Partridge Inc. sells about $45 million a year on credit. Good credit and collections performance in the industry results in a 35 day ACP.
a. What is the maximum receivables balance Partridge can tolerate and still receive a good rating with respect to credit and collections? (Hint: Write the equation defining ACP, treat the A/R balance as the unknown, substitute given or target values and solve).
b. If Partridge is now collecting an average receivable in 40 days, by how much will it have to lower the receivables balance to achieve a good rating?