What impact does a higher accounts receivable generally have on a company's cash flow?

A higher accounts receivable generally decreases cash flow because it indicates that the company is extending credit to its customers, leading to a delay in receiving cash for sales. When a company has a significant amount tied up in accounts receivable, it suggests that although the revenue might be recognized on the income statement, the actual cash has not yet been collected. This means that while the sales figures may look strong, the company may face challenges in its liquidity since cash is not readily available for operational needs, expenses, or investments.

In contrast, a lower accounts receivable balance often means that the company is effectively collecting cash from its customers, which would positively impact cash flow. Therefore, the essence of accounts receivable in this context focuses on the timing mismatch between revenue recognition and the actual cash inflow, highlighting how higher accounts receivable can lead to decreased cash flow.