In what scenarios might accounts receivable become problematic?

Accounts receivable can pose significant challenges for a business, particularly when they remain unpaid for extended periods. This scenario indicates that the company is facing credit risk — that is, the risk of non-payment by customers. When customers delay payments, it raises concerns about their financial stability and the company's ability to convert these receivables into cash.

Both the liquidity of the business and its cash flow are affected when accounts receivable are not collected promptly. If a company has a large volume of receivables that are past due, it may struggle to meet its own financial obligations, invest in growth opportunities, or maintain operational efficiency. Therefore, monitoring and managing accounts receivable is vital to ensuring the financial health of the business. Strategies may include assessing the creditworthiness of customers before extending credit, implementing more rigorous collection efforts, or even factoring receivables.

In contrast, fully paid accounts receivable, increased cash flow, and accurate recording in the general ledger indicate positive aspects of accounts receivable management and do not present the same risks as those that remain unpaid for extended periods.