Question

What might rising debtor indicate and what might you take.

Answer 1

Rising debtors balance might indicate that the firm is having a liberal credit policy, the firm is allowing credit more than normal implying cash sales are lesser and also the collection of accounts receivable is not happening within a normal frame time. The reason for following a liberal credit policy can be to increase sales and have a market share. Another reason for not being able to collect on time is that the debtors are not solvent, the economic is going through a rough period. The company must implement a stricter credit policy by having a lesser payable period, offering discounts to those debtors who pay with in the period allowed and also have trained personnel for collection of receivables.