SACE Stage 2 Accounting 2025 – 400 Free Practice Questions to Pass the Exam

Question: 1 / 400

What is a potential consequence of a low Debtors Turnover?

Increased cash flow

Improved liquidity

Cash flow problems and reduced liquidity

A low Debtors Turnover indicates that a company is not efficiently collecting its receivables, meaning that customers are taking longer to pay their debts. This can lead to cash flow problems as the company may struggle to generate the cash needed for day-to-day operations, investments, and other financial obligations. When cash is tied up in accounts receivable for extended periods, it reduces the company's available cash and may hinder its ability to pay suppliers, meet payroll, or take advantage of business opportunities.

Reduced liquidity occurs because liquidity measures a company's ability to meet short-term obligations. If a significant amount of cash is outstanding in receivables, it diminishes the company’s liquid assets. Therefore, the correct answer highlights the adverse effects of a low Debtors Turnover on cash flow and liquidity, providing a clear understanding of the implications of inefficient collection processes.

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