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Financial management

How to collect receivables faster: a practical plan

Late-paying customers are one of the most common reasons a business with healthy sales feels short of cash. Collecting faster is rarely about being aggressive. It usually comes from measuring how long customers actually take, sending clear invoices promptly, agreeing terms before the work starts, following up on a routine and having a respectful conversation when an invoice goes late. This article gives you that plan, and explains what changes if an amount turns out to be uncollectible.

Sora Accounting & Tax · General information · Editorial policy
Updated · 6 min read

From invoice to cash in a steady routine

A flow showing the collection steps in order, from a clear invoice sent promptly to follow-up, conversation and escalation only as a last resort.

Visual labels: Invoice promptly; Remind on schedule; Talk when late; Escalate last.

What to take away

  • Measure your average collection period first, so you know whether collections are actually the problem.
  • Most delays start before the due date: late or unclear invoices, vague terms and no named owner for follow-up.
  • A written-off debt has its own income tax and GST/HST rules, and the conditions matter.

Start by measuring how long customers take to pay

Before changing anything, work out your average collection period: the average number of days it takes to turn receivables into cash. BDC gives the formula as accounts receivable divided by sales, multiplied by the number of days in the year. BDC also notes that 60 days or less is generally preferable, because it points to stronger liquidity.

Here is an illustrative example with round numbers. A business has $60,000 of annual sales and $10,000 of unpaid invoices at year end. The calculation is $10,000 divided by $60,000, times 365, which is about 61 days. If your stated terms are 30 days, that gap is the thing to investigate. Use a representative period, since one large invoice at the wrong moment can distort the figure. Sora’s receivables days tool can run the calculation for you.

Fix the invoice before you chase the customer

BDC’s advice is to send the bill as soon as you have shipped the goods or completed the job. A delay in sending the invoice generally pushes the payment date back by the same amount. Make the invoice clear and detailed enough that the person approving it does not need to phone you to understand what it is for.

Show the amount, the due date, the payment terms and how to pay. If you charge for late payment, say so plainly. BDC advises stating payment terms and any late payment penalties clearly, because an unclear invoice is easier to ignore. Putting the same terms in your agreement before the work starts is good practice. Keep a copy of every invoice. The CRA lists sales invoices among the original documents that support your income entries, so the same record serves your customer and your tax return.

Agree terms and risk before the work begins

The easiest collection problem to solve is the one you avoid. For large projects, BDC suggests asking to be paid in instalments rather than carrying the full cost until the end. A deposit, a milestone schedule or a shorter term for a new customer all reduce how much of your money sits with someone else.

Keep a close watch on how long customers take to pay. BDC says the average collection time may prompt a broader look at which companies you do business with, or at your credit policies. That is a business decision and sometimes an uncomfortable one, but it is better made with figures in front of you. A customer who is always 45 days late is effectively financing themselves from your cash.

Build a routine and give it an owner

BDC points out that billing and collection roles are often unclear in small businesses, and that collection performance should be measured against specific goals. Decide who sends invoices, who reviews the overdue list, and how often. Weekly is a sensible rhythm for most small businesses, and it is the point at which a late invoice is still a small problem.

Accounting software can send account statements and schedule automatic reminders for overdue accounts. That handles the simple cases well. As BDC notes, technology does not replace a human conversation when a customer keeps not paying. If your books are kept monthly, review the aged receivables list as part of the close, separating invoices still within terms from those past due and those in dispute.

Have the conversation when an invoice is late

When a customer is overdue, contact them early and listen first. BDC recommends asking why the invoice has not been paid. The reason may be a dispute about the work, an invoice sent to the wrong person, or a temporary cash problem on their side. Each one has a different fix.

If the customer is open about temporary difficulty, agreeing on a new payment plan in writing is often better than waiting. BDC observes that customers tend to pay the people who treated them with respect, and that being too strict can damage a long-term relationship. Note what was agreed, by whom and on what date, and keep that note with the invoice.

Escalating: when and how far

Escalation is a last resort. BDC says that if delays continue and the amount justifies it, you can take legal action or hire a collection agency, and that both are costly. Weigh the amount owed against the fees, the time and the likelihood of recovery. For a small balance, the cost may be higher than the debt.

Before sending a formal demand, confirm what your agreement says and, for larger amounts, ask a lawyer about your options. This article does not cover legal collection steps. What you can do on the tax side is covered in the next section.

If the debt is never paid: income tax and GST/HST

For income tax, the CRA’s guidance for the self-employed says you can generally deduct a bad debt if two things are true: you had already included the receivable in your income, and you determined in the year that it was a bad debt. If you report income when you are paid rather than when you invoice, the amount may never have been in your income, so there may be nothing to deduct. Confirm which method applies to you. The CRA page covers sole proprietors; ask your accountant how the rules apply to a corporation.

For GST/HST, if you already reported and remitted the tax on the sale, you may be able to recover it. The CRA’s conditions are that you wrote the debt off in your records, that you deal with the customer at arm’s length, and that you claim it on a later return within four years of the reporting period in which you wrote it off, not by changing the original return. The adjustment covers only the GST/HST share of the unpaid amount. If you later collect on a debt you wrote off, the GST/HST portion generally has to be added back. Keep the invoice, the collection notes and the date you decided to write the amount off.

What to bring to your accountant

Bring an aged receivables list as of a recent date, your stated payment terms, and a note of any invoice you think may not be collected. Ask whether your average collection period is a concern for the business, whether any balances should be written off, and how a write-off would affect your return and your sales tax filing.

If late payments are putting pressure on your bank balance, a short dated forecast will show how much slack you really have. Our article on why a profitable business can still run short of cash explains that gap, and the quarterly review article shows where collections fit into a regular check-in. This article is general information and does not replace advice on your own facts.

Sources & editorial notes

Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.

Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.