What is accounts receivable management?

Accounts receivable management encompasses all policies, processes, and activities related to managing client receivables from credit evaluation through collection, aiming to optimize cash flow while maintaining client relationships. For professional service firms, AR management balances timely collection with relationship preservation.

Key characteristics

• Covers credit through collection

• Optimizes cash flow timing

• Balances collection with relationships

• Requires policies and processes

• Includes dispute resolution

• Should be measured and improved

Why it matters for professional service firms

AR management directly impacts cash flow and working capital. Poor management leads to cash shortages and bad debt; aggressive management can damage relationships. Professional service firms need balanced AR management: clear credit policies, timely billing, systematic collection, and relationship-sensitive dispute resolution.

Real-world example

Amanda's firm had ad hoc AR practices varying by who handled each client. Implementing an AR management framework: credit evaluation for new clients over $10K, standard billing within 5 days, automated reminders, collection call schedule, dispute resolution process, and escalation procedures. Defined metrics: DSO target: 35 days; over 60-day AR: under 10%. First year: DSO improved from 52 to 38 days, over-60-day60-day AR reduced from 22% to 8%, and client relationships were maintained through a professional collection approach.