A sale isn’t cash in your account until your customer pays. When unpaid invoices add up, it can be harder to cover payroll, supplier bills, taxes, and other upcoming expenses.

Accounts receivable is the money customers owe your business for work you’ve completed or goods you’ve delivered. Accounts receivable management is how you keep track of that money, from sending invoices and monitoring unpaid balances to following up and recording payments.

A consistent process can help you get paid sooner and make cash flow easier to manage. This guide covers how to manage accounts receivable, track outstanding and overdue invoices, and build a practical collection process for your small business.

What is accounts receivable?

Accounts receivable (AR) is the money customers owe your business for work you’ve completed or goods you’ve delivered but haven’t been paid for yet. That money stays in accounts receivable until the customer pays. It’s typically listed as a current asset on your balance sheet because you expect to collect it in the short term.

Say you finish a $2,000 consulting project and send your client an invoice with 30-day payment terms. Until they pay, that $2,000 is part of your accounts receivable. Once they pay, you record the payment, and the money is available to your business.

Having $2,000 in accounts receivable isn’t the same as having $2,000 available to spend. You still need to collect the payment.

Accounts receivable also differs from accounts payable:

• Accounts receivable: Money customers owe your business
• Accounts payable: Money your business owes suppliers and other vendors

What is accounts receivable management and why does it matter?

Accounts receivable management is how you handle unpaid customer invoices, from sending and tracking them to following up and recording payments. Spot late payments, resolve issues, and see how much money you’re waiting to collect with a consistent process. It can also make incoming payments more predictable, so you can plan upcoming expenses with a clearer view of your cash.

Sales don’t cover expenses until customers pay. When invoices regularly pass their due dates, you may have less cash available for payroll, supplier bills, taxes, or other expenses. That gap between money coming in and going out is why managing cash flow matters for small businesses.

Managing accounts receivable isn’t about chasing customers. It’s about setting clear payment expectations, sending invoices on time, making it easy to pay, and following up consistently when payments are late.

The goal is to collect what you’re owed on time without relying on memory or last-minute follow-ups.

What is the accounts receivable process from invoice to payment?

The accounts receivable process starts before you send an invoice and ends when you record the payment. Set payment expectations upfront, send invoices promptly, track what’s unpaid, follow up when needed, and record each payment. Using the same process for every invoice makes it easier to see what you’re owed, what’s overdue, and what needs your attention.

1. Agree on the work, price, and payment terms

Before starting work, confirm what you’ll provide, the price, and when payment is due. Clear invoice payment terms set expectations from the start.

2. Create and send the invoice

Send the invoice when the work is complete or according to the schedule you agreed on. Include what you provided, the amount due, due date, and payment instructions.

3. Track what you’re owed

Keep track of each unpaid invoice, including the amount and due date. You’ll be able to see which invoices are open, coming due, or overdue.

4. Follow up on unpaid invoices

Use a consistent reminder schedule instead of relying on memory. If a customer has a question or disputes an invoice, address it quickly so the issue doesn’t delay payment.

5. Record the payment

When the customer pays, record the payment against the right invoice so your invoice status and records stay up to date.

6. Check the payment against your bank account

Make sure the payment in your records matches what reached your bank account to catch missing, duplicate, or incorrectly recorded payments.

How can you manage accounts receivable and get paid faster?

Managing accounts receivable starts with making it clear what customers owe, when payment is due, and how to pay. Send invoices promptly, offer a variety of payment options, follow up consistently, and change your approach when customers repeatedly pay late. The goal is to reduce avoidable delays between finishing the work and getting paid.

Set payment terms before you start

Agree on the price, due date, deposit requirements, and payment methods before work begins. Put those details in writing so you and your customer know what to expect.

Send invoices promptly

Send your invoice as soon as the work is complete or payment is due. Make invoicing part of your workflow instead of leaving it until the end of the week or month.

Make invoices clear

Include the customer’s details, invoice number, description of the work, amount due, due date, and payment instructions. If your customer needs a purchase order number or other information, add it before sending.

Offer various ways to pay

Every extra step between receiving an invoice and paying it is a reason to pay later. With Wave Payments, customers can pay online by card or bank payment, depending on which options you’ve enabled.

Schedule invoice reminders

Use reminders instead of keeping every follow-up in your head. Wave Pro Plan users can schedule invoice payment reminders for outstanding invoices.

How can you manage accounts receivable and get paid faster?

Managing accounts receivable starts with making it clear what customers owe, when payment is due, and how to pay. Send invoices promptly, offer a variety of payment options, follow up consistently, and change your approach when customers repeatedly pay late. The goal is to reduce avoidable delays between finishing the work and getting paid.

Set payment terms before you start

Agree on the price, due date, deposit requirements, and payment methods before work begins. Put those details in writing so you and your customer know what to expect.

Send invoices promptly

Send your invoice as soon as the work is complete or payment is due. Make invoicing part of your workflow instead of leaving it until the end of the week or month.

Make invoices clear

Include the customer’s details, invoice number, description of the work, amount due, due date, and payment instructions. If your customer needs a purchase order number or other information, add it before sending.

Offer various ways to pay

Every extra step between receiving an invoice and paying it is a reason to pay later. With Wave Payments, customers can pay online by card or bank payment, depending on which options you’ve enabled.

Schedule invoice reminders

Use reminders instead of keeping every follow-up in your head. Wave Pro Plan users can schedule invoice payment reminders for outstanding invoices.

Use recurring billing for repeat customers

For customers, you bill on a schedule set up the invoice once, and Wave generates each one for you. If your customer authorizes automatic payments, Wave charges them each time an invoice is generated and emails a receipt.

In a 2023 analysis of more than 2.6 million Wave invoices, invoices with automatic payments and saved customer payment information were paid in 1.3 days on average.

With automatic payments but no payment information the average was 10.2 days. With neither:12 days.

Ask for deposits or milestone payments

For larger projects, consider collecting part of the payment upfront or at agreed milestones. This reduces the amount left unpaid when the project ends.

Review customer payment patterns

If a customer regularly pays late, consider changing their payment terms, asking for a deposit, or following up earlier on future invoices.

How do you track outstanding and unpaid invoices?

Track outstanding invoices by recording what each customer owes, when payment is due, and whether the invoice is overdue. Review overdue invoices weekly so late payments don’t get missed. An aged receivables report groups unpaid invoices by age, helping you see which need attention first.

An outstanding invoice hasn’t been paid. An overdue invoice is still unpaid after its due date. Knowing the difference allows you to follow up at the right time.

Use an aged receivables report

Group unpaid invoices by how long they’ve been outstanding:

Common groups include:

• Not yet due
• Up to 30 days overdue
• 31–60 days overdue
• 61–90 days overdue
• More than 90 days overdue

Review overdue invoices each week

Check overdue invoices weekly and all unpaid invoices monthly. Prioritize follow-up based on the amount owed, how late it is, the customer’s payment history, and unresolved questions or disputes.

A consistent collection timeline keeps follow-up from depending on memory:

Before due date → Send reminder → Due date → Check for payment → 7 days overdue → Follow up → 30+ days overdue → Contact customer and review next steps

If an invoice remains unpaid, your options may depend on the amount, your agreement with the customer, and local laws. Get legal or tax advice when needed.

Which accounts receivable metrics should small businesses track? 

Small businesses should track seven core accounts receivable metrics: total accounts receivable, overdue amounts, invoice age, average time to pay, and bad debt. These metrics show exactly how much customers owe you, what is past due, and how long payments take. Compare these numbers over time to spot collection problems before they put pressure on your cash flow.

Focus on metrics that help you decide what needs attention:

• Total accounts receivable: How much customers currently owe you
• Overdue amount and percentage: How much of that total is past due
• Invoice aging mix: How much is 1–30, 31–60, 61–90, or 90+ days overdue
• Average time to pay: How many days customers typically take to pay
• Days sales outstanding (DSO): The average time between a sale and collecting payment, based on a standard DSO calculation
• Accounts receivable turnover: How often your business collects its average accounts receivable balance during a period
• Bad debt rate: The share of customer balances you don’t expect to collect

$10,000 in accounts receivable may not be concerning if most invoices aren’t due yet. If $6,000 is more than 60 days overdue, more of that money may need your attention.

BDC report that most companies target an average collection period of 30 to 45 days. Treat that as a reference point, not a rule. Payment terms and industry norms vary, and BDC's own advice is to compare your credit policies against others and your industry. Your trend is more than the benchmark – a collection. Moving from 38 days to 47 tells you something a single number can't.

What are common accounts receivable management mistakes?

Common accounts receivable mistakes include sending invoices late, using unclear payment terms, leaving out information customers need to pay, and following up inconsistently. Unresolved disputes and repeat late payments can also leave more money outstanding. A clear process for invoicing, tracking, and follow-up keeps unpaid invoices from getting overlooked.

• Sending invoices late: Every delay pushes back expected payment date
• Using vague payment terms: Clearly state the amount due, due date, and payment methods
• Leaving out required details: Missing contact information, purchase order numbers, or customer requirements can delay payment
• Relying on memory: Track due dates and use reminders to stay on top of unpaid invoices
• Leaving questions or disputes unresolved: Address issues quickly so they don’t delay payment
• Keeping the same terms for repeat late payers: Consider deposits, shorter payment terms, or earlier follow-up
• Ignoring invoices you don’t expect to collect: Don’t delete an unpaid invoice from your records. If you determine it won’t be collected, follow the correct process to write off the invoice and get accounting or tax advice if needed

How can better accounts receivable management help your business get paid faster?

Better accounts receivable management gives you a consistent way to invoice customers, track unpaid balances, and follow up when payments are late. Clear payment terms, prompt invoices, more ways to pay, and regular reviews can reduce avoidable delays and help turn completed work into money available to your business sooner.

The key is consistency. Know what customers owe, what’s overdue, and what needs your attention each week instead of waiting until unpaid invoices pile up.

With Wave Invoicing, you can create and send invoices, track their status, and record payments as the arrive — keep customer payments organized in one place.

Accounts receivable FAQs:

What is accounts receivable in simple terms?

Accounts receivable is money customers owe your business for goods or services you’ve already provided but haven’t been paid for.

Is accounts receivable an asset?

Yes. Accounts receivable is typically a current asset because it represents money your business expects to collect.

What’s the difference between accounts receivable and accounts payable?

Accounts receivable is money customers owe your business. Accounts payable is money your business owes suppliers and other vendors.

What’s the difference between an outstanding and overdue invoice?

An outstanding invoice hasn’t been paid. It becomes overdue when it remains unpaid after its due date.

How often should you review accounts receivable?

Review overdue invoices weekly so you can follow up promptly. Review all unpaid invoices monthly to spot payment patterns and older balances that need attention.

How can you reduce unpaid invoices?

Set clear payment terms, invoice promptly, offer a variety of payment methods, and follow up consistently. For repeat late payers, consider deposits, shorter payment terms, or earlier reminders.

When should you write off an unpaid invoice?

Consider a write-off when you determine an invoice is unlikely to be collected. Follow the appropriate accounting process and get professional advice if you’re unsure how a write-off applies to your business. Wave explains how to write off an invoice in your records.