Which factor can contribute to cash flow problems in accounts receivable?

High Days Sales Outstanding (DSO) is a crucial factor that can significantly contribute to cash flow problems in accounts receivable. DSO measures the average number of days it takes a company to collect payment after a sale has been made. When DSO is high, it indicates that customers are taking longer to pay their invoices, which can lead to delays in cash inflow.

This delay in receiving cash can strain a company’s liquidity, making it challenging to meet operational expenses, pay suppliers, or invest in growth opportunities. Essentially, a higher DSO means that a company has its money tied up in receivables rather than available for immediate use, which can create a cyclical issue if not addressed. Managing DSO effectively is essential for maintaining a healthy cash flow, ensuring that funds are available when needed to support ongoing business operations.