Accounts Receivable Management ✅

1. Objective: To have the optimal amount of A/R outstanding & the optimal amount of bad debts.
(a) This balance requires trade-off between BENEFITS of Credit Sales (e.g more sales) and the COSTS of AR (e.g collection, interest, bad debt). Thus, firm should extend credit UNTIL marginal benefit is ZERO

2. Objective of Receivables Management is to maximize A/R Turnover to shorten average time receivables are held.
(a) AR Turnover Ratio = Net Credit Sales / Avg AR
(b) Number of Days of Receivables = 360 / AR Turnover Ratio [Avg # of days to collect AR, may compute as Avg AR / Avg daily sales]
(c) Avg Gross Receivables = Avg daily sales * Avg collection period.