In practice, which of the following is a major issue related to managing Accounts Receivable (AR)?

Introduction / Context:
Accounts Receivable (AR) represents money owed to a business by its customers for sales made on credit. While offering credit can help increase sales, it also creates several practical issues and risks that the AR function must manage. This question focuses on the key issues associated with Accounts Receivable, especially those linked to customer payment behaviour and the impact on cash flow.

Given Data / Assumptions:

• We assume the business sells goods or services on credit rather than taking all payments in cash.
• Customers may pay on time, pay late, or in some cases fail to pay at all.
• The company relies on incoming cash to pay its own suppliers, employees, and other obligations.
• We are interested in issues directly related to AR, not in unrelated operational or marketing matters.

Concept / Approach:
Major issues in Accounts Receivable management include evaluating customer creditworthiness, setting appropriate credit limits and payment terms, monitoring ageing of receivables, following up on overdue accounts, and dealing with bad debts. Late payments or defaults increase financing costs and can create serious cash flow problems, especially for small and medium businesses. AR managers must balance the desire to extend credit to boost sales with the need to control risk and maintain healthy cash flows.

Step-by-Step Solution:
Step 1: Identify what issues are directly linked to Accounts Receivable: these include customers not paying on time, the risk of non payment, and the effect on cash flow. Step 2: Examine option a, which explicitly mentions credit risk, late payments, bad debts, and cash flow problems, all of which are classic AR issues. Step 3: Examine option b: choosing office wall colours is an interior design or HR issue, not an AR issue. Step 4: Examine option c: the company logo relates to branding and marketing, not to the management of receivables. Step 5: Examine option d: parking spaces are a facilities management concern, unrelated to credit management. Step 6: Conclude that option a best describes real problems that arise in managing Accounts Receivable.

Verification / Alternative check:
In real businesses, AR managers frequently review ageing reports showing how many days each invoice has been outstanding. They follow up with customers, negotiate payment plans, and sometimes escalate cases to legal collection or write offs. Finance teams track days sales outstanding (DSO) as a key performance metric for AR efficiency. High DSO, large overdue balances, and rising bad debt expenses are symptoms of AR issues. None of these concerns are related to office decoration or parking. This practical perspective confirms that option a captures the main issues related to AR.

Why Other Options Are Wrong:
Option b deals with office aesthetics, which may influence employee morale but has no direct link to Accounts Receivable. Option c concerns marketing and brand identity; while strong branding may indirectly influence customer behaviour, it is not a core AR issue. Option d focuses on physical infrastructure (parking), which is unrelated to financial receivables or credit risk.

Common Pitfalls:
Some learners view AR as a purely clerical function and overlook the strategic importance of credit risk management. Others may think that AR problems are simply a matter of sending invoices, ignoring the ongoing work of monitoring, follow up, and negotiation. It is essential to recognise that poorly managed AR can cause severe liquidity problems even in otherwise profitable businesses. When revising this topic, always link Accounts Receivable to credit policy, cash flow management, and customer relationship management.

Final Answer:
A major issue related to Accounts Receivable is credit risk, late payments, bad debts, and cash flow problems arising from customers not paying on time.