Why the firm should monitor accounts receivables? ( Describe Broadly)

It is very important for the firms to keep a close eye on account receivables. Receivables are shown in the asset side of the balancesheet under current assets. They represent company's current ratio. Sale is the main thing on which success of the organization depends. In order to survive in the competitive era, many business organizations have to sell their goods on credit. This is the point where account receivables arise. Receivables can increase due to two reasons, one is due to increase in sales which is good for the company and other is due to delay in payment by debtors which is bad for the company and this reason hampers the liquidity of the business. This is the main reason to monitor the receivables. Operating or cash cycle of the business depends on the accounts receivables. Delay in the payment means large Operating cycle which means company will take more time to complete the one circle or cycle. Lack of monitoring in account receivables can cause the problems of bad debts also, which means company will get nothing and can cover the risk of bad debts to the extent of provisions available against it. Delay in the payments can cause serious problems in cash flow management. So its very important to have a sound accounts receivables management system which helps the company to maintain its working capital .