Question

Explain why the bad debt percentage or any other similar credit-control percentage is not the ultimate measure of success in the management of accounts receivable. What is the key consideration?

Short answer

The return generated from the investment in accounts receivables is considered to determine the success of accounts receivables management.

Step-by-step solution

Meaning of accounts receivables 

The accounts receivables refer to any amount receivables by the organization when they sell its goods on a credit basis to its customers. These are current assets for the organization and are collected within a few months’ time.

The key consideration in accounts receivables management 

The rate of return generated from the investment made in the accounts receivables is an important consideration when justifying the investment. The management does not consider the bad debt and credit control percentages when determining the return from accounts receivables investment.