Cash Flow & AR
How to Reduce Accounts Receivable
Short answer
Reduce accounts receivable by aging the balance weekly, focusing collection effort on the largest and oldest invoices first, tightening credit on chronic late-payers, and front-loading deposits on new work so less revenue sits in AR to begin with.
Accounts receivable (AR) is the total of all invoices you have sent but not yet been paid for. A high AR balance is not inherently bad — it grows with revenue — but a high AR balance that is aging faster than your revenue is growing is a serious warning sign.
Age your AR every week
An AR aging report groups outstanding invoices into buckets: 0–30 days, 31–60, 61–90, 91+. Reviewing the report weekly (not monthly) catches problems before they become uncollectible.
The 91+ bucket is the one that matters most. Industry data consistently shows recovery rates drop sharply after 90 days. Any invoice that lands in the 91+ bucket should trigger formal escalation, not another friendly reminder.
| AR age bucket | Action |
|---|---|
| 0–30 days | Normal — automated reminders only |
| 31–60 days | Manual follow-up and phone call |
| 61–90 days | Formal demand letter, suspend new work |
| 91+ days | Collections, mechanic's lien, or small claims |
Pareto your collection effort
In most small businesses, 80% of outstanding AR sits in 20% of the invoices. Pull a sorted list of your largest open invoices and start collection there — not at the top of the alphabetical customer list. One $8,000 collection win is worth fifty $160 reminders.
Tighten credit on chronic late-payers
If the same customer hits the 61+ day bucket on three consecutive invoices, the right response is not more reminders — it is changing the terms. Move that customer to Due-on-Receipt, require a card on file, or require full upfront payment going forward. Most chronic late-payers either accept the new terms or self-select out, both of which improve your AR.
Frequently asked questions
What is a healthy accounts receivable balance?
A healthy AR balance is roughly equal to 30–45 days of revenue and is mostly concentrated in the 0–30 day bucket. AR that exceeds 60 days of revenue or has more than 20% sitting past 60 days indicates a collection problem.
What is the difference between accounts receivable and revenue?
Revenue is what you have earned. Accounts receivable is the portion of that revenue you have invoiced but not yet been paid for. Cash collected is the portion of AR that has actually hit your bank account.
Put this guide to work.
Glo Invoice automates reminders, takes online payments, and tracks your AR — free for 14 days.
Sources & further reading
Primary sources we consulted when writing and reviewing this guide.