Accounts receivable process flowchart (invoice to cash)
A five-lane accounts receivable process flowchart: credit check, invoice issue, payment terms, dunning, disputes, payment plans, cash application, write-off.
How it works
Rename the lanes to your real roles
Replace Customer, Sales, Credit control, AR clerk and Finance manager with the roles you actually have. Smaller organisations often merge credit control into the AR clerk lane; larger ones split billing from collections. If a shared service centre issues invoices while a local controller chases them, keep both lanes so the handoff stays visible.
Write your credit policy into the credit gate
State how exposure is measured on the "Within credit limit?" step: posted balance plus open orders plus delivered but unbilled work, not just today's ledger. Record who can release a held order, up to what value, and whether a new customer is billed on prepayment until a payment history exists.
Set a dunning calendar with real dates
Decide how many days after the due date each reminder goes, what each one says, and who signs it. Keep the escalation qualitatively different at each rung: a reminder, then a statement and final demand, then credit control. If you intend to charge statutory late-payment interest or compensation, note where that is triggered and who authorises it.
Define the dispute route and credit note authority
Agree what counts as a dispute rather than a delay, how quickly sales must respond, and who may approve a credit note and at what value. Decide explicitly whether reminders pause while a dispute is open, and for how long, so a dispute cannot be used to park a balance indefinitely.
Fix the escalation and write-off thresholds
Put your own rules on "Payment plan or collections?" and "Approve bad debt write-off?": the age or value at which an account leaves the AR clerk, who may agree instalments and on what terms, and the authority level required to write a balance off. Keep the person chasing the debt separate from the person approving the write-off.
Walk it through, then keep the approved version
Follow two or three live accounts through the chart, including one dispute and one that reached collections, and correct the map to what people do rather than what the procedure says. Then keep the agreed version under version control so the current authorised diagram is unambiguous and later edits are tracked.
Frequently asked questions
What are the steps in the accounts receivable process?
A typical sequence is: an order or milestone is confirmed, sales raises a billing request, credit control checks the customer against their credit limit and either releases or holds it, the invoice is raised and issued to the customer, the invoice is tracked against its payment terms, and a due-date check decides what happens next. Paid invoices go to cash application and allocation and the invoice is closed. Overdue invoices enter a dunning sequence: a first reminder, then a response decision that separates payment, dispute and silence, a final demand and statement, escalation to credit control, and either an instalment payment plan or referral to collections. Anything still unrecovered ends at a bad-debt write-off decision.
What is the difference between accounts receivable and order-to-cash?
Order-to-cash is the whole cycle from a customer order through fulfilment, invoicing, collection and cash application. Accounts receivable is the collection half of it: the invoice, the payment terms, the chase and the cash. This chart covers that half, so it starts at the billing trigger rather than at order capture and it says nothing about picking, packing or delivery. It is also the opposite side of the ledger from accounts payable, where you are the one receiving supplier invoices and approving them for payment; the roles, controls and risks are different even though the paperwork looks similar.
What should a dunning sequence look like?
A dunning sequence is the ordered set of reminders sent after an invoice passes its due date, escalating in tone and in who sends it: a short reminder from the AR clerk, then a statement of account and a final demand, then contact from credit control with the account on stop. The useful design point is not the wording but the branching. Build in a response decision so a customer who disputes the invoice goes to the person who can settle it, while silence continues up the ladder. Set the intervals to your own terms and customer base and write them into the chart, and note that late-payment legislation such as the UK Late Payment of Commercial Debts (Interest) Act 1998 and the EU Late Payment Directive gives suppliers a right to statutory interest and compensation on overdue commercial debts, subject to conditions you should confirm for your jurisdiction and contract.
When should an invoice be written off as bad debt, and who approves it?
A write-off is an accounting judgement that a balance is no longer recoverable, made after the collection routes have been exhausted: reminders, credit control, a payment plan, and referral to collections or legal action where that is proportionate. It is distinct from a provision or allowance for doubtful debts, which reduces the carrying value of receivables you still expect to pursue. Approval should sit with someone independent of the collection effort, at an authority level set by your delegation of authority, and the decision, reason and amount should be recorded. If you have accounted for VAT or sales tax on the invoice, check the specific relief conditions in your jurisdiction, which usually include a minimum period after the due date, the debt being written off in the accounts, and a time limit on claiming.