Revenue on the report and money in the bank are two different things, and the difference between them is your accounts receivable. A shop can book a record month and still be unable to make payroll if too much of that month is sitting in unpaid invoices. A/R is the number that tells you how much of your work you've effectively lent to customers, and for how long.
Accounts receivable in plain English
The moment you send an invoice and the customer doesn't pay on the spot, that invoice becomes a receivable. Add up every open invoice and you have your A/R balance. It is an asset, because the customer owes it to you, but it is a weak one: it pays no wages until it turns into cash.
Here's an example with made-up numbers:
| Customer | Invoice date | Amount | Days past due | Bucket |
|---|---|---|---|---|
| Homeowner, water heater swap | 2 days ago | $2,850 | 0 | Current |
| Property manager, 4 units | 24 days ago (net 30) | $1,920 | 0 | Current |
| Homeowner, AC repair | 41 days ago | $640 | 41 | 31–60 |
| Restaurant, walk-in cooler | 75 days ago (net 30) | $3,400 | 45 | 31–60 |
| Homeowner, panel upgrade | 128 days ago | $1,150 | 128 | 90+ |
| Total A/R | $9,960 |
The total matters less than its shape. Most of this example is current. The $1,150 panel upgrade is the one that needs a phone call today.
Why A/R matters for cash flow
Cash flow, not profit, is the everyday problem for most small businesses. In the Federal Reserve Banks' 2024 Small Business Credit Survey of 7,653 employer firms, 51% reported uneven cash flow as a financial challenge, and the survey defines uneven cash flow as including collecting on receivables.1
51%
Small employer firms reporting uneven cash flow, which includes collecting receivables
Those figures cover all small employer firms, not trades specifically, but the mechanism is the same for a contractor: you pay the technician this Friday and the supply house within 30 days, while the customer pays when they get around to it.
How do you read an A/R aging report?
An aging report sorts open invoices by days past due. The buckets that matter:
- Current: not yet due. Nothing to do except make sure the invoice actually reached the customer.
- 1 to 30 days: usually forgetfulness. A friendly text with a pay link fixes most of these.
- 31 to 60 days: the customer has seen at least one reminder. A phone call beats a third text.
- 61 to 90 days: this is where effort pays off most. Call, agree a date, put the account on hold for new work if your terms allow.
- 90+ days: the hardest to collect. Decide whether to escalate, offer a payment arrangement or write it off with your accountant.
Metric
Share of A/R over 60 days
How much of what you're owed is in the buckets most at risk of never being paid.
(A/R 61–90 days + A/R over 90 days) ÷ total A/R × 100
Where the numbers come from: Your aging report, taken on the same day each month.
A/R, accounting methods and bad debts
How receivables show up for tax depends on your accounting method. IRS Publication 538 explains that under the cash method you include income when you actually or constructively receive it, while under an accrual method you generally report income in the year it is earned.2 For a cash-method contractor, an unpaid invoice isn't income yet.
That has a consequence people miss. The IRS says a business bad debt is deductible only if the amount was included in gross income, and that cash-method taxpayers generally can't take a bad debt deduction for unpaid fees.3 If you're on the cash method, writing off a $1,150 invoice reduces your A/R balance but not your taxes, because you never paid tax on it. Your accountant should make that call.
What reduces accounts receivable?
| Lever | Why it works | How to check |
|---|---|---|
| Collect before leaving the job | An invoice paid on site never becomes a receivable | Share of residential invoices paid on the job day |
| Same-day pay link by text | Customers who weren't home can pay that evening | Days from invoice sent to paid, by method |
| A fixed reminder schedule | Reminders that go out on days 3, 7, 14 and 30 don't depend on someone remembering | Invoices paid within 7 days of a reminder |
| Written terms for commercial accounts | Signed net 30 terms give you something to point to; "pay when you can" doesn't | Commercial A/R over 60 days |
| Holds on new work | A customer with an old balance can't book until it's settled | Count and dollars of customers on hold |
The last ten minutes on site are where most residential A/R is won or lost; this article covers that hand-off.
Weekly A/R routine
- Pull the aging report on the same day each week
- Call every invoice in the 61 to 90 day bucket
- Confirm reminder texts went out for 1 to 30 day invoices
- Check pending bank payments and any that bounced
- Review customers on credit hold and any overrides
- Note the total and the share over 60 days, and compare with last week
How TradesWork handles A/R
Collections in TradesWork sends overdue reminders by text 3, 7, 14 and 30 days past due by default, each with a pay link, and re-checks the balance first so a paid invoice is never chased. Accounting shows open A/R, and an A/R aging dashboard widget groups it as not yet due, 1 to 30, 31 to 60, 61 to 90 and 90 plus. Credit holds, when turned on, stop new jobs for a customer until the balance is settled or an owner or admin overrides with a reason. Payments let techs collect on the spot, and bank payments show as processing until they clear.
Honest limits: built-in reminders are text only, and there are no customer statements, payment plans or write-offs in TradesWork yet.
Footnotes
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Federal Reserve Banks, Small Business Credit Survey: 2025 Report on Employer Firms (2024 survey, 7,653 responses). The report notes that uneven cash flow includes collecting on receivables. https://fedsmallbusiness.org/-/media/project/clevelandfedtenant/fsbsite/reports/2025/2025-report-on-employer-firms.pdf ↩
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Internal Revenue Service, Publication 538, Accounting Periods and Methods. https://www.irs.gov/publications/p538 ↩
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Internal Revenue Service, Topic no. 453, Bad debt deduction. https://www.irs.gov/taxtopics/tc453 ↩
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Stripe documentation, ACH Direct Debit, timing and transaction failures. https://docs.stripe.com/payments/ach-direct-debit ↩
