Receivables Management · Collections
Accounts Receivable Management
What is receivables management?
- Aging analysis and credit limits are the basic tools
- Set the late-payment response steps in advance to take emotion out of it
- Statutes of limitation apply, so neglect can lead to losing the right to collect
Once receivables management takes hold, the point at which sales counts a deal as done moves. The box that used to read 'contract signed' in the weekly report changes to 'payment confirmed,' and each rep’s scorecard shows collected amounts next to won deal amounts. The fact that the day revenue is booked and the day cash arrives are not the same stops being something only the accounting team knows and becomes shared language across the organization. As a result, the timing of a reminder call is set by the calendar, not the rep’s personality.
Management starts with two numbers. One is the aging report; the other is days sales outstanding (DSO). DSO is calculated by dividing the accounts receivable balance by sales for the period and multiplying by the number of days. If payment terms are 'month-end close, paid by the end of the following month,' payment should arithmetically arrive within 45–60 days. When this number passes 90 days, treat it as a sign that breaking the terms has already become the norm. On top of that, set a credit limit per customer based on average monthly transaction volume, and flag any customer whose share of total receivables grows too large for separate reporting. Exceeding the limit is not a signal to cut off business but a signal to change the terms to prepayment or collateral.
Knowing the legal boundaries changes how fast you can respond. The statute of limitations for receivables arising from commercial transactions is, in principle, five years, but some claims, such as payment for goods or construction work, are subject to a separate short three-year period under the Civil Act. A certified-mail demand letter does not by itself interrupt the limitation period; you must follow it with a payment order or lawsuit within six months of the demand for the interruption to remain effective. If the amount is not large, a payment order is the first option to consider in terms of cost and time. However, the starting date and the nature of the claim vary by contract type, so check with a lawyer.
The most common misconception is that 'chasing payment will end the relationship.' In practice the opposite is often true. Customers short on cash push the quietest suppliers to the back of the payment queue first. Another mistake is taking the stated reason for a delay at face value. If the answer 'acceptance isn’t finished' repeats for a third month, it means either a cash problem or you have no acceptance confirmation on file. Receivables built up without written evidence are disputed over the amount itself even in litigation, and because the tax invoice has already been issued, you end up paying VAT up front while the payment itself goes uncollected for quarters.
Jaehyuk ParkA hands-on instructor teaching B2B technical sales and AI-powered sales strategy
Sangmi LeeSpecialist instructor in customer service, leadership, and communicationThe practice grew out of commercial custom, where selling on credit became commonplace, and evolved into accounts receivable management and credit management in accounting. Rules that set time limits for exercising rights, such as the statute of limitations on claims, are laid down in the Civil Act and the Commercial Act.
Consider a hypothetical case. Company A makes industrial filters, with 47 employees and annual sales of KRW 18 billion (≈ US$13,467,000). Most of its 130-plus customers buy on credit, and its accounts receivable have swollen to KRW 3.8 (≈ US$1) billion, with KRW 640 million (≈ US$478,800) in receivables more than 90 days overdue. After some months in which it had to stretch its bank credit line just to cover payroll, the CEO called sales and finance into one room.
- When the finance manager sorted the 130 customers into 30-, 60-, and 90-day buckets and laid them out in a table, KRW 410 million (≈ US$306,700) of the KRW 640 million (≈ US$478,800) over 90 days came from the top five customers. The problem was not broad but deep.
- The head of sales visited those five companies in person. Two said 'the acceptance confirmation hasn’t arrived yet,' but there was no record that our shipping staff had ever collected a signature. Once the paperwork was re-collected, KRW 120 million (≈ US$89,800) came in within two weeks.
- They tied the rules to dates: a call to the contact at due date +7 days, an official letter in the division head’s name at +30 days, a hold on new shipments at +60 days, and a review of a payment order at +90 days. Once collections were reflected in sales incentives, the complaint “why am I the one talking about money?” disappeared.
- They set the credit limit at twice average monthly transaction volume and built it into the ERP. When a customer exceeds the limit, the order entry screen locks, and the order can proceed only with CEO approval on a 30% prepayment basis.
- Six months later, DSO fell from 78 days to 52, and receivables overdue by more than 90 days dropped from KRW 640 million (≈ US$478,800) to KRW 180 million (≈ US$134,700). The only accounts that stopped trading were 2 chronically late payers.