Today for many firms, the largest asset on their balance sheet is certainly accounts receivable. Collecting balances due has always been a problem for many firms. Many times, most of the firms receive miserably low amount than the original debt. Converting accounts receivable into cash is a vital function in the development of a healthy cash flow. In order to reduce the accounts receivable cycle, it is essential for the credit and collection policy is to be effective and efficient. Try to restrict outstanding accounts receivable to no more than two to five days beyond your credit terms. Of course, an average collection period varies because of industry standards, company policies, or conditions of the debtor. A high Average Collection Period implies that your company may be too liberal in extending credit to your debtors and very negligent in the collection process. A less number of days in your collection period may be a hindrance for your sales. Tighten or loosen firms' credit policy time to time. Amplify your collection efforts as and when needed. If a firm offers terms of net 15, call customers when their accounts reach 17 to 20 days. Do not wait until they turn bad.

An investment in accounts receivable is inevitable for many firms to do business. Every firm has to design an optimum receivable level depending upon their existing conditions. For this purpose, firms have to calculate `Receivable Turnover Rate' and `Days Receivable'. These rations help every firm to check their credit policies. A finance manager may use this accounts receivable turnover ratio tool for examining the efficiency of receivable operations.

The Accounting World Magazine, Credit Policies, Financing Accounts, Global Financial Crisis, Debt Collection, Days Sales Outstanding, DSO, Credit Policies, Non-Recourse Factoring, Recourse Factoring, Debt Factoring, Global Financial Crisis, Management Strategies.