5 Steps to Improve Your Accounts Receivable Management

Managing Accounts Receivable: 5 Steps from an Accounting Expert

Every 30 days an invoice goes unpaid, your business suffers. When customers are slow to pay, your cash flow takes the hit. You might not be able to make payroll or buy the supplies you need to run your business.

In the worst of circumstances, you could go out of business.

When you learn how to effectively manage your accounts receivable, you can help your business survive and thrive.

Disclaimer: This content is for informational purposes only and shouldn’t be considered legal advice or a substitute for obtaining such advice specific to your business.

What is accounts receivable management?

Accounts receivable management (also known as AR or A/R management) are the policies and procedures you use to manage overdue customer invoices or non-payments.

You use this process to make sure your customers pay their invoices, no matter what. It ensures that your cash flow is healthy and that your business stays afloat.

READ MORE: What is accounts receivable collections?

What are the five steps to manage account receivables?

Having a solid accounts receivable process in place can help you deal with customers who won’t pay for services in a timely manner and limit any financial risks.

Not to mention, it can lead to healthy cash flow and greater profitability for your home service business.

Here are five steps to better manage your account receivables process:

Step 1: Put job payment terms in writing and document your agreement

Before you start the work, make sure how and when you get paid is documented and agreed to by your client.

Include a detailed description of your payment terms on your service contracts and quote templates. This could include any required deposits, late fees for overdue payments, or even discount incentives for quick payments.

Then walk your client through the agreement to make sure they understand and ask them to sign off on it.

Step 2: Send an itemized and professional invoice

For your invoice to be effective, it needs to answer the following questions:

  1. What are your clients paying for?
  2. When is the payment due?
  3. How can they pay their outstanding balance?

Keep this in mind when creating a professional invoice for your clients. 

Include an itemized service and product list that provides clients with a detailed description of the services (including service dates), and the cost of each line item. This helps to avoid confusion or disputes when it comes time to collect payment for your services.

(Don’t forget to customize your invoices with your company branding, contact information, and detailed payment terms and conditions.)

READ MORE: What to include on an invoice: must-haves to get paid

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Step 3: Determine if credit should be extended to a client

As a small service business, you have no way of knowing the bad debts your client may have. So determining whether credit should be extended to a client may take a bit more leg work.

Initiate a conversation with your customer to find out what is holding them back from making a payment. Use your best judgment and make the decision on a case-by-case basis. 

Most clients aren’t actively trying to scam you. There are a lot of reasons why, even your best customers, might miss a payment.

For example, they may be going through a family or personal emergency, lost their job, or are experiencing an issue with their bank that’s stopping the payment.

It’s also possible that you’ve made a mistake and sent the invoice to the wrong phone number or email address.

When you use invoicing software and a CRM, you’ll have accurate client contact details available at your fingertips. This ensures you’re sending the right invoices to the right clients.

How to extend credit to your clients

If you decide to extend credit to your clients, keep these tips in mind:

  1. Listen to your gut and only extend credit to clients who you trust.
  2. Set clear terms that cover how much credit you’ll be extending, when payment is due, how payment will be collected, and any penalties for late payments.
  3. Track payment deadlines to make sure your client is maintaining their end of the agreement.

Step 4: Follow up with an automated invoice reminder

Your clients are busy people and sometimes they just forget they have an invoice waiting to be paid. Sending an automated follow-up is a gentle reminder they need to make a payment and a great tool for your accounts receivable collections.

Pro Tip: Manual reminders can take up a lot of time and are difficult to track with multiple invoices on the go. Use Jobber’s automated follow-ups to send payment reminder letters to clients with outstanding invoices.

example of accounts receivable management invoice follow ups

Step 5: Set up your A/R collection efforts

At the end of the day, you need to get paid for your services. So if all other attempts fail, you may need to get a collections agency involved.

The key to this is proper documentation.

Having a signed contract that clearly states your payment terms, as well as copies of your sent invoice and reminders, will support your legal action.

Send a final notice to the client to tell them the account will go to collections if payment isn’t received in a set period of time. Speak with a lawyer first to make sure you are approaching things legally and your wording is effective.

Then do your research to find a debt collector that’s successful, affordable, and reputable. 

Why is accounts receivable management important?

Your accounts receivable management is important to your bookkeeping because it directly impacts your business’s cash flow. Maintaining a steady cash flow allows you to pay your employees, purchase supplies, tools, and other assets, and reinvest in your business.

Without a steady flow of cash moving into your company, you may be unable to keep up with business demands and can even face bankruptcy.

What are the best practices to improve your accounts receivable management?

You now know how to create a winning accounts receivable process, but implementing a few best practices will take you that extra mile.

  • Send electronic invoices

The manual process of handwritten invoices is unprofessional and hard to read, but worst of all they’re impossible to track.

Invoicing software makes it easier to keep your accounts receivable process organized. 

When you complete a service, an electronic invoice is automatically generated using the line items on the job. This makes it quick and easy to send professional and itemized invoices to your clients. 

Pro Tip: Check the status of all your invoices at a glance with Jobber’s invoice tracking. You’ll see which invoices have been sent, what payments are outstanding, and which jobs still need to be invoiced, so nothing slips through the cracks.

example of accounts receivable management invoice tracking

  • Keep customer info organized with a CRM

Use a field service CRM to keep client info organized and at your fingertips. This will help you better manage your accounts receivable process, and store any documentation you may need down the road—all in one place.

With Jobber’s CRM it’s easy to track all of your customer details, including:

    • All emails, texts, and letters
    • Quotes and invoices
    • Completed jobs
    • Payment reminders and follow-up messages
    • On-my-way text messages
    • Images and checklists from a job

example of accounts receivable management CRM


Jobber makes it easy to see which invoices are sent or outstanding and sends reminders to clients who haven't paid.

  • Make payments easy for your customers

The easier it is for your customers to pay you, the quicker you’ll get paid.

Accepting cash, checks, credit cards, as well as online payments like bank transfers (or ACH payments) will allow your customers to pay in a way that’s most convenient for them.

Online credit card processing helps you automate your accounts receivable process. Simply ask your clients to save a card on file and get paid automatically when the job is complete.

example of accounts receivable management credit card processing

Pro Tip: Send customized payment links through Jobber that let your clients click-to-pay as soon as they receive the invoice.

  • Pick up the phone

If your automated emails or text message follow-ups are going unanswered, it’s time to pick up the phone. 

Use the call to remind your client about the services you completed and the overdue invoice. Keep a non-accusatory tone, and give your client the opportunity to bring up anything that may be holding them back from making a payment. 

  • Track your accounts receivable performance

Tracking a few key metrics will help you identify any room for improvement within your accounts receivable process. 

Here are a few metrics you should be monitoring:

  • Accounts receivable (AR) – Your accounts receivable is the amount your customers owe for your services. AR indicates how much money your business can expect to receive over a set time period and contributes to a healthy cash flow.
  • Average accounts receivable – Your average accounts receivable is the average amount customers owe for services during a given reporting period. Use this formula to calculate your average accounts receivable:

Average accounts receivable = Total AR balances for reporting period / Total number of months in the reporting period

  • Accounts receivable turnover ratio –  This number measures how quickly your accounts receivable is collected and ultimately how effective your AR process is. To calculate your accounts receivable turnover ratio use this formula:

Accounts receivable turnover = Net credit sales / Average accounts receivable

  • Accounts payable (AP) – Your accounts payable cover all the amounts due to vendors or suppliers. For example, equipment purchases or repairs, subcontractors, and phone bills. Monitoring your AP can help you track your business’s spending and financial health.
  • Working capital – Your working capital is the money you have to use in your business’s operations, once you subtract your accounts payable. Positive working capital gives you the flexibility to grow your business.
  • Get your whole team involved

The most successful accounts receivables management processes involve the whole team. 

Whether you’re the business owner, a technician, or an accountant, you have an important role to play in monitoring account balances and collecting receivables.

Field service technicians can use Jobber’s mobile app to close jobs and send invoices right from the job site. And with payment processing, you can accept debit or credit card payments from anywhere.

example of accounts receivable management credit card payments

Automate your account receivable process with Jobber

Creating an AR management process is essential for your home service business. The right tools can help you improve your processes with minimal effort.

With professional invoices, automated follow-ups and easy, one-click payment options, Jobber has the features you need to create a winning AR process to grow your bottom line.


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Originally published July 2020. Last updated on January 7th, 2022.



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