Accounts Receivable Optimization: Getting Paid Faster

Practical strategies to reduce DSO and improve cash flow.

Last Updated: March 2026|10 min read

Key Takeaways

  • •Invoice immediately—every day delayed is a day of cash flow lost
  • •Systematic follow-up (day 31, not day 60) dramatically improves collection
  • •Early payment discounts can accelerate cash flow cost-effectively
  • •Credit policies should differentiate between reliable and risky customers

Accounts receivable is cash you've earned but haven't collected. Every day a dollar sits in AR instead of your bank account costs you opportunity and risk. For a $20M company with 45-day DSO, that's about $2.5M in working capital tied up in receivables.

Improving AR collection is often the quickest way to improve cash flow. Here's how to do it systematically.

Invoice Immediately

The collection clock starts when you invoice, not when you deliver. Delayed invoicing is free financing for your customers.

Invoicing Best Practices

Invoice same day as delivery or service completion
Use electronic invoicing to eliminate mail float
Ensure invoices are accurate and complete—errors delay payment
Include clear payment instructions and due date
Send to the right person—billing contact, not just customer

The Math on Delayed Invoicing

If your average invoice is $10,000 and you delay invoicing by 5 days on average, that's 5 days × (annual invoices / 365) in extra working capital. For 1,000 invoices/year, that's ~$137K tied up unnecessarily.

Optimize Payment Terms

Your stated payment terms set expectations. But many companies accept longer terms than necessary simply because they never asked for better.

Early Payment Discounts

Early payment discounts (e.g., 2/10 net 30) offer customers a discount for paying early. The economics can work for both parties.

2/10 Net 30 Example

Customer pays within 10 days and takes 2% discount, versus paying in 30 days.

You receive cash 20 days earlier

You give up 2% of invoice value

Annualized cost: 2% / (20/365) = 36.5%

This makes sense for you if your cost of capital is below 36.5% (almost always true). Smart customers with available cash will take the discount.

Other Term Strategies

  • Require deposits: 25-50% upfront for large orders or projects
  • Progress billing: Invoice milestones during long projects
  • Shorter terms for new customers: Net 15 until credit established
  • Credit card payments: Accept cards for faster settlement (yes, even with 2-3% fees)

Systematic Collection Process

The biggest AR improvement often comes from simply following up consistently. Many companies don't call until invoices are 60+ days past due.

Collection Timeline

Day 1:Invoice sent with clear payment terms
Day 25:Reminder email: "Payment due in 5 days"
Day 31:Phone call: "Invoice past due—any issues?"
Day 45:Escalation: Senior contact + formal demand letter
Day 60:Account hold: No new orders until resolved
Day 90+:Collections agency or legal action consideration

The Day 31 Call Matters

Many companies wait until day 60 to call on overdue invoices. By then, you've already lost 30 days. A friendly call on day 31 often resolves issues quickly and dramatically improves collection timing.

Credit Policy

Not all customers deserve the same credit terms. A tiered credit policy matches risk to terms.

Low-Risk Customers

  • • Long payment history with you
  • • Strong credit score
  • • Large, stable company
  • • Terms: Standard net 30-45

Higher-Risk Customers

  • • New customer, no history
  • • Past slow-pay behavior
  • • Smaller or younger company
  • • Terms: Net 15, deposits, or COD

Related Resources

Cash Flow Management Guide

Complete cash flow overview

Cash Conversion Cycle

Understanding working capital metrics

Need Help Improving AR Collection?

Eagle Rock CFO helps companies optimize accounts receivable and improve cash flow. Let's discuss your AR challenges.

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