Accounts receivable management for small businesses in India

What is accounts receivable management?

Accounts receivable management is the routine of giving credit on purpose, tracking every unpaid invoice against its due date and collecting before the money goes stale. Older books call it the debtors list.

A sale on credit is an interest-free loan to your customer. Managing it has six parts:

• Terms: credit days and a due date on every invoice.
• Credit control: a credit limit per customer, checked before you sell.
• Recording: every payment matched to the invoices it pays.
• Visibility: an ageing report and a statement of account per customer.
• Follow-up: reminders, calls and, at the end, stopping supply.
• Clean-up: credit notes, settlement discounts and bad debt write-offs.

Why does every invoice need terms and a due date?

An invoice without a due date is never overdue, so nobody chases it. The due date is the invoice date plus the customer's credit days, and it should be printed on the invoice where the customer's accounts team will see it.

Agree the credit days when you open the account, write them down, and keep them the same on every document. If a customer gets 30 days, an invoice dated 3 October 2026 is due on 2 November 2026.

How many days and how much credit to give each customer is a decision of its own. The guide on credit limits and credit days for customers works through five customers with the reasoning for each limit.

How do you read an accounts receivable ageing report?

An ageing report splits what each customer owes into buckets by how far past the due date it is: not yet due, 1–30 days, 31–60 days, 61–90 days and over 90 days. The older the bucket, the lower the chance of collecting it in full.

Here is Lakshmi Steel Furnitures, the fictional Coimbatore maker of steel racks and office furniture used across this site, on 1 July 2026. It is owed ₹8,40,000 by six customers.

The number to watch is the share over 60 days. At Lakshmi Steel it is ₹1,20,000 of ₹8,40,000, about 14%, and two customers account for all of it. The debtors ageing report guide covers ageing by invoice date versus due date and how partial payments sit in a bucket.

What should you do with each row of the ageing report?

Each row needs one action this week, chosen by its oldest bucket, not by its total. A large balance that is not yet due needs less attention than a small one that is 90 days late.

How do credit limits stop the problem before it starts?

A credit limit caps how much one customer can owe you at any time, so a slow payer cannot grow into a large loss. The time to apply it is when the next invoice is raised, not when the ageing report turns red.

Sakthi Hostel Supplies reached ₹70,000 because each new order looked small on its own. A limit of ₹50,000 would have flagged the invoice that took it over, and the conversation about the old balance would have happened 60 days earlier.

How should customer payments be recorded and allocated?

Record every payment against the specific invoices it pays, not just against the customer. If Annai Enterprises pays ₹40,000 and you only reduce its total, you lose track of which invoice is still open and the ageing report becomes guesswork.

• One payment can clear several invoices, oldest first unless the customer says otherwise.
• One invoice can take several part payments; it stays partially paid until the balance is zero.
• Money received before an invoice, or without a reference, sits on the customer as an advance and is applied later.
• TDS the customer deducts is a short payment, not a discount. Many businesses record it as TDS receivable; confirm the treatment with your CA.

The partial payments and allocation guide shows ₹50,000 received against three invoices, with the balances that result.

Why does a statement of account get you paid faster than a reminder?

A statement of account shows the customer every invoice, payment and credit note in date order with a running balance, so there is nothing to argue about and nothing to look up. A reminder about one invoice invites the reply that it was already paid.

Send a statement to every customer on the first of the month and to overdue customers every week. The statement also surfaces disputes early: a missing credit note or a payment posted to the wrong party shows up as a difference between their ledger and yours. The statement of account guide has wording for routine, overdue and final notices.

What follow-up works at each stage of overdue?

Follow-up should step up on a fixed schedule so that customers learn your pattern and nobody has to decide each time. A schedule many small businesses use:

1. 1

   3 days before the due date

   A short, friendly reminder with the invoice number, amount and UPI details.

2. 2

   7 days past due

   A phone call to the person who releases payments. Ask for a date, not a promise.

3. 3

   30 days past due

   A statement with the overdue rows marked and a second call, this time to the owner.

4. 4

   60 days past due

   New orders on hold until the oldest invoice is cleared. Say so in writing.

5. 5

   90 days past due

   A final statement and, if needed, a legal notice. Discuss a provision or write-off with your accountant.

Seven practices that shorten the wait, from invoicing the same day to printing a UPI QR on the invoice, are in how to collect payments faster from customers.

What does the MSME 45-day rule mean for your receivables?

If you are a micro or small enterprise registered under Udyam, buyers must pay you within 15 days, or within the period agreed in writing if that is 45 days or less. This is set by section 15 of the MSMED Act, as of October 2026.

• A buyer who pays late owes interest at three times the RBI bank rate, compounded monthly (MSMED Act, section 16).
• A buyer cannot claim the expense as a deduction until it pays you: section 43B(h) of the Income-tax Act 1961, renumbered section 37(2)(g) in the Income-tax Act 2025 from 1 April 2026.
• Put your Udyam number on your invoices and keep agreed terms at 45 days or fewer, in writing.

Many buyers clear MSME suppliers before 31 March, so a statement that month is well timed. The details are in the MSME 45-day payment rule guide.

How do credit notes and settlement discounts fit in?

A credit note reduces what a customer owes for a reason you agree with: goods returned, a rate error, or a discount for paying early. It should always be a document, never a quiet edit to the invoice or a short payment you ignore.

Suppose Green Valley School offers to clear a ₹1,00,000 balance this week if you allow 2%. A credit note for ₹2,000 against the invoice settles it cleanly, and the statement shows why the balance is zero. Whether that credit note can also reduce the GST on the original invoice depends on how and when the discount was agreed, so check with your CA. The credit note and debit note guide covers the GST side.

How do you write off a bad debt?

A bad debt is written off with a journal that moves the balance from the customer to an expense account, once you have a reason to believe it will not be paid. The invoice stays in your records; only the receivable is cleared.

Sakthi Hostel Supplies has closed its business. After a final notice, Lakshmi Steel decides the ₹40,000 over 90 days will not be recovered, and keeps chasing the ₹30,000 that is 61–90 days old. The journal:

The GST you paid on the original sale is not reversed simply because the customer did not pay. A bad debt write-off is not a credit note and does not change your GSTR-1. If the money is later recovered, reverse the journal and record the receipt as usual.

What is DSO and how do you calculate it?

Days sales outstanding, or DSO, is the average number of days it takes you to collect a sale. It turns the ageing report into one number you can track month to month.

Compare DSO with your usual credit days. Close to it means collections are on time; well above it means money is stuck. If Lakshmi Steel brought DSO down to 30 days on the same sales, it would hold about ₹7,00,000 in receivables, freeing roughly ₹1,40,000 of cash without selling a single extra rack.

What does a weekly collections routine look like?

A weekly routine of under an hour does more for cash than any one-off recovery drive. Pick a fixed morning, Monday works for most, and go through the same list:

• Every invoice from last week is posted, with the customer's credit days and due date
• Every payment received is recorded and allocated to the invoices it pays
• Open the ageing report and sort by the oldest bucket, not by total
• Choose one action per overdue customer and note the promised date
• Send statements to every customer with anything overdue
• Make the calls for anything past 7 days and confirm the dates in writing
• Hold new orders for any customer over the limit or past 60 days
• Note DSO and the share over 60 days, and compare with last week

How does SimpleERP handle accounts receivable?

In SimpleERP, every customer carries payment terms, credit days and a credit limit, and every posted invoice writes the receivable, the sale and the GST in one step. When an invoice takes a customer over the limit, you see a warning before posting; it does not block, and posting needs the approve permission anyway.

• One payment can be allocated to many invoices, and one invoice can take many payments.
• Advances and on-account amounts sit on the customer and can be applied to invoices later.
• Posted, partially paid and paid are set by the database from the allocations, so nobody edits a status.
• Cancelling a payment re-opens the invoices it paid, with the history kept.
• Receivables ageing by party and by due date, with bucket columns and a row that expands to invoices.
• A statement of account per party with opening balance, running balance and an ageing footer, to print, save as PDF or copy as share text.
• Reminder text to copy and send, and a UPI QR printed on the invoice.

Read more on the payments and receivables page.