Accounts Receivable Management: Getting Paid Faster

Revenue Is Not Cash

You completed the work. You sent the invoice. But until that money hits your bank account, it is a number on a screen. Accounts receivable — the money your customers owe you — is one of the biggest cash flow killers in small business.

The average small business has tens of thousands of dollars sitting in unpaid invoices at any given time. That is your money, funding someone else's operations. Let us fix that.

Know Your DSO

Days Sales Outstanding (DSO) measures how long it takes, on average, to collect payment after an invoice is sent. The formula:

(Accounts Receivable / Total Credit Sales) x Number of Days

If your DSO is 45 and your terms are Net 30, your customers are paying 15 days late on average. That gap is real money you cannot use.

Track DSO monthly. If it is trending up, you have a collection problem growing.

Invoice Immediately

This sounds obvious, but most businesses wait days or even weeks to send invoices after completing work. Every day you delay invoicing is a day added to your collection timeline.

• Send the invoice the day the work is completed or the product is delivered
• Use your accounting software to automate invoice creation
• For ongoing projects, invoice at regular milestones — do not wait until the project is done

Set Clear Payment Terms

Ambiguity is the enemy of getting paid. Every invoice and every contract should specify:

• Payment due date — "Net 30" means 30 days from invoice date. "Due upon receipt" means now.
• Accepted payment methods — Make it easy. ACH, credit card, check.
• Late payment penalties — 1.5% per month is standard. Include it in your terms and enforce it.
• Early payment discounts — "2/10 Net 30" means a 2% discount if paid within 10 days. This can dramatically accelerate collections.

Put these terms on every invoice and in every contract. Verbal agreements about payment are worthless.

The Follow-Up System

Most businesses send an invoice and hope. Hope is not a collection strategy.

Before the Invoice Is Due

• Send a reminder 5 to 7 days before the due date. A simple "Just a reminder that Invoice #1234 is due on [date]" is sufficient.

On the Due Date

• If not paid, send a reminder on the due date. Be direct. "Invoice #1234 for $X,XXX is due today."

1 to 7 Days Past Due

• Send a firmer reminder. Apply late fees per your terms.

15 Days Past Due

• Pick up the phone. Email is easy to ignore. Phone calls are not.

30 Days Past Due

• Formal demand letter. State the amount, the original terms, the late fees, and the consequence of non-payment.

60+ Days Past Due

• Evaluate whether to use a collections agency, file in small claims court, or write off the debt. The longer you wait, the less likely you are to collect.

Automate reminders through your accounting software. QuickBooks and Xero both support automatic payment reminders.

Require Deposits and Progress Payments

Do not fund your customers' projects. Structure payments to match your cash needs:

• Deposit: 25% to 50% before work begins. This covers initial materials and labor.
• Progress payments: Bill at defined milestones. 25% at framing, 25% at rough-in, etc.
• Final payment: Remaining balance due upon completion, before you hand over the final deliverable.

This dramatically reduces your receivables exposure and ensures you are never financing an entire project out of pocket.

Accept Multiple Payment Methods

The fewer barriers to payment, the faster you get paid. Offer:

• ACH / bank transfer (lowest fees)
• Credit card (customers love it, you pay 2-3% but get paid immediately)
• Online payment links (embed a "Pay Now" button directly in your invoice)
• Checks (still common but the slowest option)

If a customer says "I can only pay by check and I need to wait for the mail," they are stalling.

Aging Report: Your Collections Dashboard

Run an accounts receivable aging report weekly. This groups outstanding invoices by how overdue they are:

• Current: Not yet due
• 1-30 days past due: Needs a reminder
• 31-60 days past due: Needs a phone call
• 61-90 days past due: Needs escalation
• 90+ days past due: Needs serious intervention or write-off consideration

Do not let invoices age silently. The aging report is your action list.

When to Fire a Customer

Some customers chronically pay late. They are not worth the revenue if they are destroying your cash flow. Calculate the real cost of carrying their receivable:

• Cost of borrowing to cover the gap
• Time spent chasing payment
• Opportunity cost of that cash

If a client consistently pays 60+ days late and ignores your terms, either require prepayment or stop doing business with them.

The Bottom Line

Accounts receivable management is not about being aggressive. It is about being professional, consistent, and proactive. Set clear terms, invoice immediately, follow up systematically, and do not let unpaid invoices silently drain your business.