How to Manage Accounts Receivable and Accounts Payable in Your Business
Accounts receivable and payable management is one of the less glamorous parts of running a business — but it can have a major impact on cash flow.
You may be profitable on paper and still experience cash pressure because customers are taking too long to pay.
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At the same time, paying suppliers too early can unnecessarily reduce the cash available to run the business.
The goal isn't simply to collect every dollar as quickly as possible or delay every supplier payment.
It is to create a structured process for money coming into and going out of the business.
For Australian businesses, that means having clear payment terms, accurate records, timely invoicing, regular follow-up, controlled supplier payments and visibility over upcoming cash requirements. Government guidance specifically recommends clear payment terms, prompt invoicing and regular monitoring of overdue payments as part of effective cash-flow management. business.gov.au
Here's how to approach it.
The short answer: What is accounts receivable and payable management?
Accounts receivable is the money customers owe your business.
Accounts payable is the money your business owes suppliers and other parties.
Business.gov.au defines accounts receivable as amounts customers still need to pay and accounts payable as short-term liabilities that the business needs to pay. business.gov.au
Good management means knowing:
What customers owe you
When those invoices are due
Which invoices are overdue
Which debts need follow-up
What suppliers you need to pay
When those payments are due
Which upcoming payments will affect cash flow
Whether your payment terms are appropriate
Whether your accounting records are accurate
The objective is predictable cash flow and better financial control.
Why accounts receivable and payable management matters
Cash flow is affected by both sides of the equation.
If customers pay slowly, cash coming into the business slows down.
If supplier payments are poorly managed, cash can leave the business earlier than necessary.
That can create a timing problem.
For example, imagine a business invoices customers $200,000 during the month.
That sounds strong.
But if customers generally take 45–60 days to pay while the business needs to pay wages, suppliers, rent, tax and other expenses much sooner, the business may experience cash pressure despite having strong sales.
Business.gov.au recommends monitoring money coming in and going out, keeping track of payment due dates and regularly reviewing actual income and costs against expectations. business.gov.au
This is why receivables and payables should be managed together rather than as two completely separate bookkeeping tasks.
1. Set clear payment terms before you make the sale
Accounts receivable management starts before the invoice is issued.
Your customers should know:
How much they need to pay
When payment is due
Which payment methods are available
Whether deposits are required
Whether instalments are available
What happens when payment is late
Business.gov.au recommends putting payment terms on invoices and contracts and making clear when payment is expected, which payment methods are accepted and how overdue debts will be handled. business.gov.au
For example, your terms might specify:
Payment due within 14 days of invoice date.
Or:
50% deposit required before work commences, with the balance due within 14 days of completion.
The right terms depend on the business, industry, customer relationship and commercial arrangement.
The important point is that payment expectations should not be an afterthought.
2. Invoice promptly and accurately
One of the simplest ways to improve accounts receivable is to avoid unnecessary delays in invoicing.
If the work has been completed but the invoice isn't sent for two weeks, the customer cannot pay it during those two weeks.
Business.gov.au recommends sending invoices promptly and following up quickly on unpaid invoices as part of maintaining healthy cash flow. business.gov.au
Your invoices should also be clear and accurate.
For businesses registered for GST, tax invoices need to contain the required information. Business.gov.au and the ATO provide specific requirements around tax invoices, including information such as the supplier's identity, ABN, invoice date, description of the supply and GST information where applicable. business.gov.au
An unclear invoice can create unnecessary delays.
For example:
"Invoice #1045 — Consulting — $11,000"
may be less useful than an invoice that clearly identifies the work performed, relevant dates, agreed payment terms and payment instructions.
The easier the invoice is to understand, the fewer reasons there are for a customer to query it.
3. Keep track of outstanding invoices
Sending invoices is only the first step.
You also need to know what happens after they are sent.
A useful accounts receivable process should track:
Invoice date
Customer
Amount
Due date
Payment status
Days overdue
Follow-up history
Disputes or queries
Expected payment date
This gives management a much clearer picture of outstanding customer debt.
For example:
Current
Invoices not yet due.
Due soon
Invoices approaching their payment date.
Overdue
Invoices past their agreed payment date.
Significantly overdue
Invoices requiring more active follow-up or review.
The exact ageing categories can vary between businesses.
What matters is that overdue debt doesn't disappear into the accounting system unnoticed.
4. Follow up overdue invoices consistently
Late payments should have a process rather than relying on memory.
A practical sequence could be:
Before the due date
Send a friendly reminder.
Shortly after the due date
Confirm whether the customer has received the invoice and ask when payment is expected.
Further overdue
Escalate the communication and review whether there is a dispute or genuine payment issue.
Significantly overdue
Consider whether further collection action, revised payment arrangements or professional advice is appropriate.
Business.gov.au recommends having a clear process for following up unpaid debts. It suggests starting with a polite reminder and escalating where appropriate. business.gov.au
The goal isn't to damage customer relationships.
It is to make payment follow-up a normal part of running the business.
5. Investigate why customers are paying late
Not every overdue invoice has the same cause.
Ask why the payment is late.
It could be:
The customer missed the invoice
The invoice went to the wrong person
The purchase order was missing
The invoice contains an error
The customer disputes the work
The customer's internal approval process is slow
The customer is experiencing financial difficulty
Your payment terms don't suit the relationship
This distinction matters.
If ten customers are consistently paying late because invoices are being sent to the wrong email address, the solution is operational.
If customers are disputing invoices because your descriptions are unclear, the solution may be improving your invoicing process.
If a particular customer repeatedly misses agreed payment dates, the issue may require a different commercial response.
Don't just chase the debt.
Understand the reason behind it.
6. Review customer credit risk
Offering customers credit can help facilitate sales, but it also creates risk.
Business.gov.au recommends considering credit checks and setting appropriate credit limits when offering customers credit. business.gov.au
For larger or higher-risk customers, consider whether you should establish:
Credit limits
Deposits
Progress payments
Shorter payment terms
Contractual protections
Upfront payments
Milestone billing
For example, a business might normally offer 30-day terms.
But for a new customer placing a very large order, requiring a deposit or staged payments could reduce the amount of cash tied up in receivables.
The right approach depends on the commercial arrangement and applicable contract terms.
7. Don't confuse sales with cash
This is one of the most important concepts in accounts receivable management.
An invoice can increase reported revenue without immediately increasing the bank balance.
Consider a business that completes $100,000 of work in June and invoices the customer on 30 June.
If the customer pays in August, the business may have recorded the sale before receiving the cash.
That creates a timing difference.
This is why business owners should monitor both:
Revenue
and
Cash collected.
A cash flow statement tracks money flowing into and out of the business and can help identify future shortages and surpluses. business.gov.au
8. Manage accounts payable with the same discipline
Accounts payable management is the other side of the process.
Instead of asking only:
"Who do we owe?"
you should also know:
"How much do we owe, when is it due and how does it affect our cash position?"
Track:
Supplier
Invoice number
Invoice date
Amount
Due date
Approval status
Payment status
Credit terms
Disputes
Scheduled payment date
This gives the business visibility over upcoming cash requirements.
Business.gov.au recommends keeping track of payment due dates for expenses such as supplier invoices, rent, loan repayments and other business obligations. business.gov.au
9. Don't pay suppliers earlier than necessary without a reason
Paying suppliers promptly is important.
But paying invoices significantly before their due dates may not always be financially efficient.
Suppose a supplier gives your business 30-day payment terms.
If there is no discount or other benefit for early payment, paying immediately may reduce available working capital unnecessarily.
That doesn't mean businesses should deliberately pay suppliers late.
Late payments can damage relationships, create disputes and potentially breach contractual terms.
Instead, aim for controlled payments according to agreed terms.
Where appropriate, businesses can also negotiate payment terms with suppliers. Business.gov.au notes that negotiating supplier payment terms can help businesses manage outgoing cash. business.gov.au
10. Take advantage of supplier terms strategically
Supplier relationships can be a useful part of cash-flow management.
Depending on the supplier and commercial arrangement, you may be able to negotiate:
Longer payment terms
Volume discounts
Early-payment discounts
Instalments
Deposits
Scheduled billing
Regular ordering arrangements
For example, a supplier might offer:
2% discount for payment within 7 days
or
Net 30-day terms.
The decision should consider the actual financial benefit, cash position and relationship with the supplier.
Don't accept or reject a payment arrangement automatically.
Understand its effect on the business.
11. Reconcile your receivables and payables regularly
The accounting records should agree with the underlying information.
For accounts receivable, check:
Does the ledger agree with the debtor ageing report?
Are payments allocated correctly?
Are there old credit balances?
Are disputed invoices identified?
Are bad debts appropriately reviewed?
For accounts payable, check:
Does the ledger agree with supplier records?
Are duplicate bills present?
Are credit notes recorded?
Are old unpaid balances legitimate?
Are invoices waiting for approval?
Are upcoming large payments known?
Regular reconciliation helps identify errors before they become difficult to resolve.
12. Watch your debtor days and payment trends
One of the most useful management metrics is how quickly customers are paying.
You can monitor trends such as:
Average days to payment
Total outstanding receivables
Overdue receivables
Percentage of invoices overdue
Largest overdue accounts
Receivables as a percentage of revenue
You don't need dozens of metrics.
A small set of useful measures can tell you whether collection performance is improving or deteriorating.
For example:
If customers historically paid in an average of 25 days and that gradually moves to 40 days, the change deserves attention.
It could indicate:
Weaker customer payment behaviour
Changes in customer mix
Invoicing delays
Disputes
Less effective collection processes
The trend is often more informative than a single month's figure.
13. Connect receivables and payables to cash flow forecasting
This is where accounts receivable and payable management becomes part of broader financial management.
A cash flow forecast should consider both:
Expected cash coming in
and
Expected cash going out.
For receivables, that means considering when customers are actually expected to pay.
For payables, it means considering when supplier invoices and other obligations are due.
Business.gov.au recommends using cash-flow forecasting to estimate future income and costs and identify potential shortages or surpluses before they occur. business.gov.au
Imagine your business expects:
$300,000 of customer receipts next month
$220,000 of supplier payments
$80,000 of wages
$30,000 of other expenses
On paper, the business may appear to have enough income.
But if $100,000 of those customer receipts are likely to arrive later than expected, the timing changes considerably.
This is why cash-flow timing matters just as much as the total amount.
14. Use accounting software to reduce manual work
Manual processes create opportunities for errors and delays.
Modern accounting systems can help businesses:
Generate invoices
Send payment reminders
Track outstanding balances
Record supplier bills
Schedule payments
Reconcile transactions
Produce ageing reports
Monitor cash flow
Business.gov.au notes that accounting software can help businesses manage invoices, sales and customer accounts, while electronic systems can streamline record keeping. business.gov.au
Automation should not eliminate oversight.
Instead, it should reduce repetitive administration so the business can spend more time managing exceptions and making decisions.
15. Create a simple weekly receivables and payables routine
You don't necessarily need a complicated finance department.
A simple weekly process can create much better visibility.
Accounts receivable
Review:
New invoices issued
Payments received
Invoices due this week
Overdue invoices
Significant customer balances
Disputed invoices
Expected large receipts
Accounts payable
Review:
New supplier invoices
Payments due this week
Large upcoming payments
Supplier disputes
Available discounts
Cash required for upcoming obligations
Cash flow
Then bring both sides together:
What cash is expected to come in?
What cash needs to go out?
What is the expected closing cash balance?
Are there any potential shortfalls?
That final step turns bookkeeping information into management information.
A practical example
Consider an Australian professional services business.
The business invoices $150,000 each month.
Historically, customers paid within 30 days.
Recently, the average collection period has increased.
At the same time, supplier costs and payroll have increased.
The business is still profitable.
But cash reserves are falling.
A basic response might be:
"We need more sales."
But that may not solve the immediate problem.
A better review would examine:
How quickly invoices are being issued
Which customers are paying late
Whether invoice disputes have increased
Whether payment terms are still appropriate
Whether large customers have changed their payment behaviour
When supplier payments are due
Whether supplier terms can be renegotiated
Whether the cash-flow forecast needs updating
The problem may not be insufficient revenue.
It may be working capital being tied up in receivables while cash is leaving the business faster than it comes in.
That is why receivables and payables need to be considered together.
Common accounts receivable and payable mistakes
Mistake 1: Invoicing too late
The business waits until the end of the month or longer to send invoices.
Better approach: establish a consistent invoicing process and invoice promptly.
Mistake 2: No clear payment terms
Customers aren't sure when payment is expected.
Better approach: make agreed payment terms clear in contracts and invoices.
Mistake 3: Only chasing very old debts
By the time an invoice becomes seriously overdue, the problem may be harder to resolve.
Better approach: follow up consistently from the due date.
Mistake 4: Paying every supplier immediately
This can unnecessarily reduce available working capital.
Better approach: manage payments according to agreed terms while maintaining strong supplier relationships.
Mistake 5: Ignoring small balances
Small unreconciled balances can accumulate into larger accounting problems.
Better approach: reconcile receivables and payables regularly.
Mistake 6: Looking at profit but not cash
A profitable business can still experience cash pressure.
Better approach: connect receivables and payables with cash-flow forecasting.
Mistake 7: Treating the process as purely administrative
Receivables and payables contain information about customer behaviour, supplier relationships and working capital.
Better approach: use the information to support financial decisions.
Accounts receivable and payable management checklist
Use this checklist as a starting point:
Accounts receivable
Invoice customers promptly
Use clear and accurate invoices
Set appropriate payment terms
Track invoice due dates
Review overdue invoices regularly
Follow up consistently
Investigate payment disputes
Monitor customer credit exposure
Reconcile receivables
Track payment trends
Accounts payable
Record supplier invoices promptly
Confirm invoices before payment
Track due dates
Avoid duplicate payments
Reconcile supplier balances
Review large upcoming payments
Take advantage of appropriate discounts
Negotiate terms where commercially appropriate
Maintain good supplier relationships
Include upcoming payments in cash-flow forecasts
Cash flow
Forecast expected customer receipts
Forecast supplier payments
Include wages and other commitments
Monitor actual versus expected cash flow
Update forecasts when payment behaviour changes
Identify potential shortfalls early
When should you get professional help?
You may benefit from additional accounting or advisory support when:
Receivables are growing faster than revenue
Customers are consistently paying late
Cash flow is becoming difficult to predict
Supplier obligations are increasing
You have significant overdue debts
There are multiple entities or bank accounts
Your bookkeeping is falling behind
You are unsure which invoices are genuinely collectible
Your cash-flow forecast is unreliable
Management cannot easily explain changes in working capital
At that point, the issue may be larger than collecting invoices.
You may need a clearer view of the business's working capital, financial reporting and cash-flow position.
Why Daintree can help
Daintree Consulting takes an integrated approach to business finances, combining Accounting, Bookkeeping & Payroll, Taxation & BAS, Business Advisory and Outsourced CFO / Virtual CFO services. SKILL Daintree
That matters because accounts receivable and payable do not exist in isolation.
The quality of your bookkeeping affects your reporting.
Your reporting affects your cash-flow visibility.
Your cash-flow visibility affects business decisions.
And your financial decisions affect growth.
Daintree is Brisbane-based and supports businesses Australia-wide, with senior-led relationships, CPA/CA-qualified leadership and more than 20 years of experience, including Big Four background. SKILL Daintree
The objective is practical: give business owners clearer financial information and a better understanding of where cash is going and what needs attention.
Final takeaway
Effective accounts receivable and payable management is not about simply collecting money and paying bills.
It is about controlling the timing of cash moving through your business.
Start with the basics:
Invoice promptly
Set clear payment terms
Monitor outstanding customer balances
Follow up overdue invoices
Understand why customers pay late
Manage supplier invoices carefully
Pay according to agreed terms
Reconcile your records
Monitor payment trends
Connect receivables and payables to cash-flow forecasting
The result should be greater visibility over what you are owed, what you owe and what your cash position is likely to look like next.
For a growing Australian business, that visibility can make financial management much more proactive.
Need help getting control of your receivables and payables?
Book a free 30-minute discovery call. We’ll look at where clarity is breaking down and identify a practical next step — with no pressure and no obligation.
Frequently Asked Questions
What is accounts receivable and payable management?
Accounts receivable and payable management is the process of controlling money owed to your business by customers and money your business owes to suppliers and other parties. It includes invoicing, payment tracking, collections, supplier payments, reconciliations and cash-flow planning.
Why is accounts receivable management important?
Effective accounts receivable management helps businesses monitor outstanding customer payments, identify overdue invoices and improve visibility over expected cash inflows. Clear payment terms and timely invoicing can also help reduce payment delays. business.gov.au
How can I improve accounts receivable?
Start by setting clear payment terms, invoicing promptly, making invoices easy to understand, tracking due dates and following up consistently on overdue accounts. Business.gov.au also recommends reviewing credit terms and having a process for dealing with late payments. business.gov.au
How can I manage accounts payable more effectively?
Maintain an accurate record of supplier invoices, monitor due dates, reconcile supplier balances and include upcoming payments in your cash-flow forecast. Where appropriate, negotiate payment terms or discounts with suppliers.
What is the relationship between accounts receivable and cash flow?
Accounts receivable represents money customers owe you, but that money does not become available cash until customers pay. Delays in collecting receivables can therefore affect the timing of cash available to meet business expenses.
Should accounts receivable and payable be included in cash-flow forecasting?
Yes. Expected customer receipts and supplier payments are important components of a cash-flow forecast. Cash-flow forecasting can help businesses anticipate potential shortages or surpluses and plan upcoming payments.
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