What Is Accounts Receivable Management? Process and Practices

Accounts receivable management is how you handle the money customers owe you after you've delivered and invoiced: setting payment terms, sending invoices promptly, following up on late ones, recording payments, and checking how fast you collect. Managing it well means keeping track of what's unpaid and which customers to follow up with.

Definitions and ratios are quoted from the open textbook OpenStax Principles of Accounting, Volume 1, and Billed details from Billed's own pages, all opened on October 29, 2026.

What accounts receivable is

OpenStax defines accounts receivable as "outstanding customer debt on a credit sale, typically receivable within a short time period" (chapter 9 key terms). Every invoice you've sent and not yet been paid for is part of it.

Some of it may not be collected. OpenStax calls those "uncollectible amounts from customer accounts" bad debts. Ask your accountant how to record an amount you don't expect to collect.

The process

1. Set payment terms before the work starts, such as Net 30, and put them on every invoice. See invoice payment terms explained.
2. Invoice promptly when the work is done or on the agreed schedule.
3. Track every open invoice by customer, amount and due date. See how to track invoices effectively.
4. Follow up before and after the due date. See what an overdue invoice is and how to follow up on unpaid invoices.
5. Record each payment against the right invoice, including partial payments.
6. Measure how fast you collect each month or quarter, using the ratios below.

Measuring it: two ratios

OpenStax describes two receivables ratios (section 9.3):

• Accounts receivable turnover: net credit sales ÷ average accounts receivable, where average accounts receivable is (beginning + ending) ÷ 2. OpenStax says this ratio "determines how many times (i.e., how often) accounts receivable are collected during an operating period and converted to cash."
• Number of days' sales in receivables: 365 ÷ accounts receivable turnover. OpenStax says it "shows the expected days it will take to convert accounts receivable into cash."

On reading the result, OpenStax says: "A higher number of times indicates that receivables are collected quickly." For a lower number, it says: "A slower collection rate could signal that lending terms are too lenient; management might consider tightening lending opportunities and more aggressively pursuing outstanding debt." For more on the first ratio, see accounts receivable turnover.

Worked example: how fast a studio collects

The figures here are a sample. A design studio made $240,000 of sales on credit last year. It had $25,000 of accounts receivable at the start of the year and $35,000 at the end. Its invoices are on Net 30 terms.

1. Average accounts receivable: ($25,000 + $35,000) ÷ 2 = $30,000.
2. Accounts receivable turnover: $240,000 ÷ $30,000 = 8.0 times.
3. Days' sales in receivables: 365 ÷ 8.0 = 45.6 days.

With Net 30 terms, an expected collection time of about 46 days is about 16 days longer than the terms allow (45.6 − 30 = 15.6). That gap is the studio's own comparison with its terms, and a prompt to check whether its payment terms and follow-up work as it intends.

Where Billed fits

Billed's invoice software page says: "Invoice reports show which invoices are paid, partially paid or past due, and you can see who owes you money and send them a payment reminder." It adds: "Payment reminders can be customized." Its features page says: "Create reports about your invoices and see how well your business is doing."

Related Articles

• How to Track Invoices Effectively
• What Is Accounts Receivable Turnover?
• What Is an Overdue Invoice?
• How to Follow Up on Unpaid Invoices
• What Is Accounts Receivable?

Frequently Asked Questions

What does accounts receivable management include?

Setting payment terms, invoicing promptly, tracking open invoices, following up before and after the due date, recording payments against the right invoices, and measuring how fast you collect.

How do I calculate days' sales in receivables?

First divide net credit sales by average accounts receivable to get the turnover ratio, then divide 365 by that ratio. In the sample, $240,000 of credit sales and $30,000 of average receivables give a turnover of 8.0 and 45.6 days.

What does a slow collection rate mean?

OpenStax says: "A slower collection rate could signal that lending terms are too lenient; management might consider tightening lending opportunities and more aggressively pursuing outstanding debt."

What are bad debts?

OpenStax defines bad debts as uncollectible amounts from customer accounts. Ask your accountant how to record an amount you don't expect to collect.

Does Billed show which invoices are past due?

Billed's invoice software page says "Invoice reports show which invoices are paid, partially paid or past due," and that you can send a payment reminder.