Common AR Issues: Building an AR Department from the Ground Up

Make sure to collect billing details, terms and conditions, purchase orders, corporate info., AP contacts (email and phone), and backup contacts. It’s important to have contact information for more than one individual in the case of employee exits.

If a customer’s payment process doesn’t align with your invoicing process, resolve any discrepancies before invoices are due.

Confirm the correct invoicing method (email, portal, EDI – Electronic Data Interchange software) and set it up before the first bill. Remember, the customer sets the standard here, so make sure to confirm their preferred delivery method.

Both parties should fully understand and agree to payment terms, due dates, and payment methods before transactions begin. Make sure to review all of the fine print before signing an agreement or contract, as it’s much more difficult to negotiate terms retroactively.

This ensures you know who’s responsible for payment and provides legal recourse if needed. A standard credit application should include:

• Legal business name and DBA (if applicable)
• Business address and contact details
• Federal Tax ID (EIN)
• Year of business establishment
• Ownership and key personnel details
• Trade references (at least three, including contact info and payment history)
• Bank reference, including account information and average balance history
• Payment terms acknowledgment and agreement to credit policies

Companies operating for 5+ years have demonstrated staying power.

Check with the secretary of state to confirm the company is in good standing.

General practice is to subject any invoice over $10,000 to additional review. For larger companies, however, this threshold might be higher.

Reflect on how willing your company is to extend credit to customers and how much risk you’re willing to take on in pursuit of growth. Communicate this to your staff so everyone is on the same page. Companies typically fall into one of three categories:

• Aggressive: Companies prioritize growth and market expansion over minimizing credit risk. They’re more willing to extend credit, even to customers with limited or less-established credit histories.
• Neutral: A middle-ground approach balances risk and growth by conducting moderate due diligence on customers before extending credit.
• Conservative: Companies focus on minimizing bad debt and ensuring they only extend credit to highly reliable customers.

Invoices should be generated in accordance with the customer’s payment processing procedures. Any misalignment can lead to payment delays or disputes.

Invoices must contain correct details, including purchase order numbers, item descriptions, quantities, pricing, and payment terms. Errors in these details can cause processing delays.

Delays in sending invoices directly impact payment timelines. Businesses should have a structured schedule for invoice generation and delivery.

Ensure invoices are sent through the appropriate channels based on the customer’s preferences—whether email, a client portal, or EDI—to prevent miscommunication and lost invoices.

The more straightforward the payment process is, the better. If possible, include a payment link on the invoice. Make sure to list all accepted payment methods in a way that’s clear and easy to find.

Establish a process for regularly updating AP contacts for your customers. If an AP contact leaves or changes, outdated records can result in invoices going unnoticed.

Follow up with clients after invoice submission to confirm receipt and ensure there are no discrepancies. A proactive approach reduces the risk of late payments due to miscommunication.

When AR staff have multiple responsibilities, follow-ups will inevitably
take a back seat. Empower AR employees with the authority, tools, and
processes to be successful at their job.

Make sure to tailor your process to your organization’s preferences. We recommend beginning outreach 7 days past due to allow for mail time, then following up every 3 business days by both email and phone until payment is received.

An AR-specific tracking system enables you to schedule timely follow-ups, log notes and response history, and give your team real-time visibility into past-due account status.

If a key AR team member is out, someone else should be able to step in without missing a beat. Having clear documentation of AR activities and who has been contacted when makes this easier. An AR follow-up checklist also clarifies expectations around day-to-day responsibilities for AR staff.

Put defined steps in place for handling past-due invoices and disputes, backed by pre-approved company policies—demand letters, collection agencies, and legal action—ready to deploy if a customer refuses to pay.

Approach follow-ups as a courtesy service, not a demand. Friendly and open communication, helpful reminders, and a problem-solving attitude can preserve customer relationships while helping ensure timely payments.

Consider implementing AR software to automate reminder emails and set follow-up tasks, helping streamline processes and reduce manual effort.

Keeping your AR ledger up to date not only reduces processing backlogs but also gives you real-time visibility into cash flow and outstanding balances.

Rely on their remittance details to avoid misallocations, minimize disputes, and ensure invoices are credited correctly.

Assign each memo to the proper invoice or account to prevent over- or under-crediting and keep your AR reconciliation clean.