Top 10 Accounts Receivable Management Best Practices for 2025

Finance & Accounting

Top 10 Accounts Receivable Management Best Practices for 2025

Rick Johnson

November 9, 2022

Last updated on:

August 13, 2025

Read time: 5 mins

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Efficiently managing accounts receivable is a cornerstone of financial stability for any business. It underpins the seamless flow of cash and sustains a healthy bottom line. However, in today's fast-paced business landscape, marked by rapid transactions and evolving market dynamics, accounts receivable management presents its challenges.

These challenges, ranging from delayed payments to communication bottlenecks, can hinder cash flow and strain client relationships. In the face of these obstacles, implementing best practices becomes beneficial and imperative.

This blog delves into top accounts receivable management best practices and a comprehensive guide to navigating the challenges and optimizing financial processes in 2025.

According to the AR Pulse Check Survey of 2022, the data indicates that 52% of the respondents strongly believe in digitizing Accounts Receivable as a critical factor for attaining peak performance.

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Accounts Receivable Management Example Case Study

GeBBS Healthcare Solutions faced significant challenges in managing their accounts receivable (A/R), which led to substantial aged debit balances and a slow cash flow cycle. The company needed to reduce the high volume of outstanding receivables and improve their overall cash performance.

To overcome the challenges, GeBBS Healthcare Solutions implemented a comprehensive A/R cleanup and resolution strategy. Initially, the team identified the root causes of non-payment within their revenue cycle and recommended preventive measures. Next, they followed up with third-party payers and performed claims submissions according to a standardized operating procedure. They posted adjustments in real time using the client’s Epic-based patient accounting system. Finally, the outstanding balances were transferred to self-pay status once the insurance balances were resolved.

As a result of this approach, the firm reduced A/R from $68.2 million to $14.9 million within 11 months. It has achieved a net collection of $11.9 million, representing a 17.4% collection ratio. The company also realized a 27-to-one return on investment, significantly boosting cash flow and net revenue. (Source: ‘FTI Consulting’)

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Why do Business Need Accounts Receivable Management? — Figure 1 : Importance of Managing Accounts Receivable

Why is Efficient Accounts Receivable Management Important?

Effective accounts receivable management is crucial for maintaining the financial well-being of businesses. It ensures a steady cash flow for covering operational costs, investments, and growth strategies. One real-world example illustrating the importance of this management is the case of a small manufacturing company.

Imagine a manufacturing company that supplies materials to various clients. They follow best practices for accounts receivable management, sending clear and detailed invoices promptly after each transaction. They also utilize automated reminders for payment deadlines and offer various payment options, making it convenient for clients to settle dues. As a result, the company experiences fewer delayed payments and disputes.

This efficient management keeps the company's cash flow consistent and fosters stronger client relationships. The company's reliability and professionalism contribute to customer loyalty and referrals. In contrast, poor accounts receivable management could lead to delayed cash inflows, hampering the company's ability to meet its financial obligations and capitalize on growth opportunities.

Figure 2 : Accounts Receivable Workflow Process

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Accounts Receivable Management Process

A set of accounts receivable management best practices helps businesses implement the below processes for optimized financial stability.

Credit Policies and Terms:

Establish clear credit policies to determine customer creditworthiness.
Define payment terms and conditions (e.g., net 30 days).

Customer Onboarding:

Evaluate new customers’ creditworthiness.
Set credit limits based on risk assessment.

Invoicing:

Generate accurate and timely invoices using automated invoicing systems.
Include all necessary details to avoid disputes (e.g., invoice number, due date, payment methods).

Monitoring Receivables:

Regularly review aging reports to track overdue invoices.
Use accounting software to monitor outstanding receivables.

Collections:

Implement a systematic follow-up process for overdue invoices.
Send reminders and make follow-up calls to ensure timely payments.

Dispute Resolution:

Address and resolve any invoice disputes quickly.
Maintain clear communication with customers to resolve issues.

Incentives for Early Payment:

Offer discounts for early payments to encourage prompt settlement.

Reporting and Analysis:

Regularly analyze accounts receivable data to identify trends and issues.
Adjust credit policies and collection strategies based on analysis.

Key Components of Accounts Receivable Management

Invoicing and Billing: Accurate and timely invoicing is crucial for effective accounts receivable management. Invoices should contain clear details such as the amount owed, due date, and payment terms to avoid confusion and delays in payment.
Credit Management: This involves assessing the creditworthiness of customers before extending credit. Establishing clear credit policies helps reduce the risk of bad debts and ensures that only reliable customers are allowed credit terms.
Collection Strategies: Developing and implementing systematic collection processes is essential. This includes setting reminders, sending follow-up notices, and having dedicated personnel or teams for collections. The goal is to ensure timely payments while maintaining customer relationships.
Payment Terms and Conditions: Defining clear and standardized payment terms, such as Net 30, Net 60, or early payment discounts, helps set expectations for both parties. Clear payment terms encourage prompt payments and can be tailored to different customer types.
Cash Application: Proper cash application involves accurately recording customer payments against open invoices. This helps in reducing errors, preventing double payments, and ensuring that accounts are updated in real-time.
Aging Reports: Accounts receivable aging reports categorize outstanding invoices by the time they’ve been overdue. Regular monitoring of aging reports helps in identifying delinquent accounts and prioritizing collection efforts.
Dispute Resolution: A system for handling disputes and discrepancies is vital. Resolving billing disputes quickly and effectively can prevent payment delays and maintain customer satisfaction.
Bad Debt Management: Having a clear strategy for managing bad debts, including writing off uncollectible amounts or using third-party collection services, is essential for maintaining healthy financials.

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What is the biggest challenge in accounts receivable?

Balancing the timely collection of outstanding payments with maintaining customer relationships poses a significant challenge in accounts receivable. Striking this balance ensures cash flow and minimizes the risk of bad debts.

Read our blog ‘Top 6 Solutions to Overcome Accounts Receivable Challenges’to learn how to overcome challenges in AR.

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Accounts Receivable Problems and Solutions

Late Payments:

Problem: Customers frequently pay invoices late, affecting cash flow.
Solution: Implement stricter credit policies, offer early payment discounts, and regularly follow up on overdue invoices.

Inaccurate Invoicing:

Problem: Errors in invoices lead to payment delays and disputes.
Solution: Use automated invoicing software to reduce errors and ensure accurate billing.

High DSO (Days Sales Outstanding):

Problem: Extended collection periods increase DSO, affecting liquidity.
Solution: Monitor DSO regularly, offer incentives for early payments, and establish clear credit terms.

Poor Customer Communication:

Problem: Lack of communication can lead to misunderstandings and delayed payments.
Solution: Maintain regular communication with customers, providing timely reminders and updates on their account status.

Inefficient Collection Process:

Problem: Manual and disorganized collection processes hinder timely collections.
Solution: Streamline and automate the collection process, using software to track and manage receivables efficiently.

Unclear Credit Policies:

Problem: Vague or lenient credit policies result in inconsistent payment behaviors.
Solution: Develop and enforce clear, consistent credit policies and evaluate customer creditworthiness before extending credit.

Customer Disputes:

Problem: Frequent disputes over invoices delay payments.
Solution: Address disputes promptly, ensuring clear and accurate documentation and resolving issues quickly to maintain positive customer relationships.

To prevent these issues, businesses should adopt accounts receivable management best practices.

Accounts Receivable Management Best Practices

Here is the list of top 10 best practices for accounts receivable management.

1. Establish Clear Invoicing Procedures

Clarity and Consistency: Well-defined invoicing procedures ensure uniformity in billing, reducing confusion for both clients and your team.
‍Faster Processing: Clear procedures streamline invoice creation, leading to quicker deliveries and expedited payment processing.
‍Dispute Resolution: Transparent invoicing minimizes errors, reducing the likelihood of disputes and fostering better client relationships.
‍Professional Image: Clear invoices showcase professionalism, enhancing your brand's reputation and instilling trust in clients.
‍Efficient Follow-Up: When procedures are clear, following up on overdue payments becomes smoother, helping maintain a healthy cash flow.
‍Audit Readiness: Organized invoicing procedures prepare you for audits, ensuring accurate financial records and compliance with regulations.

2. Automate Invoicing and Payment Reminders

Timely Reminders: Automation ensures prompt payment reminders, reducing delays and improving on-time collections.
‍Resource Savings: Automated systems cut down manual intervention, saving time and allowing your resources to focus on strategic tasks.
‍Consistency: Automated reminders maintain consistent communication, preventing missed reminders and maintaining professional interactions.
‍Personalization: Automation can still incorporate personal touches, tailoring reminders to individual clients for a personalized experience.
‍Escalation Process: Automation enables systematic escalation of reminders, helping manage overdue accounts more effectively.
‍Cash Flow Optimization: Automatic reminders contribute to steady cash flow by reducing late payments and improving payment predictability.

3. Conduct Thorough Credit Checks and Onboarding

Risk Mitigation: Thorough credit checks identify high-risk clients, reducing potential bad debts and financial risks.
‍Informed Decisions: Detailed credit assessments aid in making informed onboarding decisions, ensuring clients align with your terms.
‍Tailored Terms: Comprehensive checks allow the tailoring of credit limits and terms based on customer creditworthiness.
‍Relationship Building: Transparent credit evaluations establish client trust, fostering long-lasting and mutually beneficial relationships.
‍Reduced Default Rate: Rigorous checks minimize the likelihood of default, enhancing the overall stability of your accounts receivable.
‍Financial Health: Effective onboarding ensures clients can meet obligations, contributing to your financial stability and growth.

4. Offer Multiple Payment Options

Flexibility: Offering diverse payment options accommodates various client preferences, enhancing customer satisfaction.
‍Global Reach: Different payment methods cater to international clients, making transactions smoother across different regions.
‍Faster Payments: Providing preferred payment modes expedites settlements, improving cash flow and reducing payment delays.
‍Reduced Barriers: Multiple options eliminate barriers that might hinder payments, resulting in higher on-time collections.
‍Adaptation to Trends: Embracing new payment technologies keeps you aligned with evolving industry trends and customer needs.
‍Competitive Edge: Offering convenient payment choices sets you apart from competitors, attracting more clients to your services.

5. Provide Early Payment Discounts and Incentives

Encourage Prompt Payments: Discounts incentivize clients to pay early, improving cash flow and reducing accounts receivable aging.
‍Win-Win: Early payment benefits both parties, as clients save money while you gain improved liquidity.
‍Strengthen Relationships: Incentives showcase your commitment to clients' success, fostering positive long-term relationships.
‍Predictable Income: Early payments create a more predictable revenue stream, aiding financial planning and stability.
‍Minimized Bad Debts: Timely payments lower the risk of bad debts, contributing to a healthier financial standing.
‍Market Reputation: Offering incentives highlights your customer-centric approach, enhancing your reputation in the market.

6. Implement Late Payment Penalties

Urgency for Payment: Penalties deter late payments, motivating clients to settle invoices promptly to avoid extra charges.
‍Fairness: Clear penalty terms demonstrate transparency and fairness in dealing with overdue accounts.
‍Compensation: Penalties compensate for the added costs and inconvenience caused by delayed payments.
‍Cash Flow Stability: Penalties discourage late payments, contributing to consistent and healthier cash flow management.
‍Prioritizing Payments: The prospect of penalties encourages clients to prioritize settling their invoices over other obligations.
‍Improved Collection Rate: Implementing penalties enhances the likelihood of collecting outstanding payments and reduces aging accounts.

7. Maintain Effective Communication Channels

Open Dialogue: Effective communication ensures clarity on payment terms, reducing misunderstandings and disputes.
‍Addressing Concerns: Regular communication channels provide clients the opportunity to voice concerns, leading to quicker issue resolution.
‍Building Trust: Transparent and consistent communication fosters trust, reinforcing strong client relationships.
‍Payment Updates: Communication keeps clients informed about payment statuses, promoting transparency in the process.
‍Customized Approach: Tailored communication allows for addressing individual client needs and preferences, enhancing satisfaction.
‍Early Intervention: Open channels enable early identification of payment issues, allowing proactive solutions before they escalate.

8. Regularly Reconcile Accounts and Identify Discrepancies

Accurate Records: Regular invoice reconciliation ensures your records align with client payments, minimizing errors and discrepancies.
‍Timely Corrections: Identifying discrepancies allows for swift correction, preventing prolonged inaccuracies.
‍Financial Clarity: Account reconciliation provides a clear financial overview, aiding strategic decision-making.
‍Audit Preparedness: Regular reconciliation makes you audit-ready, reducing stress during regulatory reviews.
‍Trust Building: Accurate accounts instill trust in clients, showing your commitment to transparent financial dealings.
‍Efficient Dispute Resolution: Swift identification of discrepancies simplifies resolution, maintaining healthy client relations.

9. Utilize Key Performance Indicators (KPIs) for Tracking

Data-Driven Insights: KPIs offer data-driven insights into accounts receivable performance, aiding informed decision-making.
‍Measurable Progress: KPIs enable you to track progress over time, identifying areas for improvement and celebrating successes.
‍Strategic Focus: Using KPIs directs attention to critical aspects like DSO (Days Sales Outstanding), guiding optimization efforts.
‍Early Warning Signs: KPIs serve as indicators for potential issues, allowing proactive measures to prevent future problems.
‍Goal Alignment: KPIs align with your business objectives, helping to measure AR effectiveness against overarching goals.
‍Comparative Analysis: KPIs facilitate benchmarking against industry standards, helping you stay competitive and agile.

10. Monitor Aging Reports and Analyze Patterns

Payment Trend Insight: Aging reports reveal payment patterns, enabling you to foresee and address potential delays.
‍Proactive Approach: Regular monitoring allows for proactive engagement with clients before overdue accounts accumulate.
‍Cash Flow Projection: Analyzing aging reports aids accurate cash flow forecasting, supporting financial planning.
‍Prioritized Actions: Aging reports help prioritize follow-ups, focusing efforts on accounts most in need of attention.
‍Customized Strategies: Patterns from aging reports guide tailoring strategies for different client segments, optimizing results.
‍Process Enhancement: Insights from aging analysis inform process improvements, leading to smoother accounts receivable management.

Accounts Receivable Management Software for Small Businesses

There are several accounts receivable management software options tailored for small businesses to streamline invoicing, payments, and collections. Businesses should utilize one of these software apart from following accounts receivable management best practices. Here are a few popular choices:

FreshBooks

Known for its user-friendly interface, FreshBooks offers features like automated invoicing, payment reminders, and expense tracking, ideal for freelancers and small businesses.

QuickBooks Online

A comprehensive accounting software that includes accounts receivable management features such as invoicing, payment processing, and customizable payment reminders.

Wave Financial

Free accounting software that includes invoicing, recurring billing, and payment tracking functionalities, suitable for freelancers and small businesses on a budget.

Zoho Invoice

Offers invoicing, payment reminders, and online payment options, with integration capabilities with other Zoho products for complete business management.

Xero

Provides invoicing, payment tracking, and automated payment reminders, with integration options for third-party apps to enhance functionality.

Conclusion

The future of accounts receivable management will likely involve advanced AI-driven solutions that streamline processes, enhance predictive analytics for accurate cash flow projections, and automate customer communication. Challenges such as increasing transaction volumes and evolving payment methods will drive the need for more adaptable and efficient systems, ensuring better debt recovery and reduced delinquencies. Hiring a partner can resolve these challenges and help businesses stay competitive by implementing accounts receivable management best practices.

Invensis is a renowned and specialized accounting company that excels in delivering accounts receivable services to businesses across various industries. With a reputation built on expertise, innovation, and reliability, we have established ourselves as a trusted partner for organizations seeking comprehensive and tailored accounting solutions. Contact us today to revolutionize your accounting processes with our AI-powered solutions. Contact us today to know about accounts receivable management best practices and transform your accounting processes with our AI-powered solutions.

Frequently Asked Questions

How to effectively manage account receivables?

Businesses should implement clear credit policies, regularly monitor outstanding invoices, and promptly follow up on overdue accounts to effectively manage accounts receivables. They also need to utilize accounting software for accurate tracking, offer multiple payment options, and maintain strong communication with customers to ensure timely payments.

What are the best practices for optimizing the accounts receivable AR process?

It is essential for businesses to establish accounts receivable management best practices including, clear credit policies, use automated invoicing systems, regularly reconcile accounts, and implement robust follow-up procedures for optimizing AR processes. They should also offer multiple payment options, monitor aging reports, and maintain effective communication with customers to ensure timely payments.

What is the 10 rule for accounts receivable?

The 10 Rule for accounts receivable suggests that businesses should aim to collect at least 10% of their outstanding receivables each month. This practice helps maintain healthy cash flow, reduces the risk of bad debts, and ensures timely payments.

How to collect AR faster?

To collect accounts receivable (AR) faster, businesses should implement accounts receivable management best practices such as automated invoicing, offer early payment discounts, and maintain clear credit terms. It is also necessary to regularly follow up on overdue invoices, use efficient communication channels, and offer multiple payment methods to facilitate quicker payments.

What are the techniques of receivable management?

Receivable management techniques include setting clear credit policies, using automated invoicing systems, regularly monitoring aging reports, and offering early payment discounts. Additionally, maintaining effective communication with customers, implementing strict follow-up procedures, and providing multiple payment options can enhance collection efficiency.

Rick Johnson

Rick is a highly accomplished finance and accounting professional with over a decade of experience. Specializing in delivering exceptional value to businesses, Rick navigates the complexities of the financial realm easily. His expertise spans various industries, consistently providing accurate insights and recommendations to support informed decision-making. Rick simplifies complex financial concepts into actionable plans, fostering collaboration between finance and other departments. With a proven track record, Rick is a leading writer who brings clarity and directness to finance and accounting, helping businesses confidently achieve their goals.