You should track how fast A/R are increasing relative to sales—the two should roughly track each other. But if sales increase by, for example, 15 percent, while A/R increases 25 percent, the company is booking sales faster than it’s receiving cash from its customers. (Remember, A/R measures goods that are sold, but not yet paid for.) As a general rule, it’s simply not possible for A/R to increase faster than sales for a long time—the company is paying out more money (as finished goods) than it’s taking in (through cash payments).
