Accounts receivable management is the practice of getting the money you have already earned into your bank account faster. It rests on three things: aging your outstanding invoices so you know where the exposure sits, following a consistent collection sequence rather than chasing by memory, and setting credit terms deliberately instead of accepting whatever the customer assumes. Businesses fail with full order books far more often than with empty ones, and this is usually why.
Age your receivables, always
An aging report groups every outstanding invoice by how overdue it is, conventionally into 0-30, 31-60, 61-90 and 90+ day buckets. This matters because collection probability falls sharply with age. An invoice thirty days overdue is usually an administrative oversight. At ninety days it is a deliberate decision by the customer, and recovery odds drop considerably. Without aging you chase whichever customer you happened to think about, which is neither efficient nor fair.
- Group outstanding invoices into 0-30, 31-60, 61-90 and 90+ days
- Chase in order of age and value, not memory
- Track the aging profile monthly to spot deterioration
- Watch for one customer dominating the oldest bucket
A collection sequence that works
Consistency beats intensity. A polite reminder a few days before the due date prevents most lateness outright, because genuine oversight is the commonest cause. At seven days overdue, a direct email restating the invoice number, amount and due date. At fourteen, a phone call, which is markedly more effective than another email. At thirty, a formal notice and a hold on further credit. Past sixty, escalate to a decision about recovery. The exact intervals matter less than applying them to everyone.
- Reminder before the due date, not after
- Email at seven days, phone call at fourteen
- Formal notice and credit hold at thirty
- Escalation decision at sixty, not at a hundred and twenty
Set credit terms rather than inheriting them
Many small businesses never state terms and then feel unable to enforce them. Terms should be explicit on the quote and the invoice, and larger credit lines should depend on payment history. It is entirely reasonable to require deposits from new customers, to cap exposure per customer, and to tighten terms for anyone who has drifted. A customer who always pays at ninety days is being financed by you, and that cost should be priced in or the terms changed.
- State terms on the quote and on every invoice
- Require deposits or prepayment from new accounts
- Cap total exposure per customer
- Tighten terms for persistent late payers rather than absorbing it
Make paying easy
A surprising share of lateness is friction rather than intent. Invoices that arrive late, lack a purchase order number the customer's system requires, go to the wrong person, or omit bank details all invite delay. Send the invoice the same day the work completes, include every reference the customer needs, address it to the person who actually processes payments, and offer more than one payment method.
- Invoice the same day, not at month end
- Include the PO number and references the customer requires
- Send to accounts payable, not only to your contact
- Offer multiple payment methods and state bank details clearly
Measure days sales outstanding
Days sales outstanding is the average number of days it takes to collect payment: divide accounts receivable by total credit sales for the period and multiply by the number of days in it. The absolute figure matters less than the trend. Rising DSO means collection is deteriorating, and it is usually visible in this metric a month or two before it becomes a cash problem.
- DSO = (receivables / credit sales) x days in period
- Track the trend rather than the absolute number
- Compare against your stated payment terms
- Rising DSO is an early warning of a cash squeeze
Knowing when to write it off
Holding a debt on the books that will never be collected flatters your assets and wastes your attention. Once a receivable is genuinely uncollectable, because the customer is insolvent, unreachable, or recovery would cost more than the debt, write it off as a proper entry. That keeps the aging report honest and stops you making decisions on money that does not exist.
- Write off when recovery costs exceed the debt
- Record the write-off as a proper entry, not a quiet deletion
- Keep the customer record so the history is visible
- Review write-off patterns for a credit-policy problem
FAQs
What is accounts receivable management?
The practice of collecting money owed to you as quickly as possible. It combines aging your outstanding invoices, following a consistent collection sequence, setting credit terms deliberately, and deciding when a debt should be written off.
What are receivable aging buckets?
Groupings of outstanding invoices by how overdue they are, conventionally 0-30, 31-60, 61-90 and 90+ days. They matter because collection probability drops sharply with age, so the buckets tell you where to focus effort.
How do I get customers to pay faster?
Send a reminder before the due date, invoice the same day the work completes, include every reference the customer's system needs, address it to accounts payable rather than only your contact, and follow a consistent escalation sequence. Most lateness is friction or oversight rather than refusal.
What is a good days sales outstanding figure?
It depends on your sector and terms, so the trend matters more than the number. As a rule of thumb, DSO should sit reasonably close to your stated payment terms; substantially higher means terms are not being enforced.
When should I write off a bad debt?
When recovery is genuinely unlikely or would cost more than the debt itself, typically because the customer is insolvent or unreachable. Record it as a proper write-off entry so the aging report stays honest rather than deleting the invoice.