How does accounts receivable impact a company's financial health?

Accounts receivable refers to the money that a company is owed by its customers for goods or services that have been sold but not yet paid for. This is considered a type of asset for the company, as it represents future cash inflows. Managing accounts receivable is important for a company's financial health, as it can impact cash flow, working capital, and profitability. If a company has a high level of accounts receivable and struggles to collect payment, it may face cash flow challenges and struggle to pay its own bills. On the other hand, a company with low accounts receivable may have better cash flow but may struggle to grow its business. Managing accounts receivable involves setting payment terms, tracking invoices, following up with customers, and potentially using collection agencies or legal action in extreme cases. Overall, understanding and managing accounts receivable is a critical component of financial management for any business.