Managing accounts receivable if often overlooked or underemphasized in day-to-day operations. When businesses don’t give proper attention to collecting what they are owed, cash flow can quickly tighten, leading to added pressure and unnecessary expenses such as borrowing costs or even bad debt.

Every business owner should put just as much importance on collecting payment for delivered products or services as they do on driving sales growth and expanding market share. A well-structured and consistently executed collections process helps maintain healthy liquidity, reduces financial strain, and minimizes the need to rely on outside financing for working capital.     

Establish Internal and External Credit Policies

Effective accounts receivable management starts with a clear policy that both the business and its customers understand and follow. Credit terms should be stated clearly on every invoice (whether that be “Net 15”, “Net 30” or “Due on Receipt”) and may vary depending on the customer’s credit profile or level of risk.

Establishing that risk level is key. Reviewing credit bureau reports or checking references on a credit application can provide valuable insight when determining appropriate terms. Once those terms are set, it’s important to communicate expectations upfront so customers know exactly when a payment is due. If this is not acceptable to the customer, it’s far better to identify that early before any products or services are delivered, rather than a risk later.

Strong internal practices also play a major role. Invoicing should be prompt, accurate, and detailed. Leveraging electronic billing instead of traditional mail can speed up delivery, improve efficiency, and reduce the likelihood of errors.

Once invoices have been issued and recorded, the focus shifts to follow-up and collection. Accounts receivable should be monitored using an aging report, which classifies accounts by how long they’ve been outstanding, typically 0-30 days, 31-60 days, 61-90 days, and over 90 days from the invoice date.

Depending on the business, accounts may fall in any one of these categories. It is important to recognize those customers that continue to move into the 60+ day range. That may be a sign of trouble and certainly worth a phone call as a reminder for payment. Certainly, if all your customers are required to pay their invoice in 30 days, a past due notice or courtesy call shortly after the due date is a smart, proactive step.

As accounts become more delinquent, collection efforts should escalate. This may include additional invoices with late fees, formal notices, or communication outlining possible legal action. For businesses in industries like construction, where labor or material is involved, consulting with an attorney is advisable. Filing a mechanic’s lien may be necessary, and requirements can vary by state or even by county. Missing critical filing deadlines could significantly limit or eliminate your ability to recover the debt.

How a business manages delinquent accounts plays a major role in minimizing losses. Don’t forget to document all interaction with the customer. Thorough records can make all the difference if issues escalate.  

Conclusion

Collecting accounts receivable is a critical business function that requires a balance of financial discipline and effective customer service. By setting clear internal and external policies, issuing accurate and timely invoices, monitoring accounts, and following a structured collection process, businesses can improve cash flow and reduce risk while still maintaining strong customer relationships.   

About First Community Bank and Trust
First Community Bank and Trust is a privately-owned bank. Established in 1916 First Community Bank and Trust has been serving Beecher, IL, Peotone, IL and the surrounding communities for over 110 years. Our commitment to providing the best banking products and services is matched only by our outstanding customer service. We offer traditional community banking services, including mortgage, consumer, and commercial lending, as well as state of the art electronic banking services.

Press Contact:
Steve Koehn, Senior Vice President
First Community Bank and Trust
(708) 946-2246

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