Accounts Receivable
Comptes clients in French
Quick definition
Accounts receivable is money customers owe you for work already delivered or goods already shipped. It sits on your books as an asset, but it pays no bills until it is actually collected.
An asset that pays no bills
When you finish a job and send the invoice, the amount becomes a receivable: real revenue on paper, zero dollars in the bank. Receivables are the mirror image of accounts payable, which is what you owe others. Until the customer pays, you have effectively lent them money, interest free, while your own rent, payroll and suppliers still demand cash. That is why receivables sit at the centre of small-business cash flow: a growing pile of uncollected invoices quietly eats your working capital.
The aging problem
Receivables are tracked by age: current, 30, 60, 90 days and beyond. The pattern is unforgiving: the older an invoice gets, the less likely it is to ever be collected. A customer 90 days behind often has cash problems of their own, and you are competing with their other creditors.
| Age | Amount | Usual response |
|---|---|---|
| 0 to 30 days | $30,000 | Normal terms, no action needed |
| 31 to 60 days | $12,000 | Send a reminder |
| 61 to 90 days | $5,000 | Call and get a payment date |
| Over 90 days | $3,000 | Escalate; collection is at risk |
Collection hygiene for small business
Most collection problems are prevented before the work starts, not fixed after. A few habits do most of the work:
- Set terms up front. Payment terms, due dates and deposits belong in the quote or contract, not announced on the invoice.
- Invoice immediately. The clock only starts when the invoice lands; same-day invoicing beats month-end batching every time.
- Take deposits on big jobs. A 25 % to 50 % deposit funds your materials and proves the customer can pay.
- Put late-payment interest in the contract. A modest monthly charge changes behaviour, but as a general rule it must be agreed in writing beforehand to be enforceable.
- Define stop-work triggers. Decide in advance when unpaid invoices pause new work, and say so in the contract.
When an invoice goes bad
Some invoices will never be paid. Once you have genuinely given up collecting, write the amount off as a bad debt: it removes the phantom asset from your books and is generally deductible. A second piece many owners miss: if you already remitted GST/HST on the invoice, the tax portion of a written-off account can generally be recovered through an adjustment on a later return.
In Canada
Unpaid invoices can be pursued through small claims court, with limits that vary by province, commonly in the $15,000 to $50,000 range: a low-cost route that does not require a lawyer, though winning a judgment and actually collecting are two different things. Accrual-basis businesses also pay income tax on invoiced revenue before collecting it, which makes the bad-debt deduction and the GST/HST adjustment worth raising with your accountant.
Worked example
Dana runs a small design studio. A client owes $8,000, now 75 days past due, while Dana owes her own contractor $5,000 this month. On paper the studio is fine; in the bank it is not. She calls the client, gets a written commitment to pay half now and half in 30 days, and pauses the client's next project until the balance clears, as her contract allows. Going forward she takes a 40 % deposit on projects over $5,000 and invoices the day each milestone is approved. Her average collection time drops from 55 days to 28.
Related terms
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated August 2026