Accounts Receivable Management: 10 Tips to Get Paid Faster and Reduce Bad Debt

Late payments are one of the biggest threats to small business survival. According to Atradius Payment Practices data, the global average Days Sales Outstanding (DSO) is 66 days, meaning most businesses wait over two months to collect what they are owed. For small businesses operating on thin margins, that delay can mean the difference between meeting payroll and missing it.

Accounts receivable (AR) management is the set of policies, processes, and tools a business uses to track, collect, and optimize outstanding customer payments. Effective AR management accelerates cash inflows, reduces bad debt write-offs, and strengthens customer relationships.

Here are 10 actionable tips to get paid faster and keep your cash flow healthy.

1. Set Clear Payment Terms Before Work Begins

Ambiguous payment terms are the root cause of most collection problems. Define and communicate your terms before delivering any product or service.

Your payment terms should specify:

• Due date — Net 15, Net 30, or Net 60 (shorter terms mean faster collection)
• Accepted payment methods — Bank transfer, credit card, check, digital wallet
• Late payment penalties — Typically 1% to 1.5% per month on overdue balances
• Early payment discounts — Such as 2/10 Net 30 (2% discount if paid within 10 days)
• Deposit requirements — 25% to 50% upfront for project-based work

Include these terms in your contracts, proposals, and invoices. Verbal agreements create disputes.

2. Invoice Immediately and Accurately

Delayed invoicing directly causes delayed payments. Every day between service delivery and invoice issuance is a day added to your collection timeline.

Invoicing best practices:

• Send invoices within 24 hours of delivering goods or completing services
• Include a unique invoice number, date, detailed line items, and total amount due
• Reference the purchase order number if applicable
• Include your payment terms and accepted payment methods directly on the invoice
• Attach supporting documentation (delivery receipts, time logs, project milestones)

Errors on invoices give customers a reason to delay payment while requesting corrections. Double-check every invoice before sending.

3. Offer Multiple Payment Methods

The easier you make it to pay, the faster payments arrive. Businesses that offer only bank transfer or check payments create unnecessary friction.

Consider accepting:

• ACH/bank transfer — Low fees, preferred for large B2B invoices
• Credit and debit cards — Higher fees (2% to 3%) but faster collection
• Digital wallets — PayPal, Stripe, or other online payment links embedded directly in invoices
• Automated clearing — Recurring payments for subscription or retainer clients

Platforms like Odoo, QuickBooks, and Xero allow you to embed payment links directly in digital invoices, enabling customers to pay with one click.

4. Automate Payment Reminders

Manual follow-up on overdue invoices is time-consuming and easy to neglect. Set up automated reminders at key intervals:

| Timing | Message type | Tone | |---|---|---| | 7 days before due date | Upcoming payment reminder | Friendly, informational | | Due date | Payment due today | Professional, direct | | 3 days past due | First overdue reminder | Polite but firm | | 14 days past due | Second overdue reminder | Firm, reference terms | | 30 days past due | Final notice before escalation | Formal, mention consequences |

Automation reduces the emotional burden of chasing payments and ensures no overdue invoice falls through the cracks.

5. Monitor Aging Reports Weekly

An accounts receivable aging report categorizes outstanding invoices by how long they have been unpaid: current, 1 to 30 days, 31 to 60 days, 61 to 90 days, and 90+ days.

This report is your early warning system. Key actions based on aging:

• Current to 30 days — Normal collection cycle; automated reminders handle this
• 31 to 60 days — Personal follow-up via phone or email; identify and resolve disputes
• 61 to 90 days — Escalate internally; consider pausing new orders for the customer
• 90+ days — Engage collection processes; evaluate write-off vs. continued pursuit

Review your aging report weekly, not monthly. The probability of collecting a receivable drops significantly after 90 days: collection rates fall from roughly 90% at 30 days to below 50% at 90 days.

6. Implement Credit Checks for New Customers

Not every customer deserves Net 30 terms. Before extending credit, evaluate the customer's ability and willingness to pay.

A basic credit evaluation includes:

• Trade references from other vendors the customer works with
• Credit reports from Dun & Bradstreet, Experian Business, or Equifax
• Financial statements for large credit requests
• Payment history from any prior transactions with your company

Set credit limits based on your findings. A new customer might start with prepay or Net 15 terms and graduate to Net 30 after demonstrating consistent payment behavior.

7. Offer Early Payment Discounts

Early payment discounts incentivize customers to pay ahead of schedule. The most common structure is 2/10 Net 30, which offers a 2% discount if the invoice is paid within 10 days, with full payment due at 30 days.

While 2% sounds small, the annualized return for the customer is significant (roughly 36%), making it an attractive proposition. For your business, collecting 98% of an invoice 20 days early is almost always better than waiting for 100% at day 30 or beyond.

8. Centralize AR Management in Your Accounting Platform

Scattered invoicing across email, spreadsheets, and manual records creates gaps. Centralize all AR activity in a single platform:

• Odoo Accounting offers built-in customer invoicing, automated follow-ups, aging analysis, and payment matching with bank statements
• QuickBooks Online provides invoice tracking, payment reminders, and receivable reports
• Xero includes invoice management, expected payment dates, and aged receivable dashboards

Centralization gives you a single source of truth for who owes what, when it is due, and what action has been taken.

9. Establish a Formal Collection Escalation Process

When friendly reminders fail, you need a defined escalation path. Document your process so every team member handles collections consistently.

Sample escalation process:

1. Day 1 to 30 overdue: Automated email reminders
2. Day 31 to 45: Personal phone call from account manager
3. Day 46 to 60: Written demand letter from finance team
4. Day 61 to 90: Pause future orders; offer payment plan
5. Day 90+: Engage collection agency or pursue legal remedies

Having a documented process removes ambiguity and ensures delinquent accounts do not languish without action.

10. Track AR KPIs Monthly

Measuring your AR performance helps identify trends and problems before they become crises.

Essential AR metrics:

• Days Sales Outstanding (DSO) — Average days to collect payment. Target: under 45 days.
• AR Turnover Ratio — Net credit sales divided by average AR. Higher is better.
• Collection Effectiveness Index (CEI) — Percentage of receivables collected vs. available for collection. Target: above 80%.
• Bad Debt Ratio — Write-offs as a percentage of total credit sales. Target: below 2%.
• Aging Bucket Distribution — Percentage of AR in each aging category. Healthy: 70%+ in current or 1 to 30 days.

Frequently Asked Questions

Q: What is a healthy DSO for small businesses? A: A DSO under 45 days is generally considered healthy. However, the ideal number depends on your industry and payment terms. If your standard terms are Net 30, a DSO of 35 to 40 days is reasonable.

Q: How do I handle a customer who consistently pays late? A: First, have a direct conversation to understand the cause. Then consider shortening their payment terms, requiring deposits, switching them to prepay, or applying late payment fees as specified in your terms.

Q: When should I write off a bad debt? A: Most businesses write off receivables after 120 to 180 days of non-payment, after all collection efforts have been exhausted. Consult your accountant regarding the tax implications of bad debt write-offs in your jurisdiction.

Improve Your AR with Professional Support

Managing accounts receivable effectively requires consistent processes, the right technology, and dedicated attention. ECOSIRE provides accounting services that include full AR management: invoicing, automated follow-ups, aging analysis, collection support, and cash flow reporting.

Whether you need help setting up automated AR workflows in Odoo, QuickBooks, or Xero, or want a dedicated team to manage your receivables end to end, contact us for a free consultation.