Managing Accounts Receivable

Can your company have too much receivables? Yes! There is a cost for each sale, even if that cost is the labor needed to obtain it. Cash flow has to come in before money can be paid out, else the outgo’s have to be paid for by borrowings, or delayed compensation to sales staff and other employees, or by additional invested capital from owners.

In short, accounts receivable costs your company money. They are like interest free loans to customers covered by costs from the company. Cash flow problems from having too much money tied up in receivables can ruin a company.

Financial managers need to calculate the costs of new credit sales to the availability of cash to cover those sales. Sometimes, a company may need to hunker down and wait for the customers to pay up rather than incur more costs.