Left unchecked, weak AR practices can derail your bookkeeping processes and affect your company’s financial health. However, by catching the signs early, you can turn things around before they start to hurt your bottom line.
Let’s explore some early red flags that your accounts receivable management might need a tune-up, and practical steps to get it back on track.
What Is Accounts Receivable (AR)?
Accounts receivable is a system of processes you put in place to track the money that your customers owe to your business for the product or service they’ve availed. AR process includes:
- Billing and invoicing.
- Payment processing.
- Communications with clients.
- Internal communications and processes.
- Collections processes and credit policies.
If AR is managed well, you get paid on time. Your cash flow stays steady, and you can plan future projections confidently. When managed poorly, the whole business starts to feel the impact. From delayed payroll to missed growth opportunities, your business experiences numerous challenges, month on month.
Signs of Poor Accounts Receivable Management
1. Rising Days Sales Outstanding (DSO)
If your DSO is creeping up month after month, it’s a warning sign. DSO measures how many days it takes, on average, to collect payment after a sale. The higher the number, the longer your money is tied up.
For Example, if your DSO jumps from 35 days to 52 days over a quarter, it means your clients are delaying payments, and that your follow-up process isn’t working.
2. Cash Flow Feels Tight (Even When Sales Are Strong)
Your sales and production team might be meeting their targets and numbers, but if this consistent performance is not showing up in your bank balance, then it’s likely a receivables issue, and it might be time to seek professional accounts receivable services.
3. A Growing List of Past-Due Invoices
One or two late payments are usually manageable. But when overdue invoices start to pile up, it’s time to re-evaluate your invoicing policy and put a strict follow-up process in place. It may not be about bad clients – it could be a system issue.
4. Manual Processes or Outdated Technology
Still using spreadsheets, paper invoices, or outdated systems that are slowing you down? Manual AR processes are lengthy, time-consuming, and prone to errors. They often delay the billing processes and make follow-ups a hassle, too. Without automation, it’s hard to track aging receivables or send timely reminders. This leads to further delays and lost revenue.
5. No Defined Credit Policy
If you offer credit to customers without clear rules, you could be heading toward big trouble. It’s like handing out loans with no contract. Without a structured credit policy (terms, limits, and criteria), you may end up giving too much credit to customers.
Tips to Optimize Your Accounts Receivable Process
Now that we know the red flags, let’s walk through practical ways to strengthen your AR system to improve your chances of getting paid — without turning your company into a debt collection agency.
1. Set Clear Payment Terms
Start every client association with a clear payment and agreement. Don’t assume people understand your payment expectations.
- Define terms on every invoice (e.g., Net 15, Net 30).
- Consider offering early payment discounts or charging late fees.
- Use plain language to avoid confusion.
2. Invoice Promptly and Accurately
The faster you invoice, the faster your chances of getting paid. So, to improve your accounts receivable process:
- Automate invoicing where possible.
- Double-check each invoice for errors (wrong amount, dates, or client info).
- Include all necessary details: PO numbers, item breakdowns, and contact info.
3. Monitor AR Aging Reports Weekly
Your AR aging report is your best friend. It breaks down who owes what, and how long it’s been overdue.
- Review your reports every week and flag accounts that are aging past 30 days.
- Follow up early and consistently – don’t wait until invoices hit 90+ days.
4. Make It Easy to Pay
Offer your clients multiple payment options. Include a clickable payment link in every invoice email and integrate digital invoicing tools with your accounting software.
5. Train Your Team on Soft Collections
Nobody likes making collection calls, but they’re sometimes necessary. However, keep them polite, firm, and professional. Have a standard follow-up process that starts with a reminder e-mail/ message and then a phone call. Also, don’t forget to document every interaction for accountability.
6. Build Strong Relationships with Clients
Clients are more likely to pay on time if they know and respect you. Relationship-building always goes a long way. So,
- Be friendly and responsive.
- Check in regularly – not just when there’s a payment delay.
- Show appreciation for prompt payments with a thank-you note or discount.
7. Review Your Credit Policies Periodically
Not every client should automatically get Net 30 terms. Some customers may need to prepay until they establish a track record. Set internal guidelines for extending credit. Run credit checks and review client payment history every 6–12 months and adjust terms if needed.
Outsource Accounts Receivable Services to Experts
If you’ve already optimized your AR process but are still struggling with late payments, maybe it’s time to explore outsourced accounts receivable services. An experienced AR services provider can help clean up things, set clear payment processes, and implement follow-up systems that help you get paid faster.
Don’t Wait for the Damage, Act Now!
Poor AR management can do more harm to your business than you realize. Poor cash flow, delayed payroll, unhappy employees and stagnant growth are just a few of the consequences that can surface when receivables are neglected.
The earlier you act, the easier it is to fix and the better it is for your business. So, take a look at your books today, scan those aging reports, and start putting these best practices into action. Your future self (and your balance sheet) will thank you!
Need help? Partner with our bookkeeping experts and take the guesswork out of your accounts receivable management. From streamlining invoicing to improving collections, we’ll help you build a system that keeps your cash flow steady and your business growing.
Book a free consultation today!
