Receivables Management: Terms, Credit Limits and Collections

In some companies, receivables management consists of reminder calls made after the due date has passed. Yet important decisions that determine the collection period are made at the point of sale: how much credit the customer is given, how high an open-account limit is set and how clearly the invoice terms are written. This article treats receivables management as a process that runs from sale to collection.

1. Customer assessment and credit limit

Each customer should have a credit limit showing the maximum that can be sold on open account. Information that can be used to set the limit:

• past dealings with the customer and its payment behaviour,
• financial information and security provided by the customer,
• the customer’s share of the company’s total receivables (concentration risk),
• payment habits in the sector.

Write down what happens when the limit is exceeded: shipments subject to approval, cash in advance or secured terms, management approval and so on. A limit without a rule does not work in practice.

2. Payment terms

Topic	What should be written clearly
Due date	Does the term run from the invoice date or from delivery? How many days?
Payment method	Bank transfer, cheque, promissory note (senet), card; how is collection of a post-dated cheque planned? (Under Turkish law a cheque is payable on sight: Turkish Commercial Code Art. 795)
Late payment	Conditions applied on late payment and suspension of shipments
Early payment	Any discount offered and its cost
Documents	Delivery note, purchase order number and so on needed for the invoice to be accepted

Vague terms lead to disputes at the due date, such as “we never received the invoice” or “the term runs from delivery”, and to delays. Whether deferred-payment price differences (vade farkı), late-payment charges or other conditions are legally enforceable depends on the contract and the applicable law; they should be drafted with legal support.

3. Collection follow-up

The following tools are enough for regular follow-up:

• Ageing report: Receivables split into not yet due, 1–30, 31–60, 61–90 and over 90 days. Update it weekly or at least monthly.
• Pre-due reminder: For large invoices, confirm with the customer before the due date.
• Collection forecast: Expected payment dates by customer, as an input to the weekly cash plan. See the collection delay stress test.
• Reconciliation: Periodic account reconciliation with customers brings disputed items to light early.

4. Steps on late payment

Decide in advance who does what, and when, if a payment is late. An example sequence:

1. A written reminder from the finance team in the first days after the due date.
2. After a set period, the sales owner talks to the customer.
3. The limit is frozen and new shipments require approval.
4. A payment plan is discussed.
5. A decision on legal action (with a lawyer).

The timing of each step depends on the sector and the customer relationship. What matters is that the decision rests on a written rule, not on personal relationships.

Sales and finance should look at the same indicator

If the sales team is assessed on revenue alone, offering long terms or high credit limits is tempting. Sales performance should therefore also include an indicator such as collected sales or average collection period. For the effect of terms and discounts on profitability by customer, see customer profitability.

Indicators

• Days sales outstanding (DSO): Average trade receivables ÷ net sales × number of days. For detail, see the cash conversion cycle.
• Overdue ratio: Overdue receivables ÷ total receivables.
• Concentration: The share of the largest customers in total receivables.
• Collection forecast accuracy: The difference between expected and actual collections.

Common mistakes

• Unlimited open account: Giving a large customer unlimited terms because it is “an important customer”.
• Ageing only at year-end: The problem is noticed only when a provision has to be made.
• Leaving collection to finance alone: Sales owns the customer relationship and needs to be involved when payment is late.
• Parking disputed invoices: An unresolved dispute can turn into an uncollectable receivable.

What it means for management

Managing receivables is managing cash itself. Limits set before the sale, clearly written terms, regular ageing and rule-based steps on late payment shorten the collection period without relying on personal effort. The gain can come not from a new tool but from sales and finance looking at the same number.

Sources last checked: 21 October 2026