Receivables management
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If trade receivables are allowed to rise too high, the business will have to wait a long time before it receives cash from its customers for credit sales, resulting in the need for higher levels of capital investment in the business and increasing the risk of non-payment.
But if trade receivables are maintained at too low a level, less generous credit terms may drive customers away, resulting in lost sales.
Effective receivables management - among other things - identifies an appropriately balanced level of receivables.
