The accounts receivable process is the path an invoice takes from the sale to the cash, and for a small business on account it has six steps that should happen the same way every time: terms agreed with the customer, the invoice issued at the sale, the statement sent for the period, the reminder sent from the due date, the payment applied against the named invoice, and the balance and the reports read from the result. This page walks that accounts receivable workflow, the reports a small seller actually needs, how to calculate days in accounts receivable, and how to forecast collections from the aging without a finance team.
The accounts receivable workflow in six steps, and where it breaks
Terms are agreed once and recorded on the customer. The invoice is issued from the sale with those terms and a due date. The statement goes at the period end, carrying the opening balance, the invoices, the payments and credits, and the closing balance. The reminder goes from the due date. The payment is applied against the named invoice. The balance and the reports follow. The step that breaks is the fifth: a payment recorded as a lump on the account leaves the aging wrong and the reminder chasing a paid invoice.
Accounts receivable reports for a small seller
Three reports, all read from the same record: the aging, open invoices by customer in bands of days past due; the statement per customer, which is the aging as the customer sees it; and the collection figures for the period, what was invoiced, what came in and the days it took. Accounts receivable processing that produces anything more elaborate is answering questions a small seller is not asking. The free tracker on this site reads the aging and the collection figures from the seller's own invoices.
How to calculate days in accounts receivable
Take the receivable balance at the end of the period, divide by the credit sales in the period, and multiply by the days in the period. A balance of 40,000 on 120,000 of credit sales over 90 days is 30 days. Compare it with the terms: on 30-day terms that is customers paying on time; 45 would mean the reminders are late or the terms are not being enforced. Watch the trend, not the single figure.
Forecasting collections in accounts receivable from the aging
Apply a collection rate to each aging band from what actually happened last period: nearly all of the current band, most of the 1 to 30 band, less of the 31 to 60, and so on. The sum is the cash to expect next period from what is already invoiced. It is a rough figure and it is the right one for a small seller, because it comes from the seller's own customers rather than an industry table. The paid record on this site keeps the history the rates come from.
Questions people ask about accounts receivable process
What are the accounts receivable processes, step by step?
Agree terms, issue the invoice, send the statement, send the reminder from the due date, apply the payment to the named invoice, read the balance and the reports. The same order every time.
How do I calculate days in accounts receivable?
Receivable balance divided by credit sales for the period, times the days in the period. The free invoice tracker on this site works it from your own figures.
Which accounts receivable reports does a small business need?
The aging by customer and age band, the statement per customer, and the period's invoiced, collected and days figures. Nothing more until the business is much larger.
How do I forecast collections?
Apply last period's collection rate for each aging band to this period's aging and add the results. The rates come from your own history.
Where does account receivable automation help, and where must it not decide?
It helps on the follow-on: the invoice raised from the sale, the payment applied to the invoice it settles, the statement and the reminder sent on the schedule rather than from memory. It must not decide the judgement calls in the six steps above, which are whether to extend credit, whether to hold a shipment, and when a balance stops being chased and becomes a write-off.
What does accounts receivable processing cover, start to finish?
The six steps on this page: agree the terms, issue the invoice, record it against the customer, apply the payment or the credit, read what is outstanding, and chase what is late. Accounts receivable processing is that sequence done the same way every time, which is why the aging is the test of it rather than the invoice count.