Account receivables aged greater than 30 days present a red flag for business buyers. Cash flow is the life blood of a business and having a longer receivable collection period can starve a business of cash.
Beyond the concern about cash flow, a slow collection of receivables can be an indication of problems such as:
Customers delaying payment because of dissatisfaction with the product or service;
Claims or warranty issues that are causing customers to not pay in a timely manner;
A company credit policy that encourages slow payments (i.e. no penalties for slow payments);
Customers are experiencing financial difficulties that prevent them from paying, which may result in non-payment or even the loss of such clients should they become insolvent;
Aged receivables might be uncollectible and an indication that the business has already lost the client; or
It may be an indication that the business simply has clients that willfully choose to delay payments through no fault of your company, which may mean that they are clients a buyer may not want to do business with.
If preparing for a business sale, all efforts should be made to collect aged receivables, write off those that are uncollectible, review and change credit policies to encourage more timely payment, and make it a priority going forward to collect payments within 30 days.
Comments