Written by: Andrew Cohen, CFA, CPA, Managing Partner, Condesa Financial Group | Last updated: October 18, 2026

Key Takeaways

• Accounts receivable management works best with clear policies and repeatable routines that support accurate invoicing, consistent follow-up, and faster cash conversion while limiting bad debt.
• Most SMEs struggle with AR because they lack affordable senior finance talent and clear ownership, so deadlines slip and aging reports sit untouched.
• A simple five-step AR process — credit approval, immediate invoicing, dunning cadence, same-day cash application, and weekly aging report review — creates a reliable operating system.
• Core AR metrics such as DSO, AR turnover, CEI, past-due percentage, and 90+ day AR percentage show how fast you collect and how risky your receivables are.
• Condesa Financial delivers Big-4-caliber AR management through a fractional CFO and nearshore accounting model, giving SMEs professional oversight at competitive rates.

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Why Accounts Receivable Management Breaks At SMEs (And Where Condesa Fits)

Most SMEs face a two-sided AR problem. Owners cannot access high-quality finance talent at a price they can accept, and they often cannot see when their accountant is underperforming. The result shows up as missed deadlines, unreconciled cash, ignored inboxes, and an aging report that nobody owns or works.

Condesa Financial Group is a price-competitive fractional CFO and outsourced accounting firm built for SMEs in high-cost US markets such as New York, Chicago, and San Francisco, and for multinational founders. The firm pairs ex-Big 4 accounting talent from a nearshore Panama and Mexico City team with fractional CFO oversight provided directly by the founder. Clients receive Big-4-caliber work at well-below-US-market rates, with a fractional CFO directing the accounting team and handling the strategic, tax-structuring, and forecasting questions that sit beyond a bookkeeper’s scope.

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How To Set Up The Prerequisites Before You Begin

Two foundations support every strong AR process: a clear credit screen and a written credit policy that everyone follows.

What Are The 5 C’s Of Accounts Receivable Management?

The 5 C’s of credit — character, capacity, capital, collateral, and conditions — describe the main dimensions of creditworthiness a business reviews before extending payment terms. Character reflects willingness to pay. Capacity reflects ability to pay from cash flow. Capital measures the customer’s own financial stake. Collateral identifies recovery assets if payment fails. Conditions cover the external environment that affects repayment. Applied to AR, the 5 C’s act as the screen you run before you extend terms. OpenStax Principles Of Finance ties all five directly to credit-policy decisions including credit applications, credit limits, and delinquency collections.

In practice, the 5 C’s translate into a written credit policy. That policy has five components, which are distinct from the 5 C’s themselves:

• Credit Limits set at roughly one month of expected billing for new customers, released only after two clean payment cycles, per Patron Accounting’s Credit Framework.
• Default Payment Terms such as Net 30 as the standard for established B2B customers. Net trade credit terms typically range from 30 to 90 days depending on industry.
• Early-Payment Lever such as 2/10 Net 30, meaning a 2% discount if paid within 10 days. This discount represents an annualized return above 36% for the customer, which makes it one of the most cost-effective incentives a vendor can offer, per accounts receivable best-practices analysis.
• Customer Screening using bureau history via Dun & Bradstreet, trade references, and payment conduct on existing accounts.
• Named AR Owner with one person responsible for the aging report, collections follow-up, and escalation decisions.

For a deeper operating-system view of AR prerequisites, see Condesa’s guide: Accounts Receivable Best Practices: An SME Operating System.

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How To Run The Accounts Receivable Process, Step By Step

Step 1: Set Credit Terms And Approve Customers

Run every new credit customer through the 5 C’s before you ship or start work. Pull a credit report, check trade references, and review financial statements where available. Assign a credit limit and document the payment terms in writing. The written credit policy governs the relationship, not a verbal agreement. Atradius recommends applying the 5 C’s framework within an SME credit policy to organize customer onboarding, credit-limit decisions, and payment-term approvals. Step 1 is complete when the credit limit is recorded in the system, terms are confirmed in the contract, and the customer master file is complete.

Step 2: Invoice Accurately And Immediately

Issue invoices at the operational trigger such as shipment, signed milestone, or approved timesheet. Month-end billing adds up to 30 days of free credit to early-month work and routinely adds two weeks of avoidable DSO. Every invoice must carry the correct PO number, remit-to details, line-item descriptions, and due date, because a missing PO is a common reason an invoice stalls in a customer’s AP queue.

Send invoices to the AP contact who processes payment, because the procurement contact usually cannot release funds. Condesa runs this process on QuickBooks Online for US clients. Stripe payment links embedded in the invoice let card-paying customers settle in one click. For large accounts, capture delivery confirmation as proof the invoice is valid.

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Step 3: Run A Collections Cadence With Dunning

Dunning is the structured process of sending payment reminders at defined intervals before and after invoice due dates. A practical cadence for Net 30 terms escalates in seven steps: a courtesy reminder with invoice and payment link five days before the due date, a brief note on the due date, a firmer follow-up at day +7, a phone call at day +14 to confirm a payment date or surface disputes, a formal written notice at day +30 referencing contract terms, a credit-hold review at day +45, and a formal demand or third-party referral at day +60. Serrala’s collections guidance recommends adjusting dunning intervals by customer segment and payment terms.

For a full 30-day playbook, see Condesa’s guide: Improve Accounts Receivable Collections: A 30-Day Playbook. For a seven-step collection sequence, see: How To Improve Accounts Receivable Collection: 7 Steps.

Step 4: Apply Cash And Reconcile

Apply cash the same day payment arrives by matching incoming payments to the correct customer invoices. Billtrust sets a Days to Cash Application target of one day between payment receipt and posting, because delays distort the aging report and can trigger dunning notices to customers who already paid.

Match remittances to open invoices, resolve partial payments and unapplied credits explicitly, and reconcile the AR subledger to the bank statement and general ledger. Unapplied cash sitting in a suspense account inflates gross AR and skews every downstream ratio. For a step-by-step reconciliation process, see: How To Reconcile Accounts Receivable At Month-End.

Step 5: Monitor With The AR Aging Report

The AR aging report sorts unpaid balances into five buckets: current, 1–30, 31–60, 61–90, and 90+ days past due. The longer an amount is owed, the greater the possibility the receivable will prove uncollectible. The 90+ day bucket acts as the leading indicator of bad debt risk and should be the first number ownership reviews in any AR report.

Run the aging report weekly rather than monthly. Work the 30+ day bucket before it ages further and adjust credit terms or follow-up for any customer segment that consistently drifts into the later buckets.

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How To Measure Accounts Receivable Performance

Five metrics give a complete view of AR performance. DSO and AR turnover show collection speed, CEI focuses on collections execution, and past-due percentage and 90+ day AR percentage highlight risk in the portfolio. The table below shows the formula and takeaway for each metric.

What Is The Best KPI For Accounts Receivable?

DSO serves as the headline AR metric because it measures the average number of days between a credit sale and cash receipt, giving ownership a single number that summarizes collection speed. ART and CEI act as supporting diagnostics. ART shows how frequently the receivables balance turns over, while CEI isolates the collections team’s execution by stripping out the distorting effect of sales volume changes. Read all three together for a complete picture. For deeper metric guidance, see: Accounts Receivable KPIs: The Essential Metrics Guide.

What Is The Formula For Accounts Receivable Turnover?

AR turnover ratio equals Net Credit Sales ÷ Average Accounts Receivable, where average AR is the opening and closing AR balances added together and divided by two. The Hartford warns that using total sales instead of net credit sales inflates the ratio and can lead to flawed business decisions. To convert the ratio into days, divide 365 by the ratio. This produces the average collection period, which maps directly to DSO. For a full improvement playbook, see: How To Improve AR Turnover: A 7-Step SME Playbook.

What Is A Good AR Turnover Ratio?

“Good” depends on industry and payment terms. A healthy AR turnover ratio is roughly 8 to 12 for most B2B businesses on Net 30 to Net 45 terms, which translates to about 30 to 45 days to collect the average balance. A ratio that drops two or three turns year-over-year points to a slipping collections process or quietly loosened credit terms. The direction and trend matter more than the absolute number, and cross-industry comparisons rarely add insight.

What Does It Mean If AR Turnover Decreases?

A declining AR turnover ratio signals that receivables are accumulating faster than they are being collected. The causes usually fall into three categories: slower collections execution, looser credit terms extended without a corresponding process upgrade, or deteriorating customer quality. The Hartford advises investigating aging, customer payment behavior, credit terms, invoice accuracy, disputes, and follow-up cadence rather than treating the ratio alone as a diagnosis. Check the 90+ day bucket first. If it is growing, the issue sits in collections or credit policy rather than invoicing speed.

How To Calculate AR Over 90 Days

The 90+ day AR percentage is calculated as (90+ Day AR Balance ÷ Total AR Balance) × 100, using the standard aging report buckets. There is no separate formula for the bucket itself, because it is simply the sum of open invoice balances more than 90 days past due. Anything past 90 days means invoices are funding the customer’s working capital at the supplier’s expense. A rising percentage from one period to the next signals that credit policy, follow-up process, or both need immediate attention.

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How To Install The AR Operating Cadence: Daily, Weekly, Monthly

A clear cadence turns AR tasks into a routine that runs every day instead of a scramble at month-end. The schedule below shows how to spread the work across daily, weekly, and monthly cycles.

• Daily: Apply cash the same day payment is received, match remittances to open invoices, generate and send invoices at the operational trigger, and log every customer communication with date, channel, and outcome.
• Weekly: Run the AR aging report, work every invoice in the 30+ day bucket, resolve open disputes with a named owner and a resolution deadline, escalate stalled accounts to the next dunning step, and confirm promise-to-pay commitments from the prior week.
• Monthly: Recalculate DSO, ART, CEI, and 90+ day AR percentage, review and adjust credit limits based on payment behavior, reconcile the AR subledger to the general ledger, report past-due balances and metric trends to ownership, and revisit the credit policy for any customer segment driving the bad-debt ratio.

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How To Avoid The Most Common AR Mistakes

• Invoicing Late Or In Batches: Fifty-nine percent of small businesses carried invoices overdue by 30 or more days in 2026, and month-end billing is a primary structural cause because it adds avoidable days to DSO before collections even begins.
• No Documented Credit Policy: Without a written policy, credit limits and payment terms end up set by whoever is closest to the customer instead of by a defensible process.
• Treating Dunning As One Angry Email: A single overdue notice does not qualify as a cadence. A cadence is a sequenced, escalating series of contacts with defined timing, channel, and owner at each step.
• Applying Cash Weeks After Receipt: Delayed cash application corrupts the aging report and can generate dunning notices to customers who already paid, which damages relationships and wastes collections effort.
• Never Reconciling AR To The Ledger: Unapplied credits, unrecorded write-offs, and subledger-to-ledger gaps produce financial statements that fail to reflect reality.
• Reviewing The Aging Report Only At Quarter-End: The aging report should be run weekly so small slips do not compound for weeks before anyone notices.
• Relying On An Accountant Who Invoices But Never Chases: Invoicing marks the first step in AR. If nobody owns collections follow-up, the aging report grows by default.

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How To Evaluate Progress

Progress in AR should be evaluated against process maturity and visible behavior changes. Within the first month of a new cadence, you should see a cleaner aging report reviewed on a fixed schedule, same-day cash application, disputes with a named owner and resolution deadline, and logged collection contacts instead of ad hoc chasing.

A well-run AR function usually shows visible improvement within the first month of disciplined execution. You will see fewer unresolved disputes, a thinner 90+ day bucket, and a consistent monthly metric summary that includes DSO, CEI, and the 90+ day AR percentage. This framework sets expectations for discipline rather than promising a specific financial outcome. For a structured approach to reducing collection days, see: How To Reduce Accounts Receivable Days: A Guide For SMEs.

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How To Move Beyond The Core Cadence

Once the core cadence runs smoothly, growing SMEs can focus on automation, cross-border complexity, and higher-level finance oversight.

• AR Automation Software: Tools such as HighRadius, Upflow, and Chaser automate reminder-led collections, cash application, and aging-report generation, while Stripe functions as a payments integration used by platforms like Upflow and Chaser. Automating the full AR lifecycle can cut DSO by 26–47% depending on how much of the lifecycle is automated. Automation delivers the most value on repetitive, rules-based work, while high-value and relationship-sensitive accounts still benefit from human judgment.
• Cross-Border Invoicing And Multi-Currency AR: Multinational SMEs face additional complexity such as currency risk, local payment terms, and country-specific invoice requirements that a standard domestic AR cadence does not cover. These situations require a documented multi-currency policy and a finance partner with cross-border experience.
• Fractional CFO Oversight: When the AR system is stable and the business is growing, the focus shifts to cash flow forecasting, working capital strategy, and tax structuring. Condesa’s fractional CFO layer sits above the accounting team and answers those questions directly, which forms the natural next step once the AR operating cadence runs reliably.

For a full guide to AR automation options, see: How To Automate Accounts Receivable: A Step-By-Step Guide. For the broader AR management framework, see: How To Manage Accounts Receivable Effectively.

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Frequently Asked Questions

How Long Should Net 30 Terms Actually Be Enforced?

Net 30 means the customer has 30 calendar days from the invoice date to pay the full amount owed, though some payment terms instead measure the 30 days from receipt of the invoice or of the goods or services. That deadline should be enforced from the first invoice. A customer who consistently pays on day 45 behaves like a Net 45 customer who has learned that the stated terms are flexible. Enforce terms by sending a dunning notice on day 31 and applying any documented late fee consistently, because selective enforcement teaches customers that deadlines can slide.

What Is The Difference Between Dunning And Collections?

Dunning is the structured sequence of payment reminders sent before and after an invoice due date, which works as a proactive, often automated, and escalating communication process. Collections refers to the broader effort to recover overdue balances, which includes dunning along with phone escalations, credit holds, payment plan negotiations, and, as a last resort, third-party agencies or legal action. Dunning forms the first phase of collections rather than serving as a synonym for it.

Should We Offer 2/10 Net 30 Discounts?

A 2/10 Net 30 discount — 2% off if paid within 10 days, full amount due in 30 — is worth offering when the cost of the discount is lower than the cost of carrying the receivable or drawing on a credit line to bridge the gap. As noted earlier, the annualized return to the customer exceeds 36%, which makes it a compelling incentive. The structure is less appropriate when margins are thin or when the customer base rarely responds to early-payment incentives. In those cases, a deposit or milestone billing structure can deliver a similar cash-flow benefit without a margin cost.

How Do We Handle Disputes Without Stalling The Whole AR Process?

Log every dispute centrally with the invoice number, disputed amount, customer’s stated reason, and a named internal owner. Separate the disputed portion from the undisputed portion immediately. If a customer agrees they owe $8,000 of a $10,000 invoice and disputes the remaining $2,000, collect the $8,000 now and resolve the $2,000 separately. Set an internal SLA of 48 hours for investigation and one week for a final answer, and route disputed invoices to a separate workflow so the standard dunning cadence does not keep firing on them.

What Does Nearshore Accounting Delivery Mean For AR Quality And Time-Zone Coverage?

Condesa’s nearshore model pairs ex-Big 4 accounting professionals based in Panama and Mexico City with fractional CFO oversight from the firm’s founder. Both locations operate in US-compatible time zones with English-fluent staff, so AR tasks such as cash application, aging-report review, and dunning follow-up are completed during the US business day without the overnight lag common in offshore models. The fractional CFO layer sets the quality standard rather than the hourly rate of the accounting team.

Conclusion

A documented AR operating cadence that covers credit policy, same-day invoicing, structured dunning, disciplined cash application, and weekly aging-report review turns receivables from a recurring problem into a system the team runs. The confirming metrics — DSO, AR turnover, CEI, and 90+ day AR percentage — are straightforward to calculate and gain power when tracked consistently over time. A sequenced, documented AR process outperforms an ad hoc approach at every company size, and the advantage grows as the customer base expands and payment terms become standard.

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