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**CFA Practice Question**

True or False?

If a firm offers its credit customers terms of 2/10, n/30 and its accounts receivable turnover rate is 5.0 times, it is managing its accounts receivables well.

Correct Answer: False

A turnover rate of 5 converts to an average number of days to collect accounts receivable of 73 days (365/5), far outside of their credit terms.

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**User Contributed Comments**
5

User |
Comment |
---|---|

Alastair |
can someone clarify what 2/10, n30 signifies? |

Tomm |
2% discount if paid in 10 days. If not then payment due in 30 days. |

haarlemmer |
Thanks Tomm |

todolist |
Payments are due within 30 days, however it takes 73 days to collect recevables, therefore not managing efficiently. |

mhanazi123 |
Tomm your explanasion has helped me as well.thanks. |