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Why is monitoring accounts receivable important? What is the best way to monitor it?

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Why is monitoring accounts receivable important? What is the best way to monitor it?

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The expert determines why monitoring accounts receivable are important. The best way to monitor it are given.

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Why is monitoring accounts receivable important? What is the best way to monitor it?

The firms would in general try to sale the inventory on cash terms but in order to maximize the sales they allow credit. Thus account receivable is created. Account receivable is determined by the volume of sales and the length of collection period.If account receivable are not collected in the reasonable period of time the firm will be in short of working capital and it will be forced to borrow for short term from the lending financial institution or bank. This may result in extra cost of capital and any liberal policy of collection may prove to be dangerous to the firm .Excessive amount of working capital locked in account receivable may reduce the chances of earnings in future and stock prices may fall.

Therefore monitoring of account receivable ...

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