Accounts Receivable

Accounts receivable (AR) represents money that clients owe your agency for work you've completed and invoiced but haven't yet received payment for. It's an asset on your balance sheet (money you're owed), but it's not cash until clients actually pay. Managing accounts receivable effectively is critical for agency cash flow and financial health because unpaid invoices represent work you've done and costs you've incurred without receiving payment. The accounts receivable process typically involves invoicing clients for completed work, tracking outstanding invoices and their due dates, following up on overdue payments, and collecting payment. The time between invoicing and payment is called Days Sales Outstanding (DSO)—the average number of days it takes to collect payment. Lower DSO means faster cash collection and better cash flow. Most agencies aim for DSO under 30-45 days, meaning invoices are paid within their payment terms. Effective AR management requires systematic processes. You need to invoice promptly (don't delay invoicing, as this delays payment), track receivables accurately (know what's owed, by whom, and when it's due), follow up on overdue invoices promptly (don't let them age), and have clear collection processes (escalation steps for late payers). Many agencies use accounting or invoicing software to automate AR tracking and follow-up, but the processes and discipline are more important than the tools. The impact of poor AR management can be severe. If clients don't pay on time, you still have to cover costs (payroll, vendor payments, overhead) without the corresponding revenue. This creates cash flow gaps that can force agencies to borrow money, delay payments to vendors or employees, or even struggle to meet obligations. Unpaid invoices also represent risk—the longer they age, the less likely they are to be paid. Invoices over 90 days old become significantly harder to collect. Several factors affect AR health. Payment terms matter—Net 30 terms mean longer collection periods than Net 15. Client payment behavior varies—some clients pay promptly, others need reminders. Invoice quality matters—clear, accurate invoices with proper terms get paid faster. And your follow-up processes affect collection—agencies that follow up promptly collect faster than those that don't. Common AR problems include clients who pay late (requiring follow-up and potentially late fees), clients who don't pay at all (requiring collection efforts or write-offs), unclear payment terms (leading to confusion and delays), and poor invoice quality (errors or unclear information delaying payment). The most successful agencies treat AR management as a priority, with clear processes, prompt follow-up, and systematic tracking. Best practices for AR management include setting clear payment terms upfront, invoicing promptly and accurately, tracking receivables systematically, following up on overdue invoices promptly (within a few days of due date), offering multiple payment methods (making it easy for clients to pay), and having escalation processes for persistent late payers. Some agencies also use payment incentives (early payment discounts) or require deposits or milestone payments to reduce AR risk.