Managing Accounts Receivable Effectively
Learn how to track money owed to your business, improve collections, reduce bad debts, and maintain healthy cash flow.
- Send invoices immediately after completing work
- Offer multiple payment options to get paid faster
- Follow up on overdue accounts within 7 days
- Consider deposits for large projects
Accounts Receivable (AR) is money your customers owe you. Poor AR management is one of the top reasons small businesses fail—even profitable ones can run out of cash.
Invoice Promptly
Send invoices immediately after delivering goods or completing services. Delays in invoicing lead to delays in payment.
Include payment terms, due date, and multiple payment options on every invoice. Make it easy for customers to pay you.
Offer Payment Options
The easier you make it to pay, the faster you get paid:
- Credit card payments (Square, Stripe)
- e-Transfer
- Online payment links
- Pre-authorized debit
Monitor Aging Reports
Review your AR aging report weekly. It categorizes receivables by how overdue they are:
- Current: Not yet due
- 1-30 days: Recently overdue—send reminder
- 31-60 days: Follow up with phone call
- 61-90 days: Escalate collection efforts
- 90+ days: Consider collection agency or write-off
Collection Process
- Day 1 past due: Friendly email reminder
- Day 7: Second reminder with payment link
- Day 14: Phone call
- Day 30: Formal demand letter
- Day 60+: Consider collection agency
Keep records of all collection efforts. This documentation is required if you need to write off the debt for tax purposes.
Prevent Bad Debts
- Check credit before extending terms
- Require deposits for large orders
- Offer early payment discounts (e.g., 2% if paid within 10 days)
- Set credit limits for each customer
Improve Your Cash Flow
Tax Punjabi can help you set up effective AR management. Contact us!