KXP CO (12/12)

Hi John,

Quoting part of the question ” in order to encourage customers to pay on time, KXP Co proposes introducing an early settlement discount of 1% for payment within 30 days, while increasing its normal credit period to 45 days. It is expected that, on average 50% of customers will take discount and pay within 30 days, 30% will pay after 45 days, and 20% will not change their current paying behaviour.”

My confusion is around working out weighted average receivables days following the pattern in your lecture:

– 50% in 30 days
– 20% will not change current behaviour which is 60 days
– 30% after 45 days. I thought ‘after 45 days’ means the customers passed the 45 day mark, which means they would fall under the current 60 days category. Therefore, 50% would pay in 30 days and (20%+30%=50%) would pay in 60 days. Why is this not correct?

Many thanks.