What are the key decision variables at the firm's disposal for managing the level of the firm's accounts
receivable balance?
What will be an ideal response?
All firms by their very nature are involved in selling either goods or services. Although some of these sales will be for
cash, a large portion will involve credit. Whenever a sale is made on credit, it increases the firm's accounts receivable.
Thus, the importance of how a firm manages its accounts receivable depends on the degree to which the firm sells on
credit. Accounts receivable typically comprise more than 25 percent of a firm's assets. Moreover, because the cash
flows from a sale cannot be invested until the account is collected, the control of receivables takes on added importance
in that it affects both the profitability and liquidity of the firm. The size of the investment in accounts receivable is
determined by several factors.
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