Revenue is not cash
Accounts receivable represents goods or services delivered before cash is collected. It can rise with healthy sales, but growth far faster than revenue raises a question about payment terms and customer ability to pay. An income statement alone cannot show whether recognized revenue will become cash.
Calculate collection days
Receivable days compare average receivables with sales to estimate collection speed. Use industry payment norms and seasonality, then compare equivalent quarters and peers. A persistent extension over several periods is generally more informative than a small move in one reporting date.
Allowances and aging
An aging schedule shows how long balances have remained unpaid, while a loss allowance records management's expected credit losses. Rising overdue balances together with a larger allowance deserves follow-up. A lower allowance does not by itself prove collection risk disappeared.
Customer concentration
A small total balance can still be risky when one customer represents a large share. Read long-term contracts, return rights, incentives, and the revenue-recognition policy. The point when revenue is recognized can differ from invoicing and collection, widening the gap between reported growth and cash.
Compare with cash flow
When revenue and net income rise while operating cash flow weakens, test whether receivables explain the difference. If sales rise 10% while receivables rise 35%, look for changes in terms, customer mix, and unusual deliveries in the filing before reaching a conclusion.
A filing checklist
Place sales growth, receivable growth, collection days, loss allowance, and operating cash flow in one worksheet and follow the next quarter's collections. Receivables are not a score for judging growth; they are a way to trace whether reported earnings travel back to cash.