What is accounts receivable management? Tips and explanation

Accounts receivable management is a crucial part of every business’s financial operations. It covers all activities related to getting invoices paid on time. When managed properly, it helps maintain a healthy cash flow and reduces financial risk. With the right strategies and smart tools like Payt’s accounts receivable software you can streamline and automate this entire process.

Table of contents:

1. What is accounts receivable management?
2. Why is accounts receivable management important?
3. The accounts receivable management process in 7 steps
4. How to measure effective accounts receivable management?
5. Accounts receivable management in practice: How Payt helps
6. Frequently asked questions about accounts receivable management

What is accounts receivable management

Accounts receivable management is the process of making sure your customers pay their invoices on time. It starts with sending a clear invoice and ends when the payment is received. By staying on top of this process, you maintain control over your cash flow and avoid unpleasant financial surprises.

But there’s more to it than just sending an invoice. Effective accounts receivable management includes:

• Understanding whether your customer is able to pay
• Sending timely and appropriate payment reminders
• Making payment arrangements that work for both parties
• Maintaining personal, proactive communication with your customers

By reminding customers in a friendly but clear way, you increase the chances of getting paid on time—helping your business stay financially healthy and continue to grow.

It’s important to note that accounts receivable management is not the same as debt collection. A collection agency only gets involved when earlier reminders haven’t worked. The goal of accounts receivable management is to prevent it from getting to that point, by setting up a smart process and keeping the communication going.

Whether you’re a freelancer, a small business, or a larger organization, having a solid accounts receivable process in place helps you stay in control, save time, and ensure a stable cash flow.

Why is accounts receivable management important?

Effective accounts receivable management offers several key benefits:

• Prevents late payments: Timely follow-up helps minimize overdue invoices.
• Improves financial forecasting: Clear insight into outstanding receivables supports better budgeting and investment decisions.
• Strengthens customer relationships: Transparent communication about payments builds trust between you and your customers.
• Reduces workload through automation: Smart software tools cut down on manual tasks and improve overall efficiency.

By staying proactive and organised, you ensure a healthier cash flow and a more streamlined operation.

The accounts receivable management process in 7 steps

Accounts receivable management typically follows a structured 7-step process. These steps are carried out by an accounts receivable specialist and ensure timely payments and better cash flow control.

1. Send accurate invoices: Make sure invoices are sent promptly and include all necessary details.
2. Set clear payment terms and conditions: Define your terms upfront and communicate them clearly to your customer.
3. Send a friendly first reminder: If the due date passes without payment, send a polite reminder shortly afterward.
4. Follow up with a second reminder or formal notice: If there’s still no payment, send a more urgent follow-up.
5. Reach out by phone: Personal contact can help resolve misunderstandings and encourage prompt payment.
6. Escalate to a collection agency if needed: If internal efforts don’t work, you may consider external support.
7. Evaluate and improve your process: Regularly review your approach and adjust where needed to improve results.

With the right tools in place, like automation and smart workflows, you can streamline this entire process and get paid faster—without losing the human touch.

How to measure effective accounts receivable management

A well-structured accounts receivable management process helps you get paid faster and reduces financial risk. But how can you tell if your approach is truly effective? It starts with tracking the right metrics. By focusing on clear KPIs, you gain insight into the performance of your accounts receivable process and uncover opportunities for improvement.

Here are three key indicators to measure your success:

1. Average Days to Payment

How many days does it take, on average, for a customer to pay an invoice? This metric shows how quickly payments are coming in after invoices are sent. The lower this number, the healthier your cash flow. A downward trend usually reflects consistent follow-up and clear communication.

2. Days Past Due

In addition to the average payment term, it’s important to track how many days invoices are paid late. This tells you whether customers are consistently missing deadlines. A rising number may indicate weak follow-up or unclear payment terms.

3. Write-Off Rate

The percentage of invoices that eventually have to be written off due to non-payment should be kept as low as possible. This figure gives you a direct view of your credit risk. A low write-off rate suggests your accounts receivable process is effective at identifying and resolving payment issues early.

Monitoring these KPIs regularly helps you stay in control and avoid unpleasant surprises. And with the right software, you can track these figures effortlessly and improve them automatically—through smart reminders and actionable reporting.

Accounts receivable management in practice: How Payt helps

Managing your accounts receivable often takes more time than you’d like—especially if you’re sending many invoices or juggling multiple outstanding payments. With Payt’s accounts receivable management software, most of that work is taken care of for you.

Payt automates the entire process—from sending payment reminders to setting up payment plans. You stay in control, while follow-ups are handled automatically. That means more time to focus on what really matters.

Here’s what you gain with Payt:

• Save up to 80% of your time on accounts receivable tasks
• Get paid up to 40% faster on average
• Automated, consistent follow-up on outstanding invoices

More than 17,000 users rely on Payt every day. Want to see what it can do for your business? Download our brochure and discover how to make your accounts receivable process smarter, faster, and more personal.

Frequently asked questions about accounts receivable management

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