Collect With Confidence, Part 4: Cleaning Up Your Receivables Before Year-End
Over the past three weeks, we have looked at what Accounts Receivable really is, how to invoice so that you get paid, and how to follow up without burning bridges. In this final part of Collect With Confidence, we bring it all together — and bring it right back to where we started in September: getting your books ready to finish the year strong.
Your A/R balance is one of the numbers your tax preparer, your lender, and you yourself will rely on at year-end. If it is not accurate, your Balance Sheet is not accurate. So let's make sure it is.
Step One: Make Sure Your A/R Report Is Telling the Truth
Before you decide anything about collecting or writing off an invoice, you need to know that your A/R report reflects reality. In my experience, it very often does not — and the reasons are almost always bookkeeping, not customers. Here is what I look for:
• Payments that were never applied. A customer paid, but the deposit was recorded as income instead of being applied to their invoice. Now the invoice still looks open, and the income is counted twice.
• Duplicate invoices. The same work billed twice by accident, often after an invoice was edited or re-sent.
• Unapplied credits. Credit memos or overpayments sitting on a customer's account that were never matched to an invoice.
• Old, tiny balances. A few cents or a few dollars left open from a short payment or a rounding difference — usually years ago.
If you pull up an A/R Aging report and see a customer who you know is paid in full still showing a balance, one of these is almost certainly the culprit.
Step Two: Review Every Past-Due Invoice
Once your report is clean, go through each past-due invoice and put it in one of three groups:
• Collectible — You expect to be paid. Keep following up using the rhythm from Part 3.
• Needs a decision — A payment plan, a partial settlement, or a dispute that needs to be resolved. Make that decision before December 31.
• Uncollectible — The client has closed, disappeared, or made it clear they will not pay, and you have exhausted reasonable efforts.
Step Three: Handle Uncollectible Invoices Properly
When an invoice truly is not going to be paid, it should not stay on your books as if it were an asset. In QuickBooks Online or Xero, this is typically handled by writing off the balance to a bad debt account, using a credit note or a specific write-off process, rather than simply deleting or voiding the invoice. Deleting an invoice erases the history; a proper write-off preserves it.
How bad debts are treated for tax purposes depends on your business and your accounting method, so this is exactly the kind of decision to review with your tax preparer before year-end. Bring them a list of the invoices you plan to write off, along with your collection notes from Part 3.
A Word From the Forensic Side
My forensic accounting background makes me pay close attention to one more thing. An A/R report that never quite reconciles, customers who insist they paid invoices that still show open, or payments that seem to be applied to the "wrong" invoices month after month can occasionally be signs of something more serious than a bookkeeping error. One well-known scheme, called lapping, involves covering stolen customer payments with later payments from other customers.
Most of the time, the explanation is innocent. But if your receivables are handled by someone else and the numbers never seem to line up, it is worth a closer look. A simple safeguard: the person who records customer payments should not be the only person reviewing the A/R report.
A Note on AI as a Helper
I am a strong believer that AI tools can be genuinely useful partners in running a small business — and collections is one area where they shine. An AI assistant can help you draft a polite reminder email, find the right tone for a difficult payment plan conversation, or explain what a line on your aging report means.
But use them wisely. Avoid pasting client names, account details, or financial information into public AI tools, and always review what they produce before you send it. AI can help you find the words; the judgment — and the relationship — are still yours.
Finishing the Series — and the Year — Strong
If you have followed along this month, you now have a complete picture: you know how to read your receivables, how to invoice for faster payment, how to follow up with confidence, and how to clean up your A/R before the year closes. Combined with September's Finish Strong series, you are in an excellent position to walk into year-end with clean books and a healthier bank balance.
Thank you for reading along. I will see you next month.
Have Questions? MMB MBA Can Help.
At MMB MBA, LLC, we help individuals and small businesses in Southern Maine and beyond build financial confidence and keep their books accurate, organized, and ready for whatever comes next. Whether you would like help cleaning up your receivables before year-end, reviewing your internal controls, or simply having a knowledgeable partner in your corner, we offer full-service bookkeeping, QuickBooks and Xero consulting and training, forensic accounting, and one-on-one tutoring in accounting and financial concepts.
Contact us today at mmb@mmbmba.com or call 207.468.6833 to schedule a consultation.
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