Late payment is endemic in Australian business. The average SME invoice takes 26 days longer than the stated terms to be paid, according to industry data. For a business with $300,000 in annual trade receivables and 30-day terms, moving average collection from 56 days to 36 days frees up approximately $50,000 in cash — without any new sales. Accounts receivable management is not a back-office administrative function; it is cash flow management, and bookkeepers who actively manage it for clients create measurable value.
Setting Up the AR Function Correctly
Before chasing debtors, the foundational elements need to be in place:
Credit terms: Every customer should have documented credit terms — 7, 14, 30, or 60 days EOM (end of month). Terms should appear on invoices, contracts, and correspondence. Ambiguous terms ("payment within a reasonable time") are unenforceable in a dispute.
Invoice quality: An invoice must include: the supplier's name and ABN, the date, an invoice number, a clear description of goods or services, the amount (including GST if registered), and payment instructions. Missing any of these creates legitimate grounds for a customer to delay payment pending a corrected invoice.
Payment methods: The more payment options available, the fewer excuses for delay. Bank transfer (BECS), BPAY, credit card, and direct debit all reduce friction. For recurring clients, a direct debit authority eliminates the payment step entirely.
Initial statement and invoice cycle: Invoices issued promptly (same day as service delivery, not at month end) start the payment clock earlier. Bookkeepers who issue invoices weekly rather than monthly can meaningfully accelerate collections.
The Aged Debtor Report
The aged debtor report (or accounts receivable aging schedule) is the core tool for AR management. It lists all outstanding customer balances categorised by age: current, 1-30 days overdue, 31-60 days, 61-90 days, and 90+ days. Most accounting software generates this automatically.
The report should be reviewed at least weekly. The questions to answer:
- Which customers are consistently late? (Pattern behaviour, not one-offs)
- Which balances are large enough to affect cash flow this period?
- Which balances are approaching 60 days, where collection becomes materially harder?
- Are there any balances old enough that a bad debt provision is warranted?
For a client with a substantial debtor ledger, the bookkeeper should maintain a contact log — notes on when follow-up calls or emails were made, what the customer said, and any commitments given. This log becomes essential if legal action is needed later.
The Collection Workflow
A systematic collection process works better than ad hoc follow-up. A typical workflow:
Day 1–7 of due date: Automated reminder by email (most accounting software supports this). Non-confrontational in tone: "This is a reminder that invoice #1234 for $X was due on DD/MM. Please let us know if you have any queries."
7 days overdue: Second reminder, warmer in tone but explicitly requesting payment or confirmation of payment date.
14 days overdue: Phone call. Personal contact is significantly more effective than email at this stage. The goal is to understand whether the delay is a cash flow issue (negotiate a payment plan) or a dispute (escalate to the client to resolve). The bookkeeper should not make commercial decisions on behalf of the client — flag the situation, don't negotiate without authority.
30 days overdue: Formal letter of demand, copied to the client. Sets a specific payment deadline (typically 7 days) and states what will happen if payment is not received (referral to debt collection, legal action, credit hold).
45+ days overdue: Referral to debt collection agency or solicitor, depending on the amount. Debt collection agencies typically charge 15-25% of recovered amounts; legal action is economic for amounts above $10,000 or where a continuing commercial relationship makes recovery worth pursuing.
Bad Debt Provisions and Write-Offs
Not all receivables are recoverable. A bad debt provision recognises that some portion of the debtor ledger will not be collected, even before specific invoices are identified as uncollectable. For companies following AASB 9, the expected credit loss model applies — requiring a forward-looking estimate of expected losses, not just a historical write-off rate.
For smaller businesses not applying AASB 9, a specific provision approach is more common: identify invoices that are doubtful (typically 90+ days overdue with no payment commitment or disputed), provide for them individually, and write them off when all reasonable recovery steps have been exhausted.
A bad debt write-off for GST purposes requires that: the debt has been written off as bad in the accounts, the debt was previously included in a BAS as a taxable supply (not cash basis), and the write-off occurs in the same BAS period as the accounting write-off. An adjustment in the BAS recovers the GST previously remitted on the uncollected amount. This is an important cash benefit that is frequently missed.
Debtor Financing: Invoice Factoring and Discounting
Where a business has high quality debtors (creditworthy customers paying slowly), debtor financing converts the receivables to immediate cash. There are two structures:
Invoice factoring: The financier buys the invoices, takes over collection, and pays the business an advance (typically 80%) immediately, with the balance less fees when the invoice is paid. The customer pays the factoring company directly. This is visible to customers, which can be reputationally sensitive.
Invoice discounting: The business retains control of collections and the customer relationship. The financier provides an advance against the invoice value (the invoice remains on the business's books). This is confidential but requires the business to maintain its own collection function.
Both structures cost money — fees of 1.5-4% per month on the invoice face value, depending on the debtor quality and advance rate. Bookkeepers managing a client with cash flow pressure and a strong debtor ledger should present debtor financing as an option — but ensure the client understands the true cost before committing.
Using ReconLink to Keep Debtors Clean
Importing bank statements into ReconLink (CSV, Excel or PDF — or forwarding them to a per-client email inbox) automatically matches incoming payments to outstanding invoices when the reference matches. For businesses with consistent invoicing references and customers who pay accurately, this dramatically reduces manual matching time and keeps the aged debtor report accurate after each import. Where customers pay partial amounts or use incorrect references, manual matching is still required — but the proportion of auto-matched transactions in a well-structured AR function is typically 70-85%, leaving the bookkeeper to focus on the exceptions and the collection workflow.