What can be a consequence of not managing accounts receivable effectively?

When accounts receivable are not managed effectively, one significant consequence is the higher risk of bad debts. This occurs because ineffective management may result in delayed collections, poor tracking of outstanding invoices, and inadequate follow-up on overdue accounts. As a result, some customers may default on their payments, leading to losses that impact the financial health of the business.

Inadequate monitoring of receivables can also mean that businesses fail to identify customers who may be experiencing financial difficulties, which could have allowed for alternative payment arrangements or proactive measures to mitigate potential losses. Furthermore, if a company's policies for creditworthiness and collection practices are not rigorous, it opens the door for more customers to accrue debts that are never collected.

The other choices, such as improved customer satisfaction, increased cash flow, or lower operational costs, are generally outcomes linked to good accounts receivable management, not consequences of poor management. Therefore, the recognition of the elevated risk of bad debts reflects the critical importance of effective accounts receivable practices in maintaining a company's financial stability and minimizing losses.