Answer:
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.
Basically, the average collection period refers to the average period of time that it takes a business to receive payments owed by its debtors (clients).
Now, since the company hired a sales director, they experienced a 50% increase in sales and also observed the company's average collection period increased from 17 days - 38 days.
The reason behind the increased sales is because of customers willingness to make transactions on credit.
However, this can be dangerous for the firm's financial position because high level of debt can leads to bad debt and thus, result to insolvency if those debt are not repaid back..
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