Alex Onik

Portfolio Management View of AR Credit Policy & Collections Strategies

Accounts receivable management decisions are complex. On the one hand, too liberal of a credit policy might cause too much money to be tied up in accounts receivables and increase the costs of accounts receivable processing. ​

This scenario burdens the business with higher costs of accounts receivable service with additional high alternative costs. Bad debts from risky customers further generate additional costs. Conversely more liberal accounts receivable policy may ultimately increase inflows from cash revenues.​

The problem could be linked to the operational risk of customers interested in receiving trade credit who may be classified by too high a risk level. However, if they are considered one of several groups of enterprise customers, and if their payment habits are correlated with the payment habits of the remaining groups, what was before unlikely could become more manageable and ultimately turn profitable.

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