Accounts receivable process: steps to get paid faster

Published Monday 13 April 2026

Table of contents

• What is accounts receivable?
• Accounts receivable vs accounts payable
• What is accounts receivable management?
• Why does your business need an accounts receivable process?
• How the accounts receivable process works
• How to set up an accounts receivable process
• Streamline your accounts receivable process with Xero
• FAQs on accounts receivable

Key takeaways

• Establish clear written payment terms before starting any work, including specific payment deadlines, late payment consequences, and billing schedules to prevent misunderstandings and protect your business legally.
• Send invoices immediately after completing work or delivering goods, and consider using eInvoicing to reduce processing costs from $27-$30 per paper invoice to less than $10 per electronic invoice.
• Offer multiple payment options such as card payments, digital wallets, and direct debit to make it easier for customers to pay you quickly and improve your cash flow.
• Create a systematic follow-up plan for overdue payments with specific timelines, starting with friendly reminders at 7 days overdue and escalating to formal demands and collection agencies by 60 days overdue.

What is accounts receivable?

Accounts receivable is the money that customers owe your business for goods or services they have received but not yet paid for. It's recorded as a current asset on your balance sheet because it represents future cash you expect to collect.

When you sell something on credit, you create an invoice and send it to your customer. The amount on that invoice becomes part of your accounts receivable until the customer pays you in full.

Accounts receivable vs accounts payable

Money coming into your business and money going out are handled differently. While they sound similar, accounts receivable and accounts payable are opposites.

• Accounts receivable (AR): This is the money your customers owe you. It's an asset because it represents incoming cash.
• Accounts payable (AP): This is the money you owe to your suppliers or vendors. It's a liability because it represents outgoing cash.

Managing both effectively is essential for maintaining healthy cash flow.

What is accounts receivable management?

Accounts receivable management is the process of tracking, collecting, and recording money that customers owe your business. It covers everything from vetting new customers to chasing overdue payments.

This process covers several key activities that help you stay on top of customer payments. It includes:

• Customer vetting: Choose clients who pay on time
• Clear billing: Send accurate invoices promptly
• Payment terms: Set enforceable consequences for late payment
• Follow-up systems: Track and chase overdue accounts consistently

Why does your business need an accounts receivable process?

A solid accounts receivable process protects your cash flow and saves you time. A well-designed process brings several benefits to your business. Here's why it matters:

• Predictable income: Know exactly what's coming in and when
• Less admin: Spend less time chasing payments and more time on your business
• Early warning: Spot payment issues before they become bad debts
• Stronger relationships: Clear expectations build trust with customers
• Confident planning: Reliable cash flow lets you plan for growth

How the accounts receivable process works

The accounts receivable process, or cycle, follows a clear sequence to ensure you get paid for your work.

It typically includes these stages:

1. A customer places an order on credit.
2. You approve the credit and deliver the goods or services.
3. You send an invoice with clear payment terms.
4. You track the invoice and collect the payment.
5. You record the payment and update your accounts.

How to set up an accounts receivable process

Follow these steps to develop a watertight accounts receivable process to get paid faster.

1. Choose your customers carefully

Customer screening means checking a potential client's ability and willingness to pay before you extend credit. Researching for a few minutes upfront can save you months of chasing payments later.

Taking time to check potential clients before extending credit can prevent payment problems later. Here's how to vet new customers:

• Credit checks: Use your accounting software to verify their payment history, but note that providing formal credit assessments is an activity restricted to holders of an Australian Credit Licence
• Reference calls: Contact their other suppliers (with customer consent) to confirm payment reliability

2. Put payment terms in writing before you start

Written payment terms are the agreed rules for how and when customers pay you. Putting these in writing before you start work prevents misunderstandings and protects you legally if payments go wrong.

Your written terms should cover all the key details about payment expectations. Include these elements in every agreement:

• Billing schedule: When invoices will be sent
• Payment deadline: How long customers have to pay
• Late payment consequences: Interest, fees, or legal action. Enforce these terms consistently, as one EU study found that 60% of businesses never exercised their rights to claim compensation for late payments.
• Signed agreement: Get written approval before starting work

Different payment terms suit different business situations. Here are the most common payment terms small businesses use:

• Net 30: Full payment due 30 days after the invoice date. While recent data shows the proportion of small-business invoices paid within 30 days has risen to 67.6%, you can also use Net 15, Net 60, or any timeframe that suits your business.
• Due on receipt: Payment due as soon as the customer receives the invoice. Often used for one-off projects or new customers
• 2/10 Net 30: A 2% discount if paid within 10 days, otherwise full amount due in 30 days. Encourages early payment

3. Get a personal guarantee

Personal guarantee is a signed agreement where a business owner agrees to pay the debt personally if their business can't. This gives you two collection options instead of one.

Not every customer will sign a personal guarantee. Weigh how it protects you against the potential impact on your relationship.

4. Send your invoice quickly

Invoice quickly to get paid faster. The sooner you send an invoice, the sooner the payment clock starts ticking.

Speed up your invoicing process with these approaches. Best practices for faster invoicing:

• Send immediately: Invoice as soon as you complete work or deliver goods.
• Use eInvoicing: Your invoice goes directly into your customer's accounting software for instant processing. According to the ATO, while paper invoices cost $27–$30 to process, eInvoicing can reduce this to less than $10 per invoice.
• Automate recurring invoices: Set up automatic billing for regular customers.

5. Make it easy for customers to pay you

Multiple payment options make paying easier and get you paid faster. The easier you make it to pay, the sooner your money arrives.

Giving customers choices makes it easier for them to pay promptly. Offer customers these convenient payment methods:

• Card payments: Accept credit and debit cards online or in person
• Digital wallets: Enable PayPal, Apple Pay, and Google Pay
• Direct debit: Set up automatic bank transfers for recurring payments
• Contactless payments: Use tap-to-pay solutions for face-to-face transactions

6. Monitor payments closely

Track payments by monitoring every invoice from the moment you send it until the money hits your account. Accurate tracking helps you manage your cash flow effectively.

Consistent tracking keeps you informed about your outstanding payments. Follow these tracking habits:

• Maintain an invoice list: Record all outstanding payments in one place
• : Confirm when payments arrive
• Update payment status immediately: Mark invoices as paid the moment funds clear

7. Have a plan for overdue payments in your accounts receivable process

Overdue payment procedures give you a clear escalation path when customers don't pay on time, a common issue highlighted by the fact that 40% of assistance requests to the Small Business Ombudsman in late 2022 were related to payment times. Planning your steps in advance removes emotion from the process and ensures you follow up consistently.

Having a set schedule for follow-ups removes guesswork and keeps you consistent. Here's a typical escalation timeline:

1. 7 days overdue: Send a friendly email reminder
2. 14 days overdue: Make a phone call to discuss the payment
3. 30 days overdue: Send a formal written demand
4. 60 days overdue: Consider engaging a collection agency or seeking legal advice

Streamline your accounts receivable process with Xero

Building a watertight accounts receivable process is key to maintaining healthy cash flow. By automating tasks like sending invoices and payment reminders, you can get paid faster and reduce manual admin.

Xero gives you a real-time view of your outstanding invoices, so you always know who owes you money and when it's due. You can focus on running your business, confident that your finances are under control. See how much simpler it can be and get one month free.

FAQs on accounts receivable

Here are answers to common questions about managing accounts receivable for your business.

What's the difference between accounts receivable and revenue?

Revenue is income you've earned, while accounts receivable is money customers haven't paid yet. You can record revenue before you receive payment, but accounts receivable only appears when payment is outstanding.

How do you calculate accounts receivable turnover?

Divide your net credit sales by your average accounts receivable. This ratio shows how quickly you collect payments. A higher number means you're collecting faster.

What happens to uncollected accounts receivable?

Uncollected accounts receivable may become bad debts. You can write off bad debts as a business expense, but you should exhaust all collection efforts first and document your attempts.

How long should you keep accounts receivable records?

Keep accounts receivable records for at least five years to meet Australian Tax Office requirements. This includes invoices, payment records, and correspondence about outstanding debts.