What is Accounts Receivable Management?
Accounts receivable management is the system of policies and activities used to extend credit to customers, issue invoices, monitor balances, and collect payment. The goal is to maximise sales while minimising days sales outstanding (DSO) and bad debt losses.
How It Works
- Set credit terms and limits based on customer creditworthiness.
- Issue compliant invoices promptly and follow up before due dates.
- Age receivables monthly and act on overdue accounts (reminders, statements, dunning calls).
- Provision for expected credit losses under IFRS 9 and write off uncollectable balances.
Saudi Context
Saudi VAT-registered sellers must issue Fatoora-compliant tax invoices to claim VAT only when collected (cash basis) or upon invoice issue (accrual basis). ZATCA also allows VAT bad debt relief for receivables uncollected after 12 months. Days sales outstanding (DSO) is a key KPI for Saudi CFOs.
Example
A Riyadh trading company has SAR 3 million in receivables with an average DSO of 60 days. By introducing early-payment discounts of 2/10 net 30, it reduces DSO to 45 days and frees up about SAR 750,000 in cash.