Accounts receivable should never exceed what percentage of total gross revenue?

The correct answer is based on industry standards for managing accounts receivable effectively. Keeping accounts receivable within the range of 2 to 3% of total gross revenue is advisable as it indicates a healthy cash flow and efficient collection practices. When accounts receivable exceed this percentage, it can signal potential issues with cash flow management, indicating that the business may rely too heavily on credit sales or might be experiencing delays in payments from clients.

Exceeding the threshold of 2 to 3% can lead to increased risks of bad debt, which can adversely affect the company's financial stability and operational capacity. Hence, this percentage serves as a benchmark for maintaining a balance between sales on credit and the company’s overall financial health. Managing accounts receivable within this range helps ensure that the business remains solvent while also fostering good client relationships through effective credit management practices.