How to Improve Accounts Receivable

Improving accounts receivable starts with tightening the way you handle invoicing, collections, and client communication. Instead of waiting for payments to come in, businesses need proactive strategies, like setting clear terms, automating invoices, and monitoring overdue accounts, to keep cash flow steady. From sending reminders before due dates to offering flexible payment options, each step makes it easier for clients to pay on time.

Set Clear Payment Terms Upfront

Clients are far more likely to pay on time if they understand your payment expectations from the beginning.

Best practices for payment terms:

• Clearly state due dates on every invoice (e.g., “Net 15,” “Due upon receipt”).
• Add penalties for late payments (such as a 2% late fee per month).
• Offer early payment discounts (e.g., 2% off if paid within 10 days).
• Communicate terms in contracts and proposals, not just on invoices.

Example: A construction contractor includes “Payment due within 15 days of invoice date. Late payments incur a 2% monthly fee” in all client contracts.

Standardize and Automate Invoicing

Manual invoicing creates errors and delays. Invoice automation ensures invoices are sent quickly, accurately, and consistently.

Automation benefits:

• Send invoices immediately after delivering a service or milestone.
• Reduce mistakes like wrong totals or missing tax details.
• Provide multiple payment options (ACH, card, wire transfer).
• Sync with accounting systems for seamless tracking.

Example:

Monitor Accounts Receivable Regularly

You can’t improve what you don’t measure. Consistently reviewing your AR ensures you catch overdue invoices before they pile up.

What to track:

• Days Sales Outstanding (DSO): Average number of days it takes to get paid.
• Aging reports: Break down invoices by 0–30, 31–60, 61–90, and 90+ days overdue.
• High-risk clients: Identify repeat late payers.

Example: A landscaping company reviews AR aging reports weekly and flags clients in the 60+ day column for immediate follow-up.

Improve Communication with Clients

Many overdue invoices happen due to miscommunication or oversight. Consistent, professional communication can drastically reduce delays.

Tips:

• Send friendly reminders 3–5 days before the due date.
• Follow up immediately once the due date passes.
• Offer polite but firm phone calls for invoices over 30 days overdue.
• Always include invoice details (number, amount, due date) in reminders.

Example Reminder Email:

Subject: Friendly Reminder – Invoice #2025-017 Due Tomorrow
“Hello [Client Name], just a reminder that invoice #2025-017 for $2,500 is due on March 18. Please let us know if you need payment details again.”

Offer Flexible Payment Options

Clients are more likely to pay faster if you make the process convenient.

Options to provide:

• ACH transfers (low fees, fast settlement)
• Credit or debit card payments
• Online payment links directly on invoices
• Recurring billing for ongoing services

Example: A cleaning service offers clients the choice to set up monthly recurring ACH payments, reducing the need for reminders altogether.

Enforce a Structured Collection Process

When invoices go unpaid, a structured escalation process ensures you’re consistent and professional.

Collection strategy:

1. Day 1 after due date: Send a polite reminder.
2. Day 7–15 overdue: Follow up with a firmer email or phone call.
3. 30 days overdue: Send a formal notice with late fees included.
4. 60+ days overdue: Consider involving a collections agency or legal action.

Example: A contractor has a policy to automatically add a 2% late fee after 30 days overdue and pauses services until payments are received.

Strengthen Client Onboarding and Screening

Not all clients are reliable payers. Strong onboarding and vetting processes reduce risk.

Tips:

• Run credit checks for large or long-term contracts.
• Request deposits before starting projects.
• Clearly explain your invoicing system during onboarding.

Example: A renovation contractor requires a 30% upfront deposit for new projects and uses credit checks for contracts over $20,000.

Use Technology for Tracking and Reporting

Modern AR software provides real-time insights and automates many of the tasks that slow down receivables.

Features to look for:

• Centralized invoice dashboard
• Payment reminders and automation
• Real-time reporting (DSO, aging, collections trends)
• Integration with CRM and ERP systems

Example: