive to maintain an optimal balance where the collection period is in line with industry standards and reflects efficient credit and collection processes.