Question

What does it mean to have a high accounts receivable. Is that good or a bad and why?

Answer 1

Accounts receivable are monies owed to a company by customers for goods or services provided, but not yet collected from them.

if you have a high accounts receivables balance, it means that you have a large sum of money that is owed to you by your customers. If this amount has been outstanding for an inordinate amount of time (say90 days), it may mean that you have a collection problem, and may have to seek other means of collecting from your customers.

Having a high account receivable will be bad, because If there is a rapid growth in accounts receivable relative to sales, then that could be a red flag indicating the company could have trouble paying it's own bills. After all it is hard to pay your own bills when you yourself have not been paid.

The company with a disproportionately growing AR will likely experience problems in their cash conversion cycle which would hamper their efficiency.

In the most extreme cases a company may be forced to take on additional debt to meet its obligations if it can not collect its AR in a timely manner.

In short there is high risk of increase in Doubtful accounts.