Even profitable businesses can run into a cash crunch because too much money is stuck in accounts receivable.
Recent studies on business payments show:
- A large share of small and mid-sized businesses are owed money on unpaid invoices.
- Many have invoices overdue by more than 30 days.
- Average Days Sales Outstanding (DSO) has crept higher in many industries.
- Finance professionals generally aim for a DSO under 45 days, though the “right” number varies by sector.
In short: cash flow is a board-level problem, not just an accounting task.
AR Problems That Instantly Resonate With CFOs, Controllers & Bankers
If you recognize any of these, your cash flow isn’t working hard enough:
- DSO creeping up: You used to get paid in 25–30 days; now it’s 45–60+.
- Too many 60–90 day invoices: Aging reports are top-heavy in the 60/90-day columns.
- Chronic “good customers who pay late”: Sales defends them, but they’re quietly strangling working capital.
- Weak or inconsistent credit checks: New accounts get open terms without any real vetting.
- No clear escalation path: AR staff “chase” a few squeaky wheels; everyone else slips through.
- Staff stretched thin: Invoicing, cash posting, and collections are all done by the same overloaded people.
- High write-offs: You’re routinely writing off balances because they’re “too small to chase” or “too old.”
- Banks & lenders getting nervous: Covenant pressure, tighter borrowing base calculations, and more questions about your AR quality.
If you’re a bank or credit union, you see the same problems in your commercial portfolio:
clients with strong sales but unstable cash flow, relying excessively on credit lines to cover slow-paying customers.
21 Practical Ways to Improve Cash Flow (Without Destroying Relationships)
Below are 21 specific, AR-focused actions that any business (and their banking partners) can relate to. You don’t need to implement all 21 at once—start with a handful, then layer in more.
1. Define a Real Credit & Collection Policy (And Stick to It)
- Put credit limits, terms, and consequences in writing.
- Train sales and customer service so they don’t promise “whatever terms you need.”
- Decide in advance:
- Who approves exceptions?
- When accounts go on hold?
- When invoices are escalated to external recovery?
A documented policy turns collections from a “favor” into standard operating procedure.
2. Tighten How You Grant Credit
- Use credit applications that collect trade references, banking info, and consent to check credit.
- For higher-risk accounts, use credit reports and set lower limits and shorter terms initially.
- Review large accounts at least annually; adjust limits based on payment behavior, not promises.
Good credit decisions avoid bad debt before it starts.
3. Shorten and Clarify Payment Terms
- Move from vague “net 45–60” to clear terms like “Due in 15 or 30 days.”
- Put terms on quotes, contracts, and invoices—not just in fine print.
- Spell out any late fees, interest, or collection costs.
Many businesses get paid late because customers honestly don’t know what “on time” means to you.
4. Invoice Immediately and Accurately
- Send invoices the same day as shipment or service completion, not in a weekly batch.
- Ensure invoices are:
- Correctly priced
- Matched to POs
- Sent to the right email address / AP portal
- Reduce disputes by clearly listing what was delivered, when, and to whom.
Slow or error-filled invoicing is one of the easiest cash-flow leaks to fix.
5. Use Digital Delivery, Not Just Paper
The old advice about using postal forwarding and address services made sense in a paper world. Today, it’s more effective to:
- Email invoices and statements with read receipts or tracking where appropriate.
- Use customer portals so clients can download statements anytime.
- Maintain a clean database of billing contacts; update whenever staff changes on the customer side.
Paper can still be a backup, but digital should be the default.
6. Make It Ridiculously Easy to Pay You
Customers pay faster when it’s simple:
- Offer multiple options: ACH, card, online portal, bank transfer, digital wallets where appropriate.
- Add “Pay Now” links directly on invoices and reminder emails.
- Allow saved payment methods for recurring invoices (with proper authorization and security).
Faster, convenient payment options directly support better cash flow.
7. Use Early-Payment Incentives (Surgically)
- Offer small discounts like 1–2% for payment within 10 days for select, high-volume clients.
- Compare the cost of that discount to the cost of borrowing on your line of credit.
- Don’t give the same deal to chronic late payers who never respond to incentives.
Done well, early-payment programs can lower DSO without destroying margins.
8. Enforce Late Fees and Credit Holds
Policies only matter if you use them:
- Charge late fees on overdue balances where permitted and clearly agreed in advance.
- Place accounts on credit hold when they’re past due beyond a defined threshold.
- Make sure sales knows the rules so they don’t circumvent AR.
This doesn’t have to be hostile. A calm, consistent approach is usually respected—especially by your best customers.
9. Contact Overdue Accounts More Often (But Professionally)
Instead of one monthly statement:
- Start with friendly reminders 3–5 days before due date.
- Follow up at 7, 15, and 30 days after due date for unpaid invoices.
- Use a mix of email, phone, and—if appropriate—SMS.
A structured follow-up schedule is one of the most effective ways to reduce 30–60–90 day slippage.
10. Segment Your AR and Prioritize
Not all invoices are equal:
- Segment by age, balance size, and risk.
- Give more attention to:
- Large balances approaching 60–90 days
- Customers with a history of slow pay
- Use lighter, automated reminders for small, low-risk balances.
This ensures your limited AR staff spend time where it will move the needle.
11. Keep Customer Data and Documentation in One Place
- Centralize contacts, addresses, contracts, POs, and invoice history.
- Record notes from every call or email in a single system, not scattered spreadsheets and inboxes.
- Make sure anyone who calls a customer can see the full story at a glance.
Good documentation wins disputes and makes collections faster and more professional.
12. Resolve Disputes Quickly
Disputed invoices are often the ones that never get paid if you don’t stay on top of them.
- Track disputes separately in your AR system.
- Set target resolution times (for example, 48–72 hours).
- Involve sales, operations, and service promptly so the issue doesn’t drag on.
Every unresolved dispute is cash you’ve effectively loaned out for free.
13. Forecast Cash Flow Using Real AR Data
- Build a basic cash-flow forecast that includes:
- Expected collections by week
- Known large payments
- Seasonal patterns
- Use your aging report to stress-test scenarios (for example, “What if 20% of 60–90 day balances never pay?”).
This helps management and banking partners see problems before they become crises.
14. Align AR With Sales and Customer Success
Cash flow improves dramatically when:
- Sales understands that “profitable customer” includes payment behavior, not just gross revenue.
- Customer success teams are aware of chronic late payers and can reinforce expectations early.
- Everyone agrees on when accounts get escalated or placed on hold.
The goal is not to fight with sales; it’s to protect good customers and weed out bad behavior.
15. Revisit Pricing, Contracts, and Scope Creep
Sometimes cash flow problems are actually profitability issues:
- Ensure your pricing covers extended terms and higher credit risk.
- Use contracts to define scope clearly and bill for out-of-scope work.
- Tie long-term or project-based engagements to milestone billing, not “we’ll pay when everything’s done.”
Healthy margins make it easier to offer occasional concessions without destabilizing cash flow.
16. Use Internal “Soft Collections” Campaigns
Before anything escalates:
- Run gentle reminder campaigns in your own name (letters, emails, and calls).
- Emphasize maintaining the relationship while reinforcing terms.
- Give customers practical payment options (settlements, structured plans).
This can recover a large share of past-due balances without involving third parties.
17. Automate Where It Makes Sense
Automation doesn’t replace judgment—it supports it:
- Automatic reminders based on aging.
- Worklists for collectors showing who to call today.
- Tools that sync with your accounting system and update statuses in real time.
Well-implemented automation lets a small AR team manage a much larger receivables portfolio.
18. Establish Clear Cut-Offs for External Recovery
One of the biggest mistakes businesses make is waiting too long to involve a professional recovery partner.
Define thresholds such as:
- Any invoice over 90 days with no meaningful response.
- Accounts where promises to pay repeatedly fail.
- Customers showing other distress signals (multiple returned payments, sudden silence, etc.).
By the time invoices are 9–12 months old, collectability drops sharply. Timely escalation protects your bottom line.
19. Choose Recovery Partners Who Protect Your Reputation
When you do escalate:
- Work with partners who are compliant, complaint-sensitive, and respectful of your customers.
- Look for:
- Strong independent reviews and references
- Clear compliance posture
- Transparent fee structures (fixed-fee options for fresh accounts, contingency for older ones)
The right partner helps you improve cash flow without damaging the brand you’ve spent years building.
20. Offer Structured Payment Plans for Struggling Customers
Not every slow payer is a “won’t pay”; many are temporarily “can’t pay.”
- Use structured plans with:
- Clear start and end dates
- Automatic payment methods where possible
- Schedules that increase payments as their cash improves
- Tie any waivers or discounts to successful completion of the plan.
This often recovers more than an immediate write-off and preserves a valuable relationship.
21. Regularly Review, Measure, and Adjust
Cash flow management is not a one-time project:
- Review key metrics monthly:
- DSO
- % of invoices current vs. 30/60/90+ days
- Bad debt as a % of sales
- Identify root causes when numbers worsen: policy drift, staffing gaps, market conditions.
- Adjust policies, staffing, and external partnerships accordingly.
What worked a few years ago may be inadequate for today’s realities—higher rates, tighter credit, and more scrutiny from lenders.
For Banks, Credit Unions, and Other Lenders
If you’re on the lending side, your risk team cares about cash conversion, not just revenue:
- Clients with high DSO and chronic late customers are more likely to lean on credit lines, miss covenants, and need restructures.
- Helping them implement better AR practices (and, where necessary, professional recovery) can:
- Improve their coverage ratios and borrowing base quality
- Reduce utilization spikes and emergency drawdowns
- Lower the probability of default in your portfolio
By encouraging or facilitating stronger AR and collections processes, you’re not just “helping them collect” — you’re protecting your own book.
How We Can Help
If your team is already stretched thin, it’s hard to do all of this yourself.
We work with businesses, medical practices, and financial institutions to:
- Diagnose AR problems quickly using your aging, write-off history, and current processes.
- Implement low-friction reminder campaigns that run in your name and keep relationships intact.
- Escalate only the accounts that truly need outside attention, using cost-effective recovery options.
- Do all of this in a way that’s compliant, reputation-sensitive, and aligned with your long-term customer strategy.
If your AR is telling you a different story than your income statement, it’s time to adjust your strategy. Strong cash flow isn’t about being aggressive; it’s about being organized, consistent, and proactive—and getting help at the right time.
If you need a collection agency to handle your accounts receivable: Contact Us