Coconut Plantations Pty Ltd manufactures sustainable coconut-based products for sale to wholesalers and retailers around Australia and New Zealand. Jo Geter, the manager, has a goal of increasing the market share of the company. Strategies to achieve this goal were increasing marketing and promotional activities and offering attractive credit terms to new customers. The implementation of both strategies was successful. Coconut Plantations has recently enjoyed an upsurge in sales and its accounts receivable balances have increased dramatically to average $120,000 on most trading days of the year. If Jo could reduce the accounts receivable balance, she believes the company could increase its inventory, sales and profitability. Jo is concerned about exerting too much pressure on its accounts receivable for fear of losing customers.

Required
a. How could Coconut Plantations Pty Ltd encourage its credit customers to pay earlier?
b. If Coconut Plantations Pty Ltd’s accounts receivable management strategies result in average accounts receivable reducing to $80,000, how would this lead to increases in sales and profitability?