By Richie Lennon
At a glance
Accounts receivable is money customers owe your business for sales made on credit. An invoice can appear in your profit while the cash is still missing from your bank account. Manage receivables by issuing accurate invoices, matching receipts, reviewing overdue balances and assigning each problem an owner and next action. Measure overdue debt and collection time, then put realistic receipt dates into your cash forecast. Automatic reminders only help when the records behind them are current.
You can have a good sales month and still struggle with payroll. The work is done, the invoice is raised, and the customer has not paid. Meanwhile your team and suppliers expect their money on time.
We make the same point in our agency guidance: map the business twice, once for when you invoice and once for when the cash lands. Staring at the bank balance tells you where you are today. It does not tell you which customers need attention before next month’s commitments arrive.
Accounts receivable basics
Accounts receivable, often called trade debtors, records amounts owed by customers. When a customer pays an outstanding invoice, the receivable falls and cash rises. Receiving that payment does not normally create the same sale again.
| Balance | What it means | Example |
|---|---|---|
| Accounts receivable | A customer owes you | An unpaid invoice for completed client work |
| Accounts payable | You owe a supplier | An unpaid supplier invoice |
| Customer deposit | You hold money before earning it | An advance for work still to be delivered |
A customer deposit for work not yet earned is normally a liability, not an unpaid receivable. Its VAT treatment is a separate question. Keep deposits, credit notes and overpayments correctly recorded so that your debtor report shows what customers actually owe.
Slow payment mainly creates a cash problem. A debt that will not be collected can also affect profit when an impairment or write-off is required. The two should not be confused.
Get the invoice right before chasing it
Agree payment terms when you agree the work. Confirm who approves the invoice, where it must go and whether the customer needs a purchase order or proof of delivery.
For project work, agree deposits and billing milestones before delivery begins. Invoice when the agreed milestone is reached, rather than waiting for someone to remember at month end.
An invoice should make the payment easy: the correct customer details, a clear description, agreed price, applicable VAT, payment instructions and due date. A missing purchase order can leave an otherwise sound invoice sitting outside the customer’s payment process.
The first collection question is therefore not “Have we sent another reminder?” It is “Does the customer have a valid, approved invoice they can pay?”
Review overdue balances, not just the total
Use an aged receivables report to separate amounts not yet due from overdue invoices. Check whether your software ages from invoice date or due date. Those are different views.
Here is an illustrative report using days past the due date. Amounts are customer balances including any VAT invoiced.
| Payment status | Amount outstanding | First action |
|---|---|---|
| Not yet due | €24,000 | Confirm invoices reached the right contact |
| 1–30 days overdue | €18,000 | Ask for a payment date and resolve simple errors |
| 31–60 days overdue | €12,000 | Escalate disputes and check the promised date |
| More than 60 days overdue | €6,000 | Review recovery risk and further credit |
| Total | €60,000 | €36,000 is overdue |
The total alone hides the problem. In this example, 60% of the outstanding balance is overdue. The next report should show whether that €36,000 is falling, not merely whether sales have grown.
Look at concentration too. One large overdue customer can matter more than twenty small invoices. A strong headline sales figure does not remove that dependency.
Turn the report into a collection plan
Review the largest and oldest balances weekly. Record the reason for delay, the person responsible for resolving it, the next action and the agreed payment date.
| Reason for delay | Action | Who owns it |
|---|---|---|
| Invoice sent to the wrong address | Reissue to the correct contact and confirm receipt | Billing team |
| Customer disputes the work | Resolve the specific issue and document any credit | Account or project owner |
| Payment promised but not received | Confirm whether it was sent and request evidence | Credit-control owner |
| Customer has a genuine cash problem | Agree a documented plan and review further supply | Business owner |
Use an actual person’s name in your own report. “Finance to chase” is easy to ignore. “Aoife to confirm the disputed €4,000 by Thursday” gives the next review something to test.
Be polite and direct. Start with the invoice and agreed terms, ask what prevents payment, and get a specific date. Repeating the same email will not resolve a delivery dispute or a missing approval.
Decisions about pausing work, changing credit limits or taking recovery action must respect the contract and the customer relationship. Escalate them deliberately rather than leaving a junior team member to improvise.
Match payments before automating reminders
A customer who has already paid should not receive an overdue notice because nobody matched the receipt. Bank feeds, bookkeeping and invoice allocation all have to be current.
This is our practical position on automation: make the process reliable first. A faster bank feed does not allocate the payment for you in every case, and a reminder cannot distinguish a genuine debt from a bookkeeping delay if the ledger is wrong.
Reconcile incoming payments, resolve unidentified lodgements and record credit notes before sending the next chase. Then decide which customers and invoice stages suit automated reminders. Some will need a personal conversation.
Current bookkeeping supports that work. The software is useful; responsibility for the process still needs a name.
Measure collection time consistently
Days sales outstanding, or DSO, estimates how long credit sales remain uncollected. One common approach is:
DSO = average trade receivables ÷ net credit sales × days in the period.
Use receivables and sales on the same VAT basis. Exclude cash sales from the credit-sales denominator, and keep your method consistent between periods.
For an illustrative 90-day quarter, average receivables of €40,000 and net credit sales of €120,000, both excluding VAT, give a DSO of 30 days. That average does not mean every customer pays on day 30.
Compare the result with your payment terms and previous periods. Seasonal sales and a changing customer mix can move DSO, so read it alongside overdue amounts and the oldest invoices. There is no single “good” debtor-days number for every business.
Put expected receipts into the cash forecast
An overdue invoice is not a receipt you can confidently spend next week. Build your forecast using realistic payment dates and test what happens if a large receipt slips.
Our cash flow forecast guide takes that next step. It turns the collection plan into decisions about wages, suppliers, tax and borrowing.
If an invoice is genuinely uncollectable, assess the accounting write-off and any tax relief. VAT bad-debt relief has conditions, including evidence of recovery steps and VAT previously accounted for. An invoice becoming 90 days old does not automatically qualify. See Revenue’s bad-debt guidance.
When invoice finance or factoring helps
Invoice finance can release cash against eligible unpaid invoices. Factoring and invoice discounting are different arrangements, including who handles collection and whether the customer knows about the facility. Compare the actual agreement.
Do not assume you receive the whole invoice less one fee immediately. Providers typically advance an agreed percentage and release the balance after collection, less charges. For example, Bank of Ireland’s invoice-finance facility describes an advance against approved debts and separate finance and service costs.
For illustration only, a €50,000 eligible invoice, an 80% advance and a €1,500 total assumed fee would work as follows:
| Stage | Cash received |
|---|---|
| Initial advance | €40,000 |
| Balance released after collection, less the assumed fee | €8,500 |
| Total received | €48,500 |
This simplified example assumes no other charges or adjustments. It is not a market quote. Check eligibility, recourse if the customer fails to pay, interest, service fees and the exit terms.
Finance can bridge a timing gap. It does not repair disputed invoices, weak margins or customers who cannot pay. Fix the underlying collection process as well.
What your monthly reporting should tell you
You should be able to see what is owed, what is overdue, what is disputed, who is acting and how those receipts affect the next few months. A debtor total in year-end accounts arrives too late to do that job.
Around Finance’s management accounts service supports a clearer view of trading and cash. Agree separately who sends invoices and collects payments; those responsibilities should not be assumed from the word “accounting”.
If your Irish business turns over €250,000 or more and you need better financial visibility, book a Finance Fit Call.
FAQs
Receivables are amounts customers owe you. Payables are amounts you owe suppliers. They sit on opposite sides of the balance sheet and both affect the timing of cash.
A deposit received before the related work or supply is earned is normally a liability. An unpaid sales invoice is a receivable. The accounting and any VAT due must follow the actual transaction.
Under accrual accounting, the sale is normally already recognised. Collection converts the receivable into cash. A credit loss or write-off is a separate event that can affect profit.
Only where the records are current and the customer situation suits automation. Match receipts first. Disputes, credit notes and a customer who has already paid need accurate records or direct action.
Compare debtor days with your agreed payment terms, customer mix and previous results. Averages can hide old unpaid invoices. Review overdue balances and specific payment commitments alongside DSO.
Usually only an agreed advance is available first. The remaining balance is released after collection, less the provider’s charges. Eligibility, fees and responsibility for non-payment depend on the agreement.
