Accounts Receivable Made Easy: How to Get Paid Faster

A survey of companies in Asia showed a complex picture of late payments. An average of 46% of all B2B credit sales are affected by delays in payments, with Hongkong, Taiwan, and Singapore taking the hardest hit. Late payments have significant impacts, especially on small businesses. This is why it is important to master accounts receivable management.

Effective accounts receivable management is not just about chasing payments—it’s about implementing systems that encourage timely payments while maintaining positive customer relationships.

Let’s talk about how you can master the art of accounts receivable processing and management.

What You Should Know About Accounts Receivable

Accounts receivable (AR) represents the amounts owed to your business by customers for products or services delivered on credit. In accounting terms, these are current assets listed on your balance sheet—essentially, they are future cash that hasn’t arrived in your bank account yet.

How AR appears on Financial Statements

Accounts receivable appears prominently in your company’s financial documents:

1. Balance Sheet: AR is listed as a current asset, representing money expected to be collected within one year.
2. Income Statement: When you make a sale on credit, revenue is recognised immediately on the income statement, even before payment is received.
3. Cash Flow Statement: The increase or decrease in accounts receivable affects your operating cash flow—an increase in AR represents cash that hasn’t been collected yet.

For example, if ABC Trading Pte Ltd sells S$10,000 worth of goods on credit, the transaction immediately increases both revenue and accounts receivable by S$10,000. Only when the customer pays will AR decrease and cash increase.

Quick Comparison Between Accounts Receivable & Payable

Accounts Receivable (AR)	Accounts Payable (AP)
Money owed TO your business	Money owed BY your business
Listed as an asset	Listed as a liability
Represents potential incoming cash	Represents future outgoing cash
Impacts your liquidity positively	Impacts your liquidity negatively

A healthy company in Singapore maintains a higher level of accounts receivable than accounts payable, with an ideal AR/AP ratio closer to 2:1. If the ratio is at 3:1, this means there is room for savings/reinvestment in the company.

Singapore Accounting Standards for AR

Businesses in Singapore must adhere to accounting standards when managing their accounts receivable:

• The first one is Statutory Board Financial Reporting Standard (SB-FRS) 115, which governs revenue recognition, determining when sales should be recorded,
• The second is IFRS 9, which provides guidance on measuring and recognising potential losses from uncollectible amounts, and
• Expected Credit Loss (ECL) model, which requires businesses to estimate potential bad debts based on historical patterns and economic conditions

Types of Accounts Receivable

In general, receivables can take four forms:

1. Trade Receivables – the money owed for goods/services sold on credit
2. Non-Trade Receivables – the amounts owed that are indirectly related to the core operations, such as interest receivables and reimbursements from third parties
3. Notes Receivable – the amounts a business is owed, evidenced by a promissory note
4. Instalment Receivables – a “closed-ended” receivable because the total amount is determined at the time of purchase

The Accounts Receivable Process

Credit Assessment and Approval

Before granting credits to a customer, you should perform due diligence.

1. Check official business records with ACRA to confirm if they are legitimate.
2. Use reports from Credit Bureau Singapore (CBS) or DP Information Group to check if the company has a good credit history.
3. Review financial statements to ensure the company is financially sound and capable of paying its debts.
4. Decide how much credit to offer based on factors like company size and payment history.

For example, a Singapore electronics distributor might set different credit limits for established retailers versus new market entrants, with stricter terms for the latter until they establish a reliable payment history.

Creating and Sending Invoices

Proper invoicing is the foundation of effective accounts receivable management. Include all required information per regulations:

• GST registration number (if GST-registered)
• Company UEN (Unique Entity Number)
• Clear payment terms and due dates
• Detailed description of goods/services provided
• Multiple payment options (PayNow), GIRO, bank transfer details)

Bear in mind that invoices should be sent promptly after shipping the goods or after the service has been delivered. Use e-invoicing through InvoiceNow for faster processing.

Recording Transactions

Record all credit sales in your accounting system and maintain individual customer ledgers. Then track the GST collected on sales (currently 9% in Singapore). One important thing to keep in mind is regular reconciliation, AR balances should match supporting documentation.

Tracking Customer Payments

Match all received payments to corresponding invoices. It is recommended that you provide payment confirmations to customers through receipts.

Reduce receivable balances upon receiving payments and then compare AR records with bank statements.

Many Singapore businesses use automated bank feeds through accounting software like Xero or QuickBooks to streamline this process.

Managing Overdue Accounts

When payments are late, you will need a systematic approach to manage overdue accounts.

• Categorise overdue accounts (30, 60, 90+ days)
• Send polite but firm reminder emails or SMS
• You can do follow-up calls with overdue customers
• Implement progressive collection strategies for persistent non-payers

Dispute Resolution

It’s critical to maintain business relationships while resolving payment concerns.

1. Investigate discrepancies to address any invoice disputes.
2. Gather delivery confirmations, contracts, and communications.
3. Find mutually acceptable solutions to payment disagreements.
4. And when you find it appropriate, accept instalment plans.

Invoicing Best Practices

An effective invoice is more than just adding the elements needed. Take note of and apply the following practices:

1. Every component of the invoice should be clear and concise, as ambiguity in figures and terms can result in payment delays.
2. The invoice should serve its purpose and be professional-looking. Use professional formatting, such as readable fonts, consistent paragraph and sentence spacing, and more.
3. Set clear payment terms. Specify some terms in the invoice, such as Net 30. Net 30 indicates that payment must be fulfilled within 30 days.
4. Offer 2% discounts for payments within 10 days (common in Singapore).
5. Include PayNow QR codes on invoices.
6. Be clear about interest charges for late payments (businesses usually charge 1% to 1.5% monthly).

Common Challenges in AR Management

The business landscape of Singapore presents some challenges when managing accounts receivable.

Cash Flow Issues

1. 30-day payment terms may be the standard but many larger corporations and government entities in Singapore often push for 45 to 60-day terms, stretching SMEs’ working capital.
2. Tourism-dependent businesses and those serving industries with seasonal peaks (like Chinese New Year or the Great Singapore Sale periods) experience irregular cash flow. This makes AR management challenging.
3. Singapore’s premium real estate and labour costs mean businesses operate with thinner margins, making delayed payments more impactful than in other markets.
4. The highly competitive landscape often forces businesses to offer favourable payment terms, creating cash flow pressure.

For example, a local F&B supplier serving hotels might experience payment delays of 60+ days while still needing to pay their own suppliers within 30 days. This scenario creates a significant cash flow gap.

Industry-Specific Payment Challenges

Different sectors have their fair share of challenges when it comes to managing their accounts receivables.

Manufacturing

• Long supply chains with multiple intermediaries
• Pressure from MNC clients demanding extended payment terms
• Inventory financing needs that compete with AR management

Construction and Real Estate

• Project-based payment structures with progress billing
• Multi-tiered approval processes delaying payments
• Retention sums held back until project completion (typically 5-10%)

Professional Services

• Fee disputes arising from scope creep
• Retainer vs. hourly billing complications
• Client expectations for payment flexibility

Retail and E-commerce

• Chargebacks and returns management
• Payment gateway and platform fees eating into margins
• Managing multiple sales channels with different payment terms

Key Metrics to Track

1) Day Sales Outstanding (DSO)

DSO is perhaps the most critical AR metric for businesses in Singapore. By definition, it measures the average number of days it takes a company to collect payment after a sale has been made.

DSO = (Accounts Receivable / Total Credit Sales) x Number of Days in Period

• Good DSO: 30-45 days
• Average DSO: 45-60 days
• Concerning DSO: 60+ days

Implications: lower DSO indicates faster cash conversion, more accurate cash flow forecasting

2) Accounts Receivable Turnover Ratio

By definition, it measures how efficiently a company collects its receivables and converts them to cash.

AR Turnover Ratio = Net Credit Sales / Average Accounts Receivable

Interpretation: higher ratio = more efficient collection, lower ratio = potential collection challenges

3) Ageing Schedule Analysis

By definition, an AR ageing report lists unpaid customer invoices, categorising receivables by due dates.

Categories:

• Current (0-30 days)
• 31-60 days
• 61-90 days
• Over 90 days

4) Bad Debt Ratio

By definition, it measures the percentage of a company’s receivables that need to be written off as a bad debt expense.

Bad Debt Ratio = (Total Bad Debts / Total Credit Sales) x 100

The average bad debt ratio is 1-2% for stable industries. Having higher BDRs would mean either of the following:

1. Weak credit assessment
2. Economic challenges
3. Industry-specific risks

Conclusion

Managing accounts receivable can seem challenging at first, but it is an opportunity for you to strengthen your financial foundation and create more predictable business operations.

Our accounting services are always at your disposal. Contact us now!