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Factors Affecting Account Receivable Size

Factors Considering the Receivable Size

Receivables size of the business concern depends upon various factors. Some of the important factors are as follows:

[Post Image Courtesy of Sira Anamwong at FreeDigitalPhotos.net]

1. Sales Level

Sales level is one of the important factors which determines the size of receivable of the firm. If the firm wants to increase the sales level, they have to liberalise their credit policy and terms and conditions. When the firms maintain more sales, there will be a possibility of large size of receivable.

2. Credit Policy

Credit policy is the determination of credit standards and analysis. It may vary from firm to firm or even some times product to product in the same industry. Liberal credit policy leads to increase the sales volume and also increases the size of receivable. Stringent credit policy reduces the size of the receivable.

3. Credit Terms

Credit terms specify the repayment terms required of credit receivables, depend upon the credit terms, size of the receivables may increase or decrease. Hence, credit term is one of the factors which affects the size of receivable.

4. Credit Period

It is the time for which trade credit is extended to customer in the case of credit sales. Normally it is expressed in terms of ‘Net days’.

5. Cash Discount

Cash discount is the incentive to the customers to make early payment of the due date. A special discount will be provided to the customer for his payment before the due date.

6. Management of Receivable

It is also one of the factors which affects the size of receivable in the firm. When the management involves systematic approaches to the receivable, the firm can reduce the size of receivable.

About Author Mohamed Abu 'l-Gharaniq

when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries.

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