Optimizing your accounts receivable process: A full guide

Getting paid on time should be simple, but sometimes it’s more complex. More than half of B2B invoices in the United States are paid late, creating cash flow gaps that can slow down business growth. You may find yourself following up on an overdue payment or resolving a dispute over an invoice that "never arrived."

The accounts receivable (AR) process is what keeps revenue flowing smoothly, ensuring customers pay what they owe through structured invoicing, payment tracking, and follow-ups. When managed well, it strengthens cash flow, reduces manual work, and improves customer relationships.

In this guide, we’ll break down the accounts receivable cycle, tackle common roadblocks, and share best practices to help you streamline collections, reduce late payments, and strengthen your business financially.

What is the accounts receivable process?

The accounts receivable (AR) process is the system businesses use to track, manage, and collect customer payments for goods or services already provided. It aims to keep revenue flowing into the business on time, preventing cash flow disruptions and reducing financial risk.

The AR process includes:

• Invoicing: Generating and sending accurate invoices to customers.
• Tracking customer payments: Monitoring outstanding balances and payment statuses.
• Following up on overdue balances: Sending reminders and escalating collections when necessary.
• Ensuring timely collection: Using strategies to minimize late payments and maintain a healthy cash flow.

When AR runs smoothly, cash flows in as expected, freeing your business from financial strain. A well-structured AR process can also strengthen customer relationships and encourage repeat business.

Why is accounts receivable important for cash flow?

A strong AR process keeps your cash flow steady so you can pay employees, cover expenses, and invest in growth. Late or unpaid invoices tie up funds, so it’s harder to cover payroll, pay suppliers, or reinvest in the business.

For example, if a company tightens its AR process—by using AR automation or offering early payment incentives—it can shorten payment cycles and maintain a steady cash flow. Without an efficient AR strategy, even a profitable business can struggle to stay afloat.

The accounts receivable process step by step

Proper accounts receivable management helps businesses maintain healthy cash flow and avoid payment delays.

Here’s how it works, step by step:

1. Generate an invoice

Once a sale is made or a service is provided, the first step is to create and send an invoice. The invoice should include clear details, including:

• The amount due
• Payment due date
• How to pay
• Any late fees

A well-structured invoice minimizes discrepancies and speeds up payment.

2. Deliver the invoice to the customer

An invoice can’t do its job if it never reaches the customer. Electronic invoices must be sent promptly through the customer’s preferred channel—email, online portals, or automation software. Delays in sending invoices often lead to late payments.

3. Track and monitor payments

After sending an invoice, it’s essential to monitor its status. Businesses may use ERP systems or receivable automation tools to keep an eye on outstanding payments, identify overdue invoices, and follow up when necessary.

Tracking metrics like days sales outstanding (DSO) is crucial in assessing how efficiently a business collects payments. A lower DSO indicates a more effective AR process.

4. Send payment reminders and follow up

If a payment is nearing its due date or is past due, businesses send reminders via email, phone, or automated systems. Offering incentives like early payment discounts can encourage timely payments.

5. Handle any disputes and adjustments

Sometimes, customers dispute charges or request adjustments. A structured process for resolving invoice disputes quickly—whether through discounts, revised invoices, or additional documentation—prevents prolonged payment delays. When businesses establish clear credit policies upfront, it’s easier to reduce the frequency of disputes.

6. Collect late payments

When a payment is overdue, it’s time to escalate. A series of follow-ups, final notices, or even a collection agency (as a last resort) can help recover what’s owed. A clear late fee policy also works as a deterrent for habitual late payers. Additionally, assessing creditworthiness before extending credit terms can prevent payment issues.

7. Reconcile payments and update records

Once you receive payment, record it in business accounting systems and reconcile it with bank statements. Accurate financial records help businesses maintain a clear picture of cash flow and outstanding balances. Efficient management of working capital is crucial for financial stability and long-term growth.

8. Review and optimize the process

The best AR processes aren’t set in stone—they evolve. Regularly analyzing KPIs like days sales outstanding (DSO) helps businesses refine their strategies. Automating invoicing, using receivable automation, and offering flexible payment options can improve collection efficiency.

Partnering with reliable providers for AR management solutions can further optimize accounts receivable.

Challenges in the accounts receivable process

Managing accounts receivable isn’t always straightforward. Inefficiencies, payment delays, and disputes can slow cash flow and create unnecessary administrative work.

Here are some common challenges and ways to overcome them:

Manual processes slow down collections

Still relying on spreadsheets and manually tracking invoices? Manual processes lead to human errors, delays, and missed follow-ups. Automating invoicing and payment tracking makes sure invoices go out on time, reduces mistakes, and keeps the collection process moving smoothly.

Inconsistent payment methods create confusion

Customers paying through different channels—bank transfers, credit cards, paper checks—can make reconciliation difficult. A structured payment system that integrates multiple methods into a single platform helps streamline processing and ensures faster cash application.

Matching payments to invoices is time-consuming

When payments don’t clearly match invoices—due to partial payments, missing references, or overpayments—it can lead to delays and manual work. Automated payment matching tools can simplify reconciliation and free up finance teams to focus on higher-value tasks.

Unclear invoices lead to payment disputes

If an invoice lacks details or doesn’t align with a customer’s records, payments can face delays while disputes get resolved. Clearly itemizing charges, setting credit terms upfront, and using automation software to generate standardized invoices reduce confusion and ensure faster approvals.

Manual vs. automated accounts receivable

The accounts receivable cycle can either be a smooth, automated machine or slow and manual. Traditional AR processes mean lots of spreadsheets, endless payment tracking, and following up. It’s inefficient, error-prone, and a time drain.

With the right tools, you can leave the manual busywork and let technology automatically generate invoices, sending reminders, and reconciling payments.

Best practices for optimizing the accounts receivable process

A well-optimized accounts receivable process ensures faster payments, reduces financial risk, and improves cash flow.

Here are some accounts receivable best practices to keep your business running smoothly:

1. Send accurate and timely invoices

Errors or missing details on invoices can cause disputes and payment delays. Use automation to generate clear, detailed invoices with accurate amounts, due dates, and payment instructions. Sending invoices immediately after a sale or service is completed speeds up the payment cycle.

2. Offer multiple payment options

Customers are more likely to pay on time when they have convenient payment methods. Businesses can reduce friction and encourage faster payments by accepting multiple payment methods including:

• Credit cards
• ACH transfers
• Digital wallets
• Debit cards
• Online payment portals

3. Automate invoice tracking and follow-ups

Manually tracking outstanding invoices is time-consuming and prone to oversight. As a workaround, automate reminders for due and overdue invoices to maintain consistent follow-ups and reduce the risk of late payments without burdening finance teams.

4. Establish clear payment policies

Outlining payment terms, due dates, late fees, and dispute resolution processes upfront helps set clear expectations. Communicating these terms in contracts, invoices, and onboarding materials helps prevent confusion and ensure accountability.

5. Monitor AR metrics and adjust strategies

Regularly reviewing key AR metrics like average collection period and outstanding receivables helps identify trends and potential issues. Businesses can then adjust payment terms, follow-up strategies, or automation tools to optimize cash flow.

6. Improve customer communication

Proactively address customer questions or concerns about invoices to prevent disputes and speed up payments. Providing a self-service portal where customers can view their invoices, payment history, and outstanding balances enhances transparency and reduces back-and-forth emails.

By implementing these best practices, businesses can streamline AR operations, improve cash flow, and reduce financial risks. Investing in automation and structured policies ensures a more predictable and efficient receivables process.

How to automate bookkeeping with Ramp

Accounting automation is just one part of finance automation. It can get rid of tedious, repetitive accounting tasks and allow accountants to prioritize communication, management, accounting, and strategizing.

Ramp is a solution for finance and accounting teams that does just that. Ramp’s expense management software, AP system, and corporate card can help you and your team handle your business finances and bookkeeping with best-in-class integrations for more than 30 popular accounting tools, including QuickBooks, Xero, NetSuite, and Sage Intacct.

Try Ramp.