Accounts Receivable Process: Steps to Get Paid Faster

Published Thursday 19 March 2026

Table of contents

• What is an accounts receivable process?
• Why a strong accounts receivable process matters
• Steps to build your accounts receivable process
• Build consistency into your accounts receivable process
• Streamline your AR process with Xero
• FAQs on accounts receivable process

Key takeaways

• Establish clear payment terms and credit approval processes upfront by running credit checks on new customers, setting appropriate credit limits, and getting written agreement on payment deadlines and late payment consequences before starting any work.
• Create a systematic collections schedule that escalates consistently for every overdue invoice, starting with friendly reminders on the due date and progressing through phone calls, formal notices, and potential legal action at predetermined intervals.
• Send invoices immediately after completing work and offer multiple convenient payment options like credit cards, direct debit, and online portals to remove friction and speed up payment collection.
• Monitor your accounts receivable weekly using accounting software to track invoice status, aging categories, and customer payment patterns, then adjust credit terms or end relationships with consistently late-paying customers.

What is an accounts receivable process?

The accounts receivable process is the system your business uses to track, collect, and manage money owed by customers. In Canada, accounts receivable are governed by official accounting standards for Financial Instruments, Section 3856, and the process covers every step from the moment a sale is made on credit to the moment payment lands in your account.

A strong AR process helps you find customers who pay, bill them correctly, communicate clearly, and enforce consequences for late payment.

Why a strong accounts receivable process matters

Your AR process directly controls how quickly money moves from customers to your bank account. Without a reliable system, revenue stays trapped in unpaid invoices instead of funding your operations.

A weak AR process creates real problems:

• Cash flow gaps: You can't pay suppliers, staff, or yourself when money is stuck in overdue invoices
• Wasted time: Chasing payments manually pulls you away from running your business
• Bad debt losses: Invoices left too long become harder or impossible to collect
• Strained relationships: Inconsistent follow-up creates confusion and frustration for customers

A strong AR process does the opposite. It brings money in predictably, saves time through consistent systems, and keeps customer relationships professional. The difference often determines whether a business thrives or struggles to stay afloat.

Steps to build your accounts receivable process

Creating a repeatable process helps you get paid faster and more consistently. Here are the key steps to building a watertight system for your business.

1. Establish customer onboarding and credit approval

Not every customer is worth the risk. Before extending credit, do your homework to avoid chasing payments later.

Here's how to vet new customers:

• Run a credit check: Find out if they have a history of paying on time
• Ask their other suppliers: Contact businesses that already work with them to learn about their payment habits
• Set credit limits: Start with smaller amounts until they prove reliable. This mirrors practices in the financial sector, where some institutions' commercial lending activities are limited to 5 per cent of total assets to manage risk.

2. Set clear payment terms upfront

Payment terms define when invoices are due and what happens if customers don't pay them. Canadian accounting standards have specific rules for handling a change in certain critical terms of a debt contract. Get these agreed in writing before you start any work.

Your payment terms should include:

• Payment deadline: Specify net 30, net 60, or your preferred timeline
• Late payment consequences: Outline interest charges, fees, or potential legal action
• Accepted payment methods: List how customers can pay you
• Customer signature: Written agreement obtained before starting work

Clear terms prevent misunderstandings and give you grounds to act if payment is late.

3. Secure payment agreements (when necessary)

A personal guarantee makes a business owner personally liable for unpaid invoices, not just their company. This gives you an additional path to recover money if the business can't or won't pay.

Consider requesting one when:

• you're extending significant credit to a new customer
• the business is relatively new or has limited credit history
• the order size represents a meaningful risk to your cash flow

Be aware that some business owners may push back on this request. Use your judgment based on the relationship and risk involved.

4. Send invoices promptly and accurately

Send invoices immediately after completing work or delivering goods. The sooner you bill, the sooner you get paid.

Every invoice should include:

• Clear description: What you provided and when
• Amount due: Itemized costs with total clearly visible
• Payment deadline: The specific date payment is due
• Payment instructions: How and where to send payment
• Your contact details: So customers can reach you with questions

Delays in invoicing often lead to delays in payment. Make it a habit to send invoices the same day work is completed.

5. Offer convenient payment options

The easier you make it to pay, the faster you get paid. Offering multiple payment options removes friction and gives customers fewer reasons to delay.

Consider accepting:

• Credit and debit cards: the most common payment method for business transactions
• Direct debit: automatic collection of payment on the due date
• Digital wallets: Apple Pay, Google Pay, and similar contactless options
• Online payment portals: options that let customers pay directly from your invoice
• In-person contactless payments: card and digital wallet payments accepted using just your phone with Xero's Tap to Pay

The more options you offer, the fewer excuses customers have for paying late.

6. Track invoices and monitor payments

Track every invoice from the moment you send it until it's paid in full. Knowing exactly what's outstanding helps you manage AR effectively.

Set up a system to monitor:

• Invoice status: Sent, viewed, due, overdue, or paid
• Aging categories: Current, 30 days, 60 days, 90+ days overdue
• Payment history: Which customers pay on time and which don't
• Bank reconciliation: Match incoming payments to specific invoices

Check your outstanding invoices at least weekly. Accounting software can automate this tracking and alert you when invoices become overdue.

7. Manage collections systematically

Create a collections schedule and follow it consistently for every overdue invoice. Having a written plan removes emotion from the process and ensures no account slips through the cracks.

A typical escalation timeline looks like this:

• Due date: Send a friendly payment reminder
• 7 days overdue: Send a second reminder with the invoice attached
• 14 days overdue: Call to confirm receipt and discuss payment
• 30 days overdue: Send a formal past-due notice with late fee warning
• 60 days overdue: Issue a final demand letter
• 90+ days overdue: Consider involving a collections agency or legal action

Stick to your policy consistently. Making exceptions trains customers to expect leniency.

Phone calls are essential for collecting overdue payments. Email is easy to ignore, but talking directly holds people accountable and often resolves issues faster.

When you call about an overdue invoice:

• Confirm satisfaction first: Ask if they're happy with the work or products delivered
• State the facts: Let them know the invoice is overdue and the amount outstanding
• Ask for commitment: Request a specific date when you can expect payment
• Document the conversation: Note what was discussed and any promises made

A brief, professional call often accomplishes more than multiple reminder emails.

Review customer payment patterns regularly. Your accounting software should show you which customers consistently pay late. Patterns of late payment signal a need to change the relationship.

For customers who are always late, consider:

• Offering different payment methods: They may find another option more convenient
• Shortening payment terms: Move from net 60 to net 30, or net 30 to net 15
• Requiring deposits: Ask for partial payment upfront before starting work
• Switching to payment on delivery: Remove credit entirely for high-risk customers
• Ending the relationship: Some customers cost more to collect from than they're worth

Choosing customers who pay reliably is essential to AR management.

Learn more about chasing outstanding invoices.

8. Handle invoice disputes professionally

Invoice disputes happen when a customer questions or refuses to pay an invoice. How you handle them affects both your cash flow and your customer relationships.

When a customer disputes an invoice:

• Respond quickly: Acknowledge the dispute within 24–48 hours
• Gather information: Review the original agreement, delivery records, and any communication
• Listen to their concern: Understand exactly what they're disputing and why
• Investigate fairly: Check whether the complaint is valid before pushing back
• Propose a resolution: Offer a reasonable solution that addresses legitimate concerns
• Document everything: Keep records of the dispute and how it was resolved

Most disputes happen because customers misunderstand something, not because they act in bad faith. Responding professionally often preserves the relationship while still getting you paid. If a customer disputes invoices repeatedly without valid reasons, that's a sign to reconsider the relationship.

9. Know when to write off uncollectible debt

Writing off bad debt means accepting that no one will pay an invoice and removing it from your accounts receivable. It's a last resort, but sometimes it's the right business decision.

Consider writing off an invoice when:

• Your collection efforts have failed: You've followed your full escalation process without result
• The customer has disappeared: You can't reach them and the business may have closed
• The cost exceeds the value: Legal fees or collection agency costs would exceed the amount owed
• Significant time has passed: You'll find it increasingly difficult to collect invoices over 180 days old

Before writing off debt:

• Attempt a final collection: Send a last demand letter stating your intention to write off and report the debt
• Document your efforts: Keep records of every time you attempted to collect for tax purposes
• Consult your accountant: You may be able to deduct bad debt from taxes, but rules vary by province
• Update your records: Remove the invoice from active receivables and record it as a bad debt expense

Writing off debt doesn't mean you've failed. It means recognizing when trying harder won't pay off and freeing your time to focus on customers who do pay.

Build consistency into your accounts receivable process

Managing AR effectively requires you to be consistent. Treat every customer the same way, follow the same timeline, and take the same actions at each stage. A predictable process protects your cash flow and means you don't have to guess when collecting.

Your AR process should:

• Communicate expectations clearly: Tell customers your payment terms before work begins
• Invoice promptly: Send bills immediately after you complete work or reach a billing cycle
• Follow up systematically: Take the same collection actions on the same schedule for every overdue account
• Escalate when necessary: Know when to involve collections agencies or legal support

For more guidance on getting paid, see our guide to invoicing.

Streamline your AR process with Xero

Building a watertight AR process is easier with the right tools. Xero's cloud accounting software helps you manage invoicing, track payments, and follow up on overdue accounts from one place.

With Xero, you can:

• Send invoices instantly: Create and send professional invoices as soon as you complete work
• Track payment status: See which invoices customers have paid, which are due, or which are overdue at a glance
• Automate reminders: Set up automatic payment reminders so you don't have to chase manually
• Accept payments easily: Let customers pay directly from invoices with multiple payment options
• Monitor cash flow: See how outstanding invoices affect your cash position in real time

Access Xero features for 30 days, then decide which plan best suits your business.

• Get one month free
• See all features

FAQs on accounts receivable process

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

What are the five C's of accounts receivable management?

The five C's are a framework for evaluating customer credit risk: Character (payment reputation), Capacity (ability to pay), Capital (financial resources), Collateral (assets that secure the debt), and Conditions (economic factors affecting payment). For example, federal guidelines consider a company's capital by assessing if they have capital of over $25 million before permitting certain levels of commercial loans.

Use this framework when deciding whether to extend credit and how much to offer new customers.

What is the 10% rule for accounts receivable?

The 10% rule is a risk signal: if 10% or more of a customer's balance is severely past due (typically 90+ days), treat their entire account as higher risk. This may mean tightening credit terms, reducing their credit limit, or requiring payment upfront for new orders.

How long should I wait before following up on an overdue invoice?

Send your first reminder on the due date or within one–two days after. Follow up again at seven days, call at 14–30 days, and escalate to formal collection actions at 60–90 days. The exact timing depends on your payment terms and customer relationship.

Can I charge interest or late fees on overdue invoices in Canada?

Yes, if the fees are stated in your payment terms and agreed to before work begins. Late fees must comply with provincial regulations. Common approaches include a flat fee per overdue invoice or monthly interest on the outstanding balance. Consider whether enforcing fees is worth how it might affect customer relationships.

What's a healthy accounts receivable turnover ratio?

The accounts receivable turnover ratio measures how quickly you collect payments. Calculate it by dividing annual credit sales by average accounts receivable. A ratio of seven–ten times per year is generally healthy, meaning you collect the full value of your receivables every five–seven weeks. Higher is better, but the ideal ratio varies by industry and payment terms.