What does an increase in accounts receivable indicate about a company's operations?

An increase in accounts receivable typically suggests that the company is making more sales on credit rather than collecting cash from customers. This situation can arise when customers are taking longer to pay their bills, indicating potential collection issues. When accounts receivable rises without a corresponding increase in cash flow, it may signal that the company needs to address its credit policies, customer payment timelines, or collection processes to ensure that cash is being collected efficiently.

While an increase in accounts receivable might also occur in scenarios where sales are expanding, if the cash inflow isn't keeping pace, it often points to concerns regarding the company's ability to collect payments from its customers. Thus, tracking accounts receivable is crucial for assessing the liquidity and financial health of the business.