Accounts Receivable: A Plain Guide for Australian Small Business

Accounts receivable is the money your customers owe you for work you've already invoiced but haven't been paid for yet. Australian accountants often call it "debtors" or "trade debtors", and it sits on your balance sheet as a current asset. If you've issued $12,000 of invoices this month and $7,500 has landed in your account, your accounts receivable is $4,500. Managing it well comes down to three habits: invoice the day the work is done, chase on a fixed schedule, and know how unpaid invoices affect the GST on your BAS.

What is accounts receivable?

Accounts receivable (AR) is the total of all invoices you've sent that are still unpaid. It's money you've earned but not yet collected, so it counts as an asset, not as cash. The moment a customer pays, that amount moves out of receivables and into your bank balance.

In Australia you'll hear three names for the same thing. Accounting software tends to say "accounts receivable", your accountant may say "debtors" or "trade debtors", and the report that groups them by age is usually called an "aged receivables" or "aged debtors" report. A customer who owes you money is "a debtor"; the business owed the money is the creditor.

Receivables only exist when you sell on credit, which means doing the work first and letting the customer pay later. A café that takes card payment at the counter has almost no receivables. A plumber who invoices builders on 14-day terms, or a consultant billing monthly on 30-day terms, can have more money sitting in receivables than in the bank.

Accounts receivable examples

The last row shows why terms matter. On "30 days EOM", stock delivered on 2 March isn't due until 30 April, so the wholesaler is always funding about two months of customer purchases. Our guide to invoice payment terms in Australia explains how each term changes the wait.

What is the difference between accounts receivable and accounts payable?

Accounts receivable is money owed to you; accounts payable is money you owe to others. Your unpaid invoices to customers are receivables. Your unpaid bills from suppliers, subcontractors and your accountant are payables.

The two sides meet in your cash flow. If customers take 45 days to pay you but your suppliers want payment in 14, you're funding the gap from your own pocket. That gap is the reason to watch both lists every week, and it's the starting point of a cash flow forecast.

What is the accounts receivable process?

The accounts receivable process is the routine that turns finished work into cleared money: agree terms, invoice, record, collect, apply the payment and close the invoice. It's the back half of what larger businesses call "order to cash" (or "invoice to cash" when you only count from the invoice onwards).

A full order-to-cash cycle for a small Australian business usually looks like this:

1. Quote and acceptance. You send a quote with price, scope and payment terms, and the customer accepts in writing. Bigger customers may also issue a purchase order number you must quote on the invoice.
2. Deliver the work or goods. For larger jobs, this is where deposits and progress claims come in.
3. Issue the invoice. A tax invoice if you're GST-registered and the sale is taxable, otherwise a plain invoice with your ABN. The receivable now exists.
4. Collect. Make payment easy, send reminders, and escalate if the due date passes.
5. Apply the payment. Match the deposit in your bank feed to the right invoice, mark it paid, and send a receipt if the customer wants one.
6. Reconcile and review. Check your receivables total against the bank, and look at what's overdue.

Most cash flow problems come from gaps between steps, not from customers refusing to pay. A job finished on Thursday but invoiced the following Wednesday has already lost six days before the payment terms even start.

What do invoice statuses mean?

An invoice status tells you where each receivable sits in that process. Most invoicing tools use the same handful of labels, and keeping them accurate is what makes your receivables total trustworthy.

Two related cases trip people up. If an invoice was wrong or the job was cancelled, don't delete it, because that leaves a gap in your numbering. Issue a credit note against it instead, which cancels some or all of the amount and keeps your records clean. And "written off" is a bookkeeping decision, not forgiveness: you can still pursue the customer, and if they later pay you account for the money then.

How does accounts receivable affect GST and your BAS?

It depends on your GST accounting method. If you account for GST on a cash basis, you report GST on the BAS for the period in which you're paid. If you use the accruals (non-cash) basis, you report GST in the period you issue the invoice, or the period you receive any payment if that comes first, whether or not the customer has paid.

The ATO lets businesses with aggregated turnover under $10 million choose either method (see the ATO's page on choosing an accounting method). For a small business with a lot of money in receivables, that choice has a real cash cost.

Worked example: one late invoice, two methods

You're a GST-registered landscaper who lodges quarterly. On 22 September 2026 you invoice a customer $4,400 including GST ($4,000 + $400 GST, because GST is one-eleventh of the GST-inclusive total: $4,400 ÷ 11 = $400). The customer pays on 18 November.

• Accruals basis: the $400 GST belongs on your July–September BAS, due 28 October 2026. You pay the ATO $400 three weeks before your customer pays you.
• Cash basis: the $400 GST belongs on your October–December BAS, due 28 February 2027, because that's the quarter you were paid.

Quarterly due dates are listed on the ATO's BAS due dates page.

What if the customer never pays?

On the accruals basis you've already paid GST on money you never received. The ATO allows a decreasing adjustment on a later BAS once the debt is written off as bad, or has been overdue for 12 months or more. On the cash basis there's nothing to adjust, because you never reported the GST. Our guide to writing off bad debts walks through the records you'll need.

Do large businesses have to pay small suppliers on time?

Not by a fixed legal deadline, but the biggest ones must publish how fast they pay. Under the Payment Times Reporting Scheme, large businesses with annual consolidated revenue of $100 million or more report their payment terms and payment times to small business suppliers, and those reports are public.

Before you accept a big customer's standard terms, look them up on the Payment Times Reporting register. If a prospective customer's reports show it routinely pays small suppliers in 50 or 60 days, price that wait into your quote, ask for a deposit, or negotiate shorter terms up front. The scheme doesn't force anyone to pay faster, but it tells you what you're signing up for.

A simple 6-step accounts receivable process for sole traders

You don't need accounting software or a credit controller to manage receivables. This routine takes about 15 minutes a week and covers almost every way small businesses lose money to slow payers.

1. Agree terms before you start. Put the payment terms and any deposit on the quote, so the customer has agreed to them in writing. Net 7 or Net 14 suits most sole traders.
2. Invoice the same day. Send the invoice when the job is finished, not at the end of the week. Show the actual due date ("Due 7 November 2026"), not just "14 days".
3. Make paying effortless. Include your BSB and account number, a PayID if you have one, and the invoice number as the payment reference. A clear payment reference saves you matching deposits by guesswork.
4. Keep one list of who owes what. A spreadsheet with invoice number, customer, date, due date, amount, amount paid and status is enough. Update it every time money lands.
5. Chase on a fixed schedule. A polite reminder the day after the due date, a firmer one at 7 days overdue, a phone call at 14 days, and a final notice at 30 days. Our step-by-step guide on how to chase overdue invoices has the scripts. If you'd rather not send these by hand, InvoiceSonic sends automatic reminders at 7, 14 and 30 days after the due date.
6. Review weekly and escalate. Once a week, sort the list by days overdue. Anything over 30 days gets a statement or final notice; anything over 60 days gets a letter of demand or a payment plan; anything you've given up on gets written off.

For repeat customers with several open invoices, a statement of account listing every unpaid invoice is often more effective than chasing each one separately.

Copyable receivables register

Which accounts receivable numbers should you track?

Three numbers tell you almost everything: total receivables, how much of that is overdue, and how long customers take to pay on average. Check them weekly if you invoice often, monthly if you don't.

• Total outstanding: the sum of every unpaid balance. Compare it with last month. If it's growing faster than your sales, customers are paying slower.
• Overdue percentage: overdue balances divided by total outstanding. If $1,800 of your $6,000 is overdue, that's 30%.
• Days to get paid: the average gap between invoice date and payment date, known formally as days sales outstanding. Our guide to the accounts receivable turnover ratio and DSO shows the formula with a calculator.
• Age of each debt: group unpaid invoices into current, 1–30, 31–60, 61–90 and 90+ days overdue. That's an aged receivables report, and it tells you who to call first.

Here's how the numbers fit together. A sole trader has $6,000 outstanding across eight invoices. Five, worth $4,200, aren't due yet. Two, worth $1,100, are 1–30 days overdue. One, for $700, is 75 days overdue. The overdue share is $1,800 ÷ $6,000 = 30%, and the single $700 invoice is the priority, because the older a debt gets the less likely it is to be paid in full.

What are the most common accounts receivable mistakes?

The expensive mistakes are habits, not one-off errors. Fix these and most receivables problems disappear.

• Invoicing in batches. Waiting until month-end to invoice adds weeks to every payment.
• Vague terms. "Payment appreciated at your earliest convenience" is an invitation to pay last.
• No record of part payments. If you don't record a deposit, you'll either chase money already paid or forget the balance.
• Ignoring small invoices. A $300 invoice that is 90 days overdue is still $300, and the customer who ignores small invoices usually ignores large ones too.
• Choosing accruals GST without thinking about it. If you carry a lot of receivables and qualify for the cash basis, talk to your accountant about whether it suits you.
• Waiting too long to escalate. A firm, polite letter at 30 days recovers more than a furious one at 120.

This article is general information, not legal, tax or financial advice. For guidance specific to your situation, see business.gov.au and the ATO, or speak to a registered tax agent or BAS agent.

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