💡 Talentum Tuesday #7
Getting Paid on Time: Why Accounts Receivable Matters to Your Business
Making a sale is an important part of running a business—but making the sale isn't the same as receiving the money.
For many small businesses, there can be a period of time between completing a job, sending an invoice, and actually receiving payment. This is where accounts receivable becomes important.
Managing accounts receivable effectively can help business owners understand how much money customers owe, when payments are expected, and how outstanding invoices may affect cash flow.
What Is Accounts Receivable?
Accounts receivable, often abbreviated as A/R, represents money that customers owe a business for products or services that have already been provided but have not yet been paid for.
For example, imagine a business completes a $2,000 project for a client and sends an invoice with payment due in 30 days.
The business has earned the revenue, but the $2,000 has not yet been collected.
Until the customer pays, that amount is part of the business's accounts receivable.
Why Does Accounts Receivable Matter?
Accounts receivable matters because businesses have expenses to pay whether or not their customers have paid their invoices.
Rent, payroll, software, insurance, supplies, and other expenses may all come due before a customer payment arrives.
This is one reason a business can have strong sales and still experience cash-flow pressure.
The U.S. Small Business Administration highlights accounts receivable as one of the areas small businesses should monitor when managing their finances. citeturn0search2
Three Habits That Can Help
1. Invoice Promptly
Once you've completed the work or delivered the product, don't unnecessarily delay sending the invoice.
A consistent invoicing process can help shorten the time between completing a sale and receiving payment.
2. Clearly Communicate Payment Terms
Your customers should understand:
How much they owe.
When payment is due.
What payment methods are accepted.
Whether there are any applicable late-payment policies.
Clear expectations can help prevent confusion later.
3. Review Outstanding Invoices Regularly
Don't simply send an invoice and forget about it.
Review your outstanding invoices regularly to see:
Who still owes you money?
How much do they owe?
When was the invoice due?
Are any invoices becoming significantly overdue?
Keeping track of outstanding invoices gives you a better understanding of the money that is expected to come into your business.
QuickBooks, for example, provides reports such as an Open Invoices report and Accounts Receivable Aging report to help businesses monitor unpaid customer balances. citeturn0search11turn0search17
What Happens When Customers Pay Late?
Late payments can create a difficult situation.
Imagine a business has $15,000 in outstanding invoices. On paper, that may look encouraging.
But if only $2,000 is actually sitting in the bank account, the business still has to work with the cash it currently has available.
This is why accounts receivable and cash flow are closely connected.
The goal isn't simply to generate sales.
The goal is to establish a process that helps turn those sales into collected cash.
A Simple Action Step
If your business invoices customers, take a few minutes this week to review your outstanding invoices.
Ask:
Who owes me money?
How much do they owe?
When is each payment due?
Are any invoices overdue?
If you don't currently have a system for tracking invoices, this is a great time to establish one.
Financial Term of the Week
Accounts Receivable
Money owed to a business by its customers for goods or services that have already been provided but have not yet been paid for.
Stewardship Takeaway
Good financial stewardship isn't only about making sales. It's also about managing the resources generated by those sales.
A consistent invoicing and accounts receivable process can help business owners maintain better visibility into their cash flow and prepare for upcoming financial obligations.
Getting paid is an important part of running a healthy business.
About Talentum Tuesday
Talentum Tuesday is a weekly educational series designed to help small business owners build financial confidence through practical bookkeeping education and sound financial stewardship.
Question of the Week:
If you invoice customers, how often do you review your outstanding invoices?
Sources & Further Reading
U.S. Small Business Administration — Manage Your Business Finances
https://www.sba.gov/counseling/manage-your-business/QuickBooks — What Is Accounts Receivable?
https://quickbooks.intuit.com/accounting/accounts-receivable-guide/QuickBooks — Accounts Receivable Management
https://quickbooks.intuit.com/r/payments/accounts-receivable-management/QuickBooks — Track Cash Flow and Outstanding Invoices
https://quickbooks.intuit.com/learn-support/en-us/help-article/banking/track-cash-flow-quickbooks-online/
Educational Disclaimer
The information provided in this article is intended for general educational purposes only and should not be considered legal, tax, accounting, or financial advice. Every business is unique. For advice specific to your situation, consult an appropriately qualified professional.