An Important Tool Used in Assessing the Quality of Receivables

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The Answer is The aged accounts receivable report is a tool used by firms to assess the quality of their receivables, and is often required by banks before they authorize loans to the requesting firm.The aged accounts receivable report categorizes the balances in receivables according to how long they have been outstanding.Generally receivables that have not been outstanding for very long are regarded as higher quality than those that have been outstanding beyond their due date.However, this characterization has its limitations because it does not distinguish between long standing accounts of credible borrowers (i.e., government)versus those of less credibility (i.e., another company); as such the report treats all borrowers as if they hold the same credit risk.This can be misleading when trying to correctly interpret the quality of a firm's receivables.

An Important Tool Used in Assessing the Quality of Receivables

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