Management of Account Receivable

In order to keep current customers and attract new ones, most firms find it necessary to offer credit. Accounts receivable represents the extension of credit on an open account by a firm to its customers. Accounts receivable management begins with the decision on whether or not to grant credit.

The net amount of obtainable outstanding at any given time is determined via as:

a) The volume of credit sales

b) The average length of time between collections and sales.

Accounts receivables = Credit sales per day x Length of collection period

The average collection period depends on:

a) Credit standards that is the maximum risk of such acceptable credit accounts

b) Credit period that is the length of time for such credit is granted

c) Discount given to early payments

d) The firm's collection policy.