4 Tips to Manage Your Accounts Receivable

It can be difficult for small businesses to handle their accounts receivable (A/R), especially when dealing with larger companies. Some big retailers take as long as 90 or even 120 days to pay their vendors. Understandably, this can place small businesses in a precarious cash flow position.

Accounts receivable occurs when a client makes a purchase but does not immediately pay for it. The bad news is that for growing businesses, accounts receivable usually increase which often leads to even greater cash flow pressures. It’s vital to implement a process to monitor and collect your receivables as soon as possible. The effective management of your business’ A/R is critical to running a company and will go a long way to ensuring its long-term success.

With that in mind, here are four tips to help you manage your accounts receivable and get your business flowing with cash.

Establish A Days Sales Outstanding Goal

Days Sales Outstanding (DSO) is a widely used metric to help evaluate how effective a company is at collecting receivables. While each industry has different standard payment terms and requirements, you should set a collection period that fits in with your specific business needs. This number should be as low as possible, typically between 15 and 45 days, and should be set carefully as it will significantly impact your business' cash flow.

Track Payments Carefully & Move Quickly

Your business needs to create an A/R aging report which categorizes accounts receivable according to the length of time an invoice has been outstanding. Once you have this handy, you will be able to review and quickly identify accounts that are current, past 15 days, 30 days, 60 days, 90 days and older. Call or email clients the first day that payment is late. Start with a gentle reminder that payment is now past due. Every business has the right to be paid within terms, so don’t be afraid to ask for the money. As for the due date, a cadence for reminders (such as weekly emails) can help ensure that your invoice stays front of mind with your customers. If an account goes longer than 60-90 days past due, the likelihood of collecting significantly decreases. You should regularly monitor your A/R aging report to make sure you do not hold onto your accounts for so long that they become uncollectible.

Be Proactive & Clear

To encourage timely payments, proactively call or email soon after the invoice is sent out to make sure they received it and to ask when it will be paid. Follow up again a few days before the payment is due to make sure they have everything needed to make the payment so the due date does not slip. You should also make sure every invoice sent out is clear and has no missing information that might cause your customers to avoid or delay paying it.

Consider Offering An Early Payment Discount

It can be beneficial to offer your clients an incentive to pay their bills early. Although a discount for early payment will cost your business money, the cash flow stability it delivers can be well worth the price. When setting the discount, remember only to give what you can afford. Keep the discount marginal but enough to get your customers incentivized.


In conclusion, managing A/R and timely cash collection is vital to the success of your business. Managing your payment terms and establishing a process for monitoring your A/R aged receivables report will benefit and steady your cash flow cycle. Moreover, a cadence of friendly reminders for overdue invoices helps shorten your collection cycles. Ultimately, you’ve earned the revenue, and it is up to you to collect the cash!

Contributed by:
Derek Felderhoff
Operations Architect