Accounts Receivable Management: A Practical System for Getting Paid

A working process has five parts:

1. Invoice promptly and accurately. Send invoices when the work is delivered or the milestone is reached, not batched at month-end, with the purchase order, terms and contact the customer’s payables team needs.
2. Decide credit before extending it. Set terms for each new customer deliberately (see the 5 C’s below) instead of defaulting to whatever was offered last time.
3. Review the aging on a fixed schedule. Weekly for businesses with many customers; at minimum as part of every month-end close, reconciled to the general ledger.
4. Escalate by written trigger. Each aging bucket has a defined action and owner, set in advance rather than decided under pressure.
5. Reserve and write off by policy. A documented allowance for doubtful accounts, with documented evidence and approval for allowances and write-offs.

This table is a starting framework. The day counts are examples to adapt to your terms and customers, not a standard.

Two details make the table work. Credits and unapplied payments must be cleaned up each month, because credit balances can be unapplied receipts, valid customer credits or posting errors. Determine which before changing them. And the aging must agree to the general ledger, or every decision in the table rests on the wrong numbers. Our accounts receivable aging guide covers reading the report itself.

Compare it first with your own history, calculated the same way each month. Published industry figures help only if you pick the right one. In the federal government’s 2024 Financial Performance Data for Canadian businesses with CAD 5 million to 20 million in revenue, the median gap between the highest and lowest published collection-period estimates across revenue quartiles within each usable four-digit industry group is about 19 days, and 192 of 244 industry groups (79%) have a gap of 10 days or more (analyzed October 2026). These are revenue-ranked groups, not rankings of individual firms by collection speed. The difference shows how the chosen comparison group can change the reference figure.

Within the 244-group comparison, 241 groups have an E-grade underlying AR estimate, and ISED warns that collection period is not very relevant for construction, financial and real estate industries. These estimates should not become collection targets. The published figure is also not quite your DSO: it divides all receivables, including some non-trade claims, by total revenue. Our research note on industry collection period benchmarks explains how to read the data, its suppression codes and quality grades, before you compare.

The 5 C’s come from credit analysis, and they apply directly to deciding how much credit to give a customer before enforcing your own terms:

• Character. Has this customer paid reliably before, or is late payment already a pattern?
• Capacity. Can they actually pay, based on cash position and payment history?
• Capital. What financial cushion do they have if business slows?
• Collateral. Is anything securing the receivable, or is it unsecured trade credit?
• Conditions. What is happening in their industry or the wider economy that could affect their ability to pay?

A relationship is useful context, but it does not replace a documented credit limit and review of payment ability. Where receivables insurance is in place, the insurer’s requirements tend to impose that discipline.

If you plan to sell the business, your receivables will be tested in the buyer’s quality of earnings review. In that work, our team will typically review:

• Old balances. Invoices sitting well past terms, for example beyond 120 days, get a direct question: is the customer short of cash, is there a dispute, or are they waiting on something from you?
• Uncollected balances not written off. In one QoE review, our team challenged balances that remained over 90 days past due for a year. Age triggers investigation; assess disputes, subsequent receipts and customer circumstances before deciding the allowance or write-off.
• Bad debt history. A diligence team may compare historical write-offs with an evidence-based recurring loss estimate. Any normalization needs a documented basis; adding back bad debt without replacing the recurring cost overstates earnings.
• Deposits billed as receivables. Test whether an invoice creates an enforceable receivable and whether a corresponding contract liability is required. Advance billing can produce both AR and deferred revenue; the contract and accounting framework decide the entries.
• Negative balances and misposted credits. Investigate whether these are valid credits, unapplied cash or posting errors before correcting the aging.

Old receivables also matter after closing. A buyer inherits the receivables included in the working capital target, so uncollectible balances left in that figure cost the buyer real cash. The net working capital guide explains how that target is set. A seller can run the same tests in advance; our QoE readiness check is a starting point, and our transaction advisory services team can take it further.

It depends on volume. A controller can own the policy, review the aging and approve reserves and write-offs. Day-to-day follow-up is a separate task that needs consistent attention, and it fails quietly when it depends on one person’s memory. Automating the first reminders frees that time for the calls and judgments that need a person. The test is simple: if no one would notice for a month that follow-ups had stopped, the process has no owner.

For businesses that want AR built into a reliable monthly close, with an aging that reconciles and a controller who reviews it, see our fractional controller support for private companies.