Which statement best describes receivables management?
A)A firm that makes 90% of its sales on credit and 10% for cash is growing at a constant rate of 10% annually. This firm will be able to keep its accounts receivable at the current level, since the 10% cash sales can be used to support the 10% growth rate.
B)In managing a firm's accounts receivable, it is possible to increase credit sales per day yet still keep accounts receivable fairly steady, provided the firm can shorten the length of its collection period (its DSO).
C)If a firm has a high percentage of accounts over 30 days old, this is a sure sign that the credit manager is not doing his or her job well.
D)Since receivables and payables both result from sales transactions, a firm with a high receivables-to-sales ratio must also have a high payables-to-sales ratio.

Question

Quizplus · Accepted Answer

Receivables management involves the efficient management of a firm's accounts receivable in order to improve cash flow and reduce the risk of bad debts. A key strategy is to decrease the length of the collection period (measured as days sales outstanding, or DSO) without negatively impacting credit sales. This means that a firm can increase credit sales per day while keeping accounts receivable fairly steady if it can improve its collection processes. Option A is incorrect because a firm that relies mostly on credit sales may need to implement credit and collection policies to manage its receivables effectively. Option C is incorrect because a high percentage of accounts over 30 days old may be caused by factors beyond the credit manager's control, such as slow economic conditions or industry-specific issues. Option D is incorrect because the receivables-to-sales ratio does not necessarily correlate with the payables-to-sales ratio.

Which Statement Best Describes Receivables Management