How to Manage Your Accounts Receivable Better: A Guide for Small Businesses
Cash flow is the lifeblood of any small business. Even if you're making plenty of sales, delayed payments from customers can put your operations at risk. That’s where strong accounts receivable (AR) management comes in.
Accounts receivable refers to the outstanding invoices or money owed to your business by customers who have received goods or services but haven’t paid yet. Managing this aspect of your finances effectively ensures you maintain steady cash flow, build better client relationships, and reduce financial risk.
In this blog, we’ll walk you through actionable tips to manage your AR more effectively, highlight common pitfalls, and answer the most pressing questions small business owners have about the process.
What Is Accounts Receivable Management?
Accounts receivable management is the system a business uses to track, invoice, and collect payments from customers. It includes:
Invoicing practices
Payment terms
Credit policies
Follow-up and collections
Accounting and reporting
When done right, AR management helps you get paid faster, reduce bad debt, and forecast your cash flow more accurately.
Why It Matters
Here’s why good AR management is crucial:
Improves cash flow
Reduces write-offs and bad debt
Strengthens client trust through clarity and consistency
Improves your ability to invest in growth opportunities
Many businesses fail not because of a lack of sales, but because of poor cash flow and poorly managed AR is often to blame.
Best Practices for Managing Accounts Receivable
1. Establish Clear Credit Policies
Determine who qualifies for credit and how much. Screen new clients with credit checks or require deposits for large orders.
2. Set Clear Payment Terms
Make your payment terms clear on every invoice. Common terms are Net 15, Net 30, or due upon receipt. Shorter terms often encourage quicker payments.
3. Invoice Promptly and Accurately
Send invoices immediately after delivering goods or services. Include all necessary details invoice number, due date, description of services, and payment options.
4. Automate Invoicing and Follow-Ups
Use accounting software like QuickBooks, Xero, or FreshBooks to automatically send invoices and follow-up reminders.
5. Offer Multiple Payment Methods
Make it easy for clients to pay by offering credit card, ACH, PayPal, or other online payment methods.
6. Monitor Aging Reports Weekly
Review your AR aging report to identify overdue accounts. Focus your efforts on clients in the 31–60+ day range.
7. Follow Up Professionally
Have a system for follow-ups: a polite email on the due date, a reminder three days after, and a call after a week.
8. Enforce Late Payment Penalties
Include late fees in your terms and enforce them consistently. This encourages timely payments and discourages repeat delays.
9. Consider Early Payment Discounts
Offer 1–2% discounts for payments made within a set early period (e.g., 10 days).
10. Outsource Collections When Needed
For chronically late accounts, it may be worth involving a collection agency or legal support after multiple contact attempts.
Q&A: Accounts Receivable Management
Q: How long should I wait before following up on an unpaid invoice?
A: Follow up on or slightly before the due date. Many businesses send reminders 3–5 days in advance.
Q: Should I charge late fees?
A: Yes, if it aligns with your payment terms and industry norms. Be transparent in contracts and invoices.
Q: What’s an aging report?
A: It categorizes receivables by how long they’ve been outstanding (e.g., 0–30 days, 31–60, etc.). It’s your best tool for identifying collection priorities.
Q: Can I automate this entire process?
A: Nearly. Software like QuickBooks Online or Xero can handle invoicing, reminders, and AR reporting. Human oversight is still needed for judgment calls.
Q: What’s a good average collection period?
A: It depends on your industry, but under 45 days is often considered healthy. Shorter is usually better.
Common Mistakes to Avoid
Waiting too long to invoice
Not following up promptly on overdue invoices
Failing to document payment terms in contracts
Not tracking AR metrics or reviewing aging reports
Relying on a single client for a large portion of your AR
Being proactive and consistent is key to staying on top of your receivables.
How Brecken Business Solutions Can Help
Managing your AR effectively takes more than software it requires strategy. At Brecken Business Solutions, we help small businesses:
Implement efficient invoicing and follow-up processes
Automate AR systems using QuickBooks and other tools
Analyze aging reports and collections trends
Improve cash flow and reduce payment delays
Whether you’re struggling with late-paying clients or want to clean up your AR process, we’ll tailor a solution that fits your business.
Call to Action
Tired of chasing payments? Let’s streamline your invoicing and collections.
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