Collect account receivables faster: An Ultimate Guide

When a customer buys from you but doesn’t pay right away, those unpaid invoices or bills are called account receivables. Even though the payment hasn’t come in yet, there’s always a chance the customer may not pay on time—or at all. That’s why accounts receivable collection is so important.

Accounts receivable collections process is all about following up with customers and reminding them to pay their unpaid bills. In this article, you’ll learn not only when and how to collect receivables, but how to do it faster.

When should your business collect an account receivable?

You should start collecting an account receivable as soon as the payment status is due—and not a day later. timely manner

Your invoices should include clear payment terms that let customers know how many days they have to pay—usually 15 or 30 days after the invoice due date. But waiting until past the due date to remind your customer of their outstanding invoice, slows down your cash flow. To stay ahead, make sure to:

• Send reminders a few days before the due date.
• Check in on the due date if the payment hasn’t arrived.
• Follow up immediately once it becomes overdue.

Studies show that 63% of invoices are paid within 30 days of being issued, so the longer you wait, the harder it gets to collect outstanding receivables.

How to collect accounts receivable faster

If you want to speed up accounts receivable collection, you need a smart strategy and clear communication. Here are some of the most effective ways to collect accounts receivable faster:

• Offer early payment discounts for high-risk clients
• Send email or SMS reminders with appropriate timing and friendly tone
• Offer various payment options like credit cards, ACH/EFT payments, wire transfer, etc.
• Charge late payment fees
• Resolve disputes or issues quickly
• Require upfront deposits, advance payments or milestone payments to avoid chasing a big lump-sum payment

1. Offer early payment discounts for high-risk clients

To motivate customers to pay on the timely manner, consider offering early payment discounts. For example, you can offer a 2% discount if the customers pay within 10 days, otherwise full payment is due in 30 days​.

However, a 2% discount might sound small, but if too many customers take it, it can eat into your profits. A smarter approach is only offering this incentive to risky clients. You can review your payment history to spot the types of clients who often pay late. Then, offer the early payment incentive only to them.

2. Send email or SMS reminders

Instead of sending follow-up emails manually, let your invoicing software or payment system do the work for you. Most tools let you schedule email or SMS reminders to go out before the due date or on the due date, like 5, 15, or 30 days late.

Timing and tone matter. Send too many reminders, and your clients can feel like they’re being spammed. If you notice complaints, reduce the reminder frequency. Also, keep your messaging friendly to show you're not punishing them for being busy.

Friendly payment reminder example: Just a quick reminder that invoice #1023 for project or service name is due on due date. If you’ve already taken care of it, thank you! If not, I just wanted to make sure it didn’t slip through the cracks. Let me know if you have any questions or need anything from my side.

3. Offer flexible payment options

You should make it easy for clients to pay you by accepting credit cards, ACH/EFT, and other digital payment methods. The easier it is to pay, the faster you’ll get paid. If you are afraid of credit card fees, you can use Helcim Fee Saver to pass the credit card fees to the clients.

For larger invoices, ACH/EFT fees of 0.5% + 25¢, capped at $6 for transactions under $25,000 can help you save cost.

4. Charge late payment fees

Sometimes, people only pay on time because there’s a cost for being late. By clearly stating late fees in your terms (e.g. 1-1.5% flat fee), you set the expectation that late payments come at a price.

However, late fees may backfire or lead to disputes. That’s why it’s crucial to spell out your late fee policy clearly before your client signs anything. If a client is about to be late and subject to a fee, remind them of the policy in your email or SMS reminders. This keeps everything transparent and gives them a final nudge to pay on time.

5. Resolve issues quickly for timely payments

Sometimes, the reason for a late payment is a concern about the invoice and the customer is simply waiting for your response. Whether it’s a pricing error, missing paperwork, or a delivery problem, any confusion can put your payment on hold.

As soon as a customer raises a concern, work with them to investigate the issue, clarify details, or adjust the invoice if there’s been a mistake. The faster you clear the roadblocks, the faster you get paid.

6. Require upfront deposits or milestone payments

One way to avoid chasing large overdue receivables is to break it down into multiple smaller payments. For big projects, you can ask for a deposit before work begins. Then, break the rest of the payment into clear milestones. For example, structure milestone billing can look like this:

• 30% upfront
• 50% at the halfway point
• 20% upon completion

You can also create policies like pausing the projects until each milestone is paid. This keeps your account receivables under control and speeds up collections.

7. Offer payment plans

If a customer is falling behind and struggling to pay a large overdue invoice, you can set up a payment plan to split out the payments. For example, you could agree to let the client pay 25% of the invoice every two weeks for the next two months. You can use tools like Helcim Recurring Payments to collect account receivables automatically.

Make sure to get the plan in writing, signed by the client. While this won’t get you paid in full right away, it’s often better than no payments at all.

How to measure your account receivable collection effectiveness

You can’t improve what you don’t measure. Below are the metrics that show how efficiently you’re collecting:

• Days sales outstanding (DSO) measures the number of days it takes to collect the account receivables after a sale
• Average days delinquent (ADD) calculates how many days past the due date account receivables are collected
• Accounts receivable turnover ratio (ART) tracks how fast you collect account receivables year over year
• Collection effectiveness index (CEI) measures how much of your account receivables you actually collected
• Aging percentages identifies the percentages of your account receivables that have a high risk of becoming a bad debt. - Bad debt write-off rate calculates the percentage of account receivables are uncollectible

1. Days sales outstanding (DSO)

The Days Sales Outstanding (DSO) calculates the average number of days it takes to collect the account receivables after a sale.

The DSO formula: Days Sales Outstanding = (Accounts Receivable ÷ Total Credit Sales) × Number of Days in Period

For example, you run a small business that sends invoices to customers after delivering a service or product. Over the past 3 months (90 days), you’ve sent out invoices worth $270,000. At the end of 90 days, you’re still waiting on $90,000 that hasn’t been paid yet. Your DSO will be ($90,000 ÷ $270,000) x 90 days = 30 days

What this means: On average, it takes you 30 days to collect an account receivable after sending an invoice. You can compare this number to your payment terms. If your terms are net 30 and your DSO is at or below 30, you're on track. If it's higher, you need to improve your collection process.

2. Average days delinquent (ADD)

While DSO calculates how many days it takes to collect payment after a sale, the Average Days Delinquent (ADD) measures how many days past the due date account receivables are actually collected.

The ADD formula: Average Days Delinquent = DSO - Payment terms (days)

For example: On average, it takes you 45 days to collect an account receivable after sending an invoice, and your terms are net 30, then your ADD = 45 - 30 = 15 days. This means, on average, your clients are paying 15 days past the due date.

Why it matters: If your ADD is higher than zero, it means you might be able to collect the account receivables but the collections are still late. As a result, you may need to tighten your follow-ups or adjust your policies.

3. Accounts receivable turnover (ART)

The Accounts Receivable Turnover (ART) measures how many times you collect your average receivables in a year.

The ART formula: Accounts Receivable Turnover = Net Credit Sales ÷ Average Accounts Receivable

For example: Over the 12 months, you’ve sent out $1.2 million worth of invoices. Your accounts receivable is about $100,000. Your ART will be $1,200,000 ÷ $100,000 = 12

Why it matters: A higher AR turnover ratio of this year compared to last year means you’re turning receivables into cash more frequently.

4. Collection effectiveness index (CEI)

While the DSO and turnover rate focus on timing, CEI looks at how much of your collectible invoices you actually collected.

The CEI formula: CEI = 100 - (Bad Debt Write-offs ÷ (Beginning AR + New Invoices – Ending AR)) x 100

For example:

• Beginning accounts receivable (AR): You started the month with $50,000 in unpaid invoices
• New invoices: You sent out $200,000 in new invoices during the month
• Ending AR: At the end of the month, you still have $40,000 in unpaid invoices
• Bad debt write-offs: You had to write off $10,000 as bad debt

First, calculate the collectible amount: Collectible = $50,000 + $200,000 - $40,000 = $210,000. Then, your CEI will be: CEI = 100 - ($10,000 ÷ $210,000 x 100) = 95.24%

CEI of 95.24% means you collected 95.24% of the money that was available to collect. The closer the CEI is to 100%, the better job your team is collecting the account receivables.

5. Aging percentages

The aging report helps you count the number of account receivables in each overdue bucket. Below is the example report:

This example report means:

• Current: 60% of your total accounts receivable is still within the agreed payment terms
• 1–30 days: 20% of your invoices are overdue 1-30 days
• 31–60 days: 10% of your receivables are 1-2 months late.
• 61–90 days: : 5% of your invoices are 2-3 months late.
• 90+ days: 5% of your invoices are more than 3 months late.

Why it matters: The aging report tells you where your AR is piling up. If a growing percentage of invoices fall into the 61-90 day or above bucket, you’re getting in a danger zone as they are more likely to turn into bad debt.

6. Bad debt write-off rate

The Bad debt write-off rate calculates the percentage of account receivables that are uncollectible.

The formula: Bad debt write-off rate = (Bad debt write-off ÷ Total accounts receivable) x 100

For example, you billed customers for $1,000,000 worth of services last year. But some customers never paid, and after several follow-ups, you had to write off $10,000 as a loss. Your bad debt write-off rate will be $10,000/$1,000,000 = 1%.

Why it matters: A lower rate means your collection strategies are preventing uncollectible account receivables. According to a study, the average acceptable bad debt write-off rate is 0.16%. A great rate is below 0.02%, while a concerning rate is anything above 1.1%.

What payment tools can help you collect accounts receivable faster?

Payment tools help you get paid faster. Here are some of the most useful tools to speed up accounts receivable collection:

• Invoicing software helps you create, send and track invoice payments easily. Most come with automated reminders you can schedule to go out before, on, or after the due date—so you’re always following up on time without the manual work.
• Hosted payment page lets you create a custom checkout experience and add a “Pay Now” button directly to your website. It’s ideal for collecting deposits, advance payments, or one-time payments for services like consultation calls or bookings.
• Payment links allow you to share clickable payment links via email or SMS. Customers open the link, view a digital invoice, and click “Pay” right away.
• Recurring billing tool helps you set up automated payment plans to ensure timely payments on a fixed payment deadline—monthly, weekly, or however you need.
• Virtual terminal lets you process payments manually using saved card details from a client’s first transaction. It’s especially helpful for repeat billing, phone orders, mail orders, or collecting on overdue invoices.

What are the mistakes that delay accounts receivable collections?

Sometimes, the reason you’re not getting paid on time comes from invoice and operation mistakes. Here are some of the most common mistakes that cause slow payments:

• Invoice errors or missing information
• Unclear payment terms
• Over rely on “friendliness” at the expense of payment

1. Invoice errors or missing information

If your invoice is missing key details or contains mistakes, it may not get paid on time. If your clients have formal Accounts Payable (AP) departments, they will raise their concerns if it does not meet their internal requirements. Common errors include:

• No purchase order number
• Wrong billing address
• Math mistakes or incorrect totals
• Missing line items or vague descriptions

Make sure your team knows what each client requires—whether that’s a PO number, a specific reference code, or a billing contact. You can use an invoicing system that pulls data directly from sales orders to reduce manual entry and prevent errors before they happen.

2. Unclear payment terms

Vague payment terms can leave clients confused about the actual due date. For example, saying “Due in 30 days” isn’t clear—30 days from when? From the invoice date? Or from the day they read the email?

You should always include a specific due date on every invoice, not just a number of days. And if you charge late fees or offer early payment discounts, make sure those terms are clearly outlined in writing as well.

3. Over rely on “friendliness” at the expense of payment

Some small businesses avoid awkward conversations and let unpaid invoices slide. They keep doing work for clients who haven’t paid past bills or avoid enforcing their own policies out of fear of damaging the relationship.

Maintaining strong client relationships matters, but setting clear boundaries is also important. If a client is over 30 days late and doesn't answer your follow-up, it’s reasonable to put new work on hold until outstanding invoices are paid.

What is an example of account receivable collection?

Step 1: Contract signed with clear payment terms: A graphic design agency completes a $2,000 branding project for a small business client. The project includes net 15 payment terms, meaning the client has 15 days to pay after receiving the final invoice.

Step 2: Project delivered and invoice sent: The agency emails the invoice on the same day the project is delivered.

Step 3: Following up on unpaid invoices: On day 10, they send a friendly reminder to the client, thanking them for the opportunity and reminding them of the upcoming due date. On day 15, the agency sends another brief follow-up email and makes a quick phone call to confirm the invoice was received and to ask if there are any issues.

Step 4: Receiving the invoice payments: On day 18, the agency receives the $2,000 payment. The invoice is automatically marked as paid in the payment dashboard.

Free tools to collect account receivables faster

If you're tired of chasing payments, dealing with overdue invoices, or losing cash flow to manual processes, Helcim can help. Helcim gives you the free-to-access tools with no monthly fees to collect account receivables faster with no monthly fees and contracts.

• Online invoicing software: Send and track invoices, and set up automatic payment reminders so nothing slips through the cracks.
• Recurring payment: Set up automatic billing to avoid overdue payments.
• Virtual terminal: Collect overdue invoices and process repeating transactions in a few clicks.
• Payment links: Request the payments with a short link via SMS and emails.
• Hosted checkout pages: Create a customized checkout page and add a “pay now” button on your website to collect deposit or advance payments.

And if you’re worried about credit card fees, Helcim’s Fee Saver lets you pass those fees on to your clients for one-time payments. Whether you bill once or on a recurring schedule, Helcim can help you collect payments faster, reduce admin work, and improve cash flow. Sign up for Helcim today!

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FAQ

How to record accounts receivable (ar) collection

When a customer pays an invoice, you record the payment by reducing the accounts receivable balance and increasing your cash or bank account.

How to ensure effective accounts receivable management

Effective accounts receivable management starts with sending accurate invoices quickly and setting clear payment expectations. Use automated reminders and regular follow-ups to stay on top of outstanding payments. Track aging reports to prioritize overdue accounts and address issues early. Offering flexible payment methods and resolving disputes quickly also helps keep a healthy cash flow.

What is the most successful account receivable collection strategy?

The most successful collection strategy combines clear communication, proactive follow-ups, and convenient payment options. Setting clear terms at the start and automating reminders helps you stay ahead of late payments. Acting quickly on overdue accounts without damaging good customer relationships is key. Flexibility—like offering payment plans for struggling customers—can also improve recovery rates.

How to increase account receivable collection rate

You can increase AR collection by sending invoices promptly and setting clear payment terms upfront. Use automated reminders to follow up before and after the due date. Offer multiple payment options like credit card, ACH, and payment links to make paying easy. Also, be firm but polite with overdue accounts and consider setting late fees to encourage faster payments.