Accounts Receivable Best Practices for Small Business

Accounts receivable (AR) is money your customers owe you. On paper it looks like revenue, in real life it is either cash in your bank soon, or a pile of “I’ll pay next week” messages.

Small businesses struggle with AR for one reason: there is no system. Invoices go out late, reminders are inconsistent, and nobody is sure what to do when an invoice becomes overdue.

This guide gives you:

1. Accounts receivable process step by step
2. A practical set of accounts receivable best practices for small business
3. A simple follow-up cadence, KPIs, and an automation path

If you want the fastest “make this real” step, start here: automate invoice follow-ups with Can You Pay That.

Key takeaways

1. AR improves when you standardize three things: payment terms, invoice delivery, follow-up cadence.
2. Speed matters, invoice immediately after delivery, reduce back-and-forth with complete invoices.
3. Consistent reminders work better than emotional chasing, automate them once your copy and timing are set.
4. Track a few KPIs (aging and DSO are the foundation), and fix the biggest bottleneck first.
5. Good recordkeeping is not optional, it supports taxes, disputes, and clean reconciliation.

What accounts receivable is, and why it breaks in small businesses

Accounts receivable is the amount customers owe you for goods or services you already delivered.

AR breaks for small businesses in predictable places:

1. unclear payment terms (Net-30 “because that’s what people do”)
2. invoicing late (you finish the job, invoice a week later)
3. invoice delivery gaps (wrong contact, no CC to accounts payable)
4. friction to pay (no link, missing bank details, missing PO reference)
5. inconsistent follow-ups (you remember only when cash is tight)

The good news: AR is mostly process, not personality. A simple, repeatable system beats “being good at asking”.

Accounts receivable process step by step

Most SERP pages include a step-by-step process because it helps you see where money gets stuck. Typical AR process guides break it into invoice creation, delivery, tracking, collections, payment processing, and reconciliation.

1. Here is a small-business version you can actually run.

The AR process (step by step)

If you are using a bookkeeper, your part is steps 1–4 and step 6. The business wins are made there.

For recordkeeping expectations, especially if you need to support income and expense reporting, the IRS guidance is clear that you should maintain records that show your business transactions and support your tax filings.

15 accounts receivable best practices (small business friendly)

These best practices show up repeatedly across AR resources: clear policies, accurate customer data, fast invoicing, consistent reminders, documentation, and automation.

I am grouping them into four buckets so you can implement them in order.

A) Prevent problems before you invoice

1) Set clear payment terms (and put them everywhere)

Write them in your proposal, contract, and invoice: due date, payment methods, currency, and late fee policy if you use one. Xero’s AR process guidance explicitly includes setting clear terms and following up on overdue payments as core parts of a “watertight” process.

Reference: https://www.xero.com/au/guides/accounts-receivable-process/

Implementation

1. Default terms for small clients: Net-7 or Net-14
2. Default terms for bigger clients: Net-14 or Net-30 (if they insist)
3. “Due on receipt” for small one-off jobs where you want fast close

2) Confirm the right billing contact on day one

The most common AR delay is sending invoices to the wrong person.

Implementation

1. Collect: billing contact name, email, company legal name, address, VAT/tax ID if relevant
2. Ask: “Do you need a PO number or vendor onboarding?”

3) Require a purchase order or billing reference when needed

Procurement-driven businesses will not pay without internal references.

Implementation

1. Add a required field on your invoice creation checklist: PO number or “Not required”
2. For retainers, confirm whether they need a monthly PO refresh

4) Reduce AR with better billing structure

If you routinely carry large receivables, fix the structure:

1. 50% upfront
2. milestones tied to delivery
3. retainers with predictable pay cycles

Use this practical breakdown: billing models that reduce late payments.

B) Invoice fast and invoice well

5) Invoice immediately after delivery (or milestone completion)

Sage’s AR process overview includes invoice generation and delivery as early steps, delay here delays everything.

Reference: https://www.sage.com/en-gb/blog/accounts-receivable-process/

Implementation

1. Put “invoice within 24 hours” as a rule
2. If you run projects, invoice at milestone sign-off, not month end

6) Make invoices easy to approve

Approval delays are usually “missing info”.

Implementation

1. Always include: invoice number, due date, amount, services delivered, and payment instructions
2. Include PO/vendor ID when applicable
3. Attach proof of delivery when it helps (link to deliverable, sign-off email)

7) Offer multiple ways to pay

Making it easy to pay is repeatedly cited as an AR best practice (including in Wise’s AR best practices list).

Reference: https://wise.com/gb/blog/accounts-receivable-management

Implementation

1. At minimum: bank transfer instructions
2. If possible: card or payment link for small invoices
3. For international clients: clarify currency and fees

8) Use consistent invoice numbering and reference lines

This helps customers route payments and helps you reconcile.

Implementation

1. Standard invoice number format
2. Put invoice number in email subject line and payment reference instructions

C) Collect consistently (without awkwardness)

9) Use a reminder cadence, not random follow-up

Xero and other AR guides emphasize that following up on overdue invoices should be part of the standard process, not an improvisation.

A simple cadence:

1. Reminder before due date
2. Reminder on due date
3. Reminder after overdue, escalating gradually

For a full timing playbook, use best invoice reminder schedule.

10) Use templates so the tone stays professional

You should not be reinventing wording when you are stressed.

Use invoice reminder email templates and subject lines and standardize your first, second, and final reminders.

11) Automate reminders and log the history

Automation is consistently recommended as an AR improvement lever, especially for invoicing and reminders.

Read how automatic invoice reminders work, then decide what you want automated first.

If you want to implement it without changing your invoice creation workflow, Can You Pay That for accounts receivable follow-ups is built around automatic, trackable follow-ups.

12) Document everything (agreements, promises, disputes)

Bill.com highlights documenting customer interactions and payment agreements as a best practice.

Reference: https://www.bill.com/blog/accounts-receivable-best-practices

Implementation

1. Log: “promised pay date”, “invoice resent”, “needs PO”, “dispute reason”
2. Keep communications in one thread per invoice when possible

13) Handle disputes with a tight SLA

Disputes are AR killers because they pause payment and create ambiguity.

Implementation

1. Create a rule: respond to disputes within 1 business day
2. Send a revised invoice quickly if needed
3. Pause reminder automation while the dispute is active

D) Reconcile cleanly and control risk

14) Reconcile payments weekly (at minimum)

If you do not reconcile, you will send reminders to people who already paid, which damages trust.

Implementation

1. Weekly reconciliation time block
2. Match payments to invoices, mark paid, stop reminders

15) Define a write-off policy and review aging monthly

Small businesses need a simple policy for bad debt and aging, not complex finance models.

Implementation

1. Monthly AR aging review (0–30, 31–60, 61–90, 90+)
2. Decide: collect, settle, or write off
3. For tax and audit sanity, keep supporting documentation and consistent records.

Follow-up cadence that does not feel awkward

Your follow-up system should feel boring:

1. it is consistent
2. it is polite
3. it includes everything needed to pay
4. it stops when paid

If you want a ready-made cadence and timing logic, use when to send invoice reminders.

If you want copy you can reuse, use invoice reminder templates.

KPIs to track (only the ones that matter)

Most businesses track too many metrics and change nothing. Start with these:

1) AR aging

How much is current vs overdue, grouped by time buckets. This tells you where to focus.

2) DSO (Days Sales Outstanding)

DSO estimates how long it takes to collect revenue. Many AR best practices lists recommend KPIs beyond DSO, but DSO remains a useful baseline when paired with aging.

3) Collection effectiveness

Simple version: “What percent of invoices due last month are now paid?”

4) Dispute rate

If disputes are frequent, your invoice quality or onboarding is the bottleneck.

Quick KPI rule

1. If aging is bad, fix follow-ups and payment friction first
2. If disputes are high, fix onboarding, terms, and invoice clarity first

Tools and automation (what to automate first)

You do not need an enterprise AR stack. You need to remove repetitive work and reduce missed follow-ups.

Automate in this order

1. Invoice delivery (send immediately, correct recipient, CCs)
2. Reminders (timed and consistent)
3. Payment convenience (payment link, portal, clear instructions)
4. Logging (what was sent, when, to whom)
5. Stop rules (stop reminders when paid)

To understand the workflow and why it reduces awkwardness, read get paid without chasing.

To implement it, check Can You Pay That.

Common AR problems and fixes

“They say they never saw the invoice”

Fix:

1. verify billing contact
2. resend with invoice attached
3. include invoice number in subject
4. log the resend

“Accounts payable needs a PO or vendor form”

Fix:

1. request requirements at onboarding
2. add a “PO required?” field to your invoice checklist
3. pause reminder automation until the missing requirement is solved

Partial payments or deductions

Fix:

1. record partial payment against invoice
2. confirm whether the remainder is expected or disputed
3. issue credit note or revised invoice when needed

“They keep promising next week”

Fix:

1. ask for a specific payment date
2. confirm payment method
3. if repeatedly broken, move to firmer escalation and adjust terms for future work (deposit or milestones)

Conclusion + CTA

Accounts receivable gets easier when you stop relying on memory and start relying on a system:

1. clear terms
2. fast, complete invoicing
3. consistent follow-up cadence
4. light automation
5. weekly reconciliation

If you want to turn these best practices into an automatic follow-up workflow, try Can You Pay That for accounts receivable follow-ups.

For more guides and playbooks, browse the Can You Pay That blog.

FAQ

What are accounts receivable best practices for small business?

Clear terms, correct billing contacts, fast invoicing, easy payment options, consistent reminders, documented communications, and regular reconciliation.

What are the steps in the accounts receivable process?

A typical process includes agreeing on terms, invoicing, sending the invoice, recording AR, following up, collecting payment, and reconciling.

How do I reduce late payments without damaging relationships?

Use predictable reminders, make paying easy (links and clear instructions), and escalate gradually while staying factual.

What KPIs should I track for accounts receivable?

Start with AR aging and DSO, then add collection effectiveness and dispute rate if you need more clarity.

How often should I send invoice reminders?

Most small businesses benefit from a pre-due reminder, a due-date reminder, and an overdue sequence that escalates gradually.

When should I write off an unpaid invoice?

After you follow your documented collection steps and determine it is not collectible, review monthly AR aging and apply a consistent write-off policy with supporting records.

How can I automate my accounts receivable process?

Automate invoice delivery, reminders, and tracking first. Then add stop rules when paid and a weekly reconciliation routine.

Need help tailoring this to your workflow? Contact Can You Pay That.