To manage accounts receivable, set written credit terms before you sell, invoice the same day the work is done, review an aging report every week, follow up on a fixed schedule, and track days sales outstanding (DSO) so slippage shows up early. When slow payers squeeze cash flow, invoice financing or a line of credit can bridge the gap.
What does managing accounts receivable involve?
Managing accounts receivable means controlling the money customers owe you for work already delivered: deciding who gets credit and on what terms, billing promptly, tracking what is overdue, and collecting it. Receivables count as an asset on paper, but until they are paid they are not cash you can spend on payroll or rent.
That gap between earning revenue and collecting it is one of the most common pressures small firms report. In the Federal Reserve's 2025 Small Business Credit Survey of employer firms, 51% cited uneven cash flows and 56% cited paying operating expenses as financial challenges over the prior year. A business can be profitable on its income statement and still run short of cash because too much of its revenue is sitting in receivables.
The goal is not to stop offering terms, which many B2B customers expect, but to make sure terms are deliberate, invoices go out fast and overdue balances get attention while they are still easy to collect.
Set credit terms before the first invoice goes out
Clear credit terms agreed in writing before any work starts prevent most collection problems. Decide who qualifies for terms, how long they have to pay, what deposit large jobs require and what happens when an invoice is late, then put it on the quote, the contract and every invoice.
- Screen new accounts. A short credit application with trade references and a billing contact costs nothing and tells you who is likely to pay late.
- Match terms to your cash cycle. Net 15 or net 30 is common; avoid offering net 60 to a customer simply because they asked if your own bills are due in 30.
- Take deposits on large or custom jobs. A deposit covers materials and reduces your exposure if the customer stalls.
- State the late-payment policy. If you charge late fees or interest, write the terms down and check what your state allows.
Early-payment discounts work, but price them carefully. Terms of 2/10 net 30 mean a customer can take 2% off by paying 20 days early. Giving up $2 to receive $98 twenty days sooner works out to roughly a 37% annualized cost ((2 ÷ 98) × (365 ÷ 20)), so offer it only when faster cash is worth that much to you.
How to read an aging report and calculate DSO
An accounts receivable aging report sorts unpaid invoices by how long they have been outstanding, usually current, 1 to 30, 31 to 60, 61 to 90 and over 90 days past due. Reviewing it weekly shows which customers to call first; the older an invoice gets, the harder it is to collect.
Days sales outstanding turns the aging report into one trend line. The formula is accounts receivable divided by credit sales for a period, multiplied by the number of days in that period. Worked example: a contractor has $48,000 in open receivables and made $144,000 in credit sales over the last 90 days. DSO is ($48,000 ÷ $144,000) × 90 = 30 days. If that contractor's terms are net 15, customers are paying about two weeks late on average, and the cash tied up in that delay is roughly $24,000.
Track DSO monthly in the same spreadsheet or accounting software you use for your cash flow forecast. A rising DSO is an early warning that a customer is in trouble, that invoices are going out late, or that terms have quietly loosened.
A collections routine that gets you paid without losing customers
A fixed follow-up schedule collects more than occasional chasing because every overdue invoice gets the same polite, predictable pressure. Most owners send a reminder before the due date, follow up on the day it is due, call within a week of it going late, and pause new work once an account is 30 days or more overdue.
- 3 days before due: a friendly reminder with the invoice attached and a payment link.
- On the due date: a short note confirming the amount and how to pay.
- 7 days late: a phone call to the billing contact to find the real reason and agree a date.
- 30 days late: hold further work or deliveries and offer a written payment plan.
- 60 to 90 days late: a formal demand letter, then a collections agency or small-claims court for balances worth pursuing.
For scripts and how to handle a single large client who keeps paying late, see how to handle late-paying customers. When the receivables are solid but the wait is hurting cash flow, you can turn them into working capital: invoice factoring sells the invoices for cash now, invoice financing borrows against them, and a business line of credit covers the gap and resets as customers pay. The Broker Shop is a broker, not a lender, so one application lets you compare funders offering each option; invoice financing vs invoice factoring explains the difference.
Invoices out, cash not in yet?
One 2-minute application is matched to the funders whose guidelines you meet. It's free, and checking your options won't affect your credit score.
See What I Qualify For →The bottom line: Receivables stay healthy when terms are set in writing up front, invoices go out the day the work is done, an aging report and DSO are reviewed on a schedule, and overdue accounts get the same follow-up every time, with financing used only to bridge the wait.
Frequently asked questions
Sources: Federal Reserve Banks — 2025 Report on Employer Firms, Small Business Credit Survey (51% of employer firms cited uneven cash flows and 56% cited paying operating expenses as financial challenges)