Don’t Waste Time! Here’s How to Improve Your Accounts Receivable Department   

Have you ever left your phone at home? The moment you reach for it, you realize it’s not there. That can be a painful feeling, depending on how much you use your phone.   

Now, imagine running a business with a dysfunctional accounts receivable department. It’s the same feeling, but worse.   

You expect money to come in, but it doesn’t. You send invoices, but they get ignored. You follow up, but it just doesn’t work. If your AR processes are inefficient, your cash flow suffers, and just like that missing phone, it throws everything into disarray.  

So, let’s break down how you can improve the accounts receivable department once and for all.   

What is the Accounts Receivable Department?  

The accounts receivable department is the lifeline of your business’s cash flow. Their job is to make sure you get your owed money on time.   

The team is responsible for sending invoices, tracking payments, and following up on overdue balances to keep your revenue stream flowing smoothly.  

But most importantly, how you manage AR directly affects how customers perceive your business. Yeah, you read that right!   

A study titled “Does managing customer accounts receivable impact customer relationships and sales performance? An empirical investigation” findings suggest that accounts receivables from customers and salespersons’ customer orientation strongly impact relationship building and improve customer-related performance.    

So, a poorly managed AR department doesn’t just hurt cash flow; it can strain client relationships, damage trust, and ultimately hurt your bottom line.  

How to Improve Your Accounts Receivable Department?  

Now that we’ve established the role of your AR department let’s talk about how to make it stronger, faster, and more efficient.  

1. Go Digital  

Are you still relying on paper invoices and mailed checks? Paper invoices get lost, checks take forever to process, and manual tracking is inefficient. It’s time to digitize the process of your accounts receivable.  

Here are some of the benefits of going digital:   

• Switching to electronic invoicing and online payment options eliminates delays and reduces human error. Digital invoices reach clients instantly, while online payment links make it easier for them to pay.  

• Integrating billing and payments ensures invoices, payments, and records update automatically, eliminating manual tracking. Invoicing software with built-in payment processing allows clients to pay directly from their invoice, reducing friction in the payment process.  

• Systematic follow-ups eliminate the need for constant payment chasing. The right invoicing system enables automated payment reminders while keeping client communication personalized. Instead of sending multiple follow-up emails manually, the system takes care of it, ensuring payments stay on track without extra effort.  

Businesses that offer online payment options get paid significantly faster. If cash flow is a priority, making payments effortless should be your first step.  

2. Measure Performance   

If you’re not measuring performance, you’re flying blind. Tracking key performance indicators in your accounts receivable department ensures that your payment processes are running efficiently and helps you find potential issues before they turn into cash flow problems.  

Here are the essential AR metrics you should monitor:  

Days Sales Outstanding (DSO)   

This tells you the average number of days it takes to collect payment from clients. The lower the DSO, the better your cash flow. Ideally, you should aim to keep it under 30 days to avoid excessive delays in getting paid.  

Average Days Delinquent (ADD)   

This measures how many days, on average, client payments are overdue. A rising ADD suggests inefficiencies in your billing and collection process. If this number climbs, it’s time to evaluate whether invoices are being sent promptly and if your team is following up effectively.  

Accounts Receivable Turnover Ratio   

This metric shows how quickly you’re converting invoices into cash. A low ratio means you’re collecting revenue efficiently, while a high ratio suggests a large number of unpaid invoices. If this number is climbing, it’s a signal to tighten up your billing and collections strategy.  

Collection Effectiveness Index (CEI)   

This tells you how successful your business is at collecting outstanding payments. A CEI close to 100% means you’re doing a great job ensuring that invoices don’t go unpaid. A lower percentage indicates that a large portion of your revenue is still tied up in uncollected accounts.  

Revised Invoices   

If your business frequently has to correct and resend invoices, that’s a sign of inefficiencies in your billing process. A rising number of invoice revisions can lead to payment delays, customer frustration, and increased administrative work. Keeping this number low means fewer disputes, faster payments, and a more professional billing operation.   

3. Do Proper Record Keeping  

A well-structured billing process is the foundation of an efficient accounts receivable department. Without clear procedures, invoices get delayed, payments slip through the cracks, and follow-ups become inconsistent.   

To avoid this, document every step of your billing workflow so everyone on your team follows the same playbook.  

Your billing process should include:  

• Billing periods and invoicing dates – Define when invoices are generated and sent out to maintain consistency.  

• What information should be included on each invoice? Ensure all invoices contain essential details like purchase order numbers, addresses, and payment terms to avoid disputes and delays.  

• Record-keeping procedures – Establish a system for logging invoices and payments to maintain financial clarity.  

• Periodic AR process assessment and follow-up – Regularly review your billing performance to identify inefficiencies.  

• Collections procedures for overdue payments – Have a structured approach to handling late payments, from gentle reminders to formal collections.  

In addition to your standard billing steps, maintain client-specific documentation that includes:  

• Keep an up-to-date list of the correct points of contact for payments.  

• If certain clients have specific invoicing requirements, document them to prevent errors.  

• Track past payment behaviors, preferred payment methods, and any recurring issues.  

4. Set Credit and Collection Policies  

Extending credit to clients can help build strong business relationships, but without clear credit policies, it can also turn into a cash flow nightmare.   

If you decide to offer credit, establish firm guidelines that ensure you’re not overextending to risky clients. Your team should have a straightforward process for determining when to approve or deny credit requests.  

At the same time, a well-defined collection policy helps you stay ahead of overdue accounts instead of reacting to them.   

Here’s how to make your credit and collections policies work for you:  

• Be proactive, not reactive. Instead of waiting until an invoice is past due, send multiple friendly payment reminders leading up to the due date. This keeps the client informed about payments.   

• Integrate payment reminders into every customer touchpoint. Whether it’s a customer service call or an email follow-up, take the opportunity to remind clients of upcoming payments.  

• Consolidate past-due invoices in your communications. If a customer has multiple overdue invoices, you need to include all outstanding balances in your reminder. This strategy avoids confusion and keeps them accountable for their full payment history.  

5. Collect Payments Regularly  

The best way to avoid cash flow issues is to stop waiting for payments and start collecting them. A structured, proactive approach to payment collection ensures that invoices don’t slip through the cracks and late payments don’t pile up.  

Set up a process where your team reaches out immediately when a payment is overdue. On day one of a missed payment, send a gentle but firm reminder to the client, reinforcing their payment terms and outlining the exact steps they need to take to settle their balance.  

Automation makes this even easier. With the right system, you can:  

• Send automatic payment reminders the moment an invoice becomes overdue.  

• Schedule follow-ups at regular intervals (weekly, biweekly) until the payment is received.  

• Give clients a way to pay by providing direct payment links in every communication.   

6. Set Up Automation  

If you are chasing payments manually, you are wasting time. The key to making your accounts receivable process smoother is automating the most repetitive and time-consuming tasks.   

The most tedious AR tasks that should be automated include:  

• Payment reminders and follow-ups – Set up automatic emails to notify clients before their due date, on the due date, and at regular intervals after a missed payment.  

• Invoice generation and delivery – Automatically send invoices to clients as soon as services are rendered or products are delivered.  

• Payment confirmation emails – Send a quick thank-you note when a payment is received to maintain professional, seamless communication.  

One of the most common mistakes businesses make is sending a generic balance reminder without listing specific outstanding invoices.   

This can confuse clients, delay payments, and create unnecessary back-and-forth. Instead, use customer portals or AR automation software to provide a clear, itemized breakdown of what’s owed and when it’s due.  

7. Make the Payment Process Easy  

Most payment delays don’t happen because clients don’t want to pay. They happen because the process is frustrating, unclear, or inconvenient.   

If customers struggle to receive, view, or process your invoices, or if your payment methods are outdated, you’re creating unnecessary roadblocks that delay cash flow.  

To eliminate friction in the payment process, set up a system that automates part of your AR workflow.   

Here’s how to fix a broken payment strategy:  

• Use a payment portal that consolidates everything in one place—invoice details, payment due dates, and payment options—so clients don’t have to dig through emails.  

• Stop assuming late payments mean bad clients. If late payments are a constant issue, it’s likely your invoicing process, not your customers.   

• Offer multiple payment options. Provide online payment methods like credit cards, ACH transfers, or digital wallets so clients can pay instantly.  

• Make invoices easily accessible. Use an electronic invoicing system that sends invoice details inside the email.   

• Include direct payment links in your invoices, making it possible for clients to pay in just one or two clicks.   

8. Involve All Teams in the Process  

Who should be responsible for cash collection? If your answer is “only the finance team,” you might be missing a crucial piece of the puzzle.   

Sales teams aren’t just responsible for closing deals; they should also ensure that those deals turn into revenue.   

While they shouldn’t be managing collections entirely, they have a direct line of communication with customers at key touchpoints that finance teams don’t always have.   

If clients are slow to pay and it’s not a technical issue, there may be deeper issues at play—such as unclear communication, unmet expectations, or service disputes. Sales and success teams, who have ongoing relationships with customers, can help pinpoint these issues before they turn into chronic late payments.  

How Can AR Management Automation Software Be a Game-Changer?  

Managing accounts receivable manually is a time-consuming, error-prone process that drains resources and slows down cash flow. The solution is automating your AR process to eliminate inefficiencies and improve payment collection.  

At InvoBill, we make collecting customer payments effortless and efficient. Our accounts receivable automation software helps you:  

• Send automatic, personalized payment reminders to customers as soon as invoices become overdue, so you never have to chase payments manually.  

• Track your KPIs with simple financial reports, giving you insights into outstanding balances, overdue payments, and collection performance.  

• Improve collaboration across sales and finance teams with shared dashboards, automated communications, and task management—ensuring that everyone stays aligned on receivables.  

With the right AR automation tools, you can get paid faster, reduce human error, and free up your team’s time to focus on what really matters—growing your business.   

Final Thoughts   

Late payments aren’t always a customer issue; sometimes, they’re a process issue. If you fix the bottlenecks, you’ll see results.  

With the right strategies and the right AR management software, you can turn your accounts receivable department into a revenue-driving machine. Now, it’s time to act and get paid on time!   

FAQs  

What are Accounts Receivable Collections?  

Accounts receivable collections refer to the process of following up on unpaid invoices, ensuring timely payments, and reducing overdue balances to maintain healthy cash flow.  

Which things are needed for accounts receivable?  

You need a clear invoicing system, defined payment terms, tracking tools for overdue accounts, a follow-up process, and automation to streamline collections.  

How do I deal with a late-paying customer?  

You should send polite but firm reminders, offer multiple payment options, charge late fees if necessary, and communicate clearly to understand any payment issues.