How to Manage Accounts Payable and Accounts Receivable Effectively

Managing accounts payable (AP) and accounts receivable (AR) is essential for maintaining healthy cash flow in Australian businesses. Whether you're a small enterprise or a large corporation, tracking what you owe and what is owed to you ensures financial stability and compliance with Australian Taxation Office (ATO) regulations.

With the ATO enforcing stricter compliance requirements, businesses must adopt efficient AP and AR strategies. Late payments, missed invoices, and poor record-keeping can lead to cash shortages and potential tax penalties. 

This guide provides practical steps for improving AP and AR processes, maintaining strong supplier and customer relationships, and ensuring ATO compliance.

Let’s Get Straight to the Point

If you’re short on time, here’s a quick summary of how to manage your accounts payable and receivable efficiently:

• Set clear credit policies – Define payment terms and apply them consistently.
• Shorten transaction cycles – Reduce delays by issuing invoices and payments promptly.
• Maintain strong communication – Ensure AP and AR teams collaborate on cash flow decisions.
• Monitor aging accounts – Regularly follow up on overdue invoices and unpaid bills.
• Automate processes – Use accounting software to streamline payments, invoicing, and reporting.
• Stay compliant with ATO – Understand GST obligations, BAS lodgements, and tax deductions.

Now, let’s break it down in detail so you can apply these principles to your business.

What is Accounts Payable?

Accounts payable refers to money your business owes to suppliers and vendors for goods and services received. This includes:

• Supplier invoices
• Utility bills
• Rent and lease payments
• Contractor payments

Timely payment of these obligations maintains supplier relationships and avoids late fees.

What is Accounts Receivable?

Accounts receivable refers to money owed to your business by customers and clients. This includes:

• Outstanding invoices
• Unpaid customer balances
• Payment instalments from clients

Effective management ensures you get paid on time and maintain a steady cash flow.

Establishing Clear Credit Policies

Setting Payment Terms for Customers

For businesses that offer credit, define clear payment terms to avoid late payments. Common Australian payment terms include:

• Net 30 or Net 60 – Payment due within 30 or 60 days of invoice date.
• COD (Cash on Delivery) – Payment required during service or product delivery.
• Installment Agreements – Structured payment plans for large invoices.

Always outline these terms in contracts and invoices.

Ensuring Timely Supplier Payments

Negotiating payment terms with suppliers for accounts payable can help improve cash flow. Consider:

• Early payment discounts – Some suppliers offer 2% off if paid within 10 days.
• Extended payment terms – Requesting 60–90 day payment windows can free up short-term cash.

Paying suppliers on time or early builds trust and may lead to better pricing.

Implementing Credit Checks for Customers

Conduct credit checks before offering payment terms to avoid dealing with bad debts. Use Australian business credit bureaus like:

• Equifax Australia
• CreditorWatch
• Dun & Bradstreet

A thorough credit risk assessment ensures you extend credit only to reliable customers.

Shortening Transaction Cycles

Speeding Up Customer Payments

Waiting for customers to pay can create cash flow problems. To speed up collections:

• Send invoices immediately after providing goods or services.
• Use electronic invoices with built-in payment options (e.g., PayPal, Stripe, BPAY).
• Automate reminders for overdue invoices.

Encouraging Faster Payments from Customers

To encourage customers to pay faster, consider:

• Offering a small discount (1-2%) for early payments.
• Implementing late payment penalties after a set period.
• Using direct debit arrangements for recurring invoices.

A structured approach reduces manual errors and prevents missed payments.

Optimising Accounts Payable Cycles

For supplier payments, ensure a smooth process by:

• Reviewing invoices weekly to identify upcoming due dates.
• Using batch payments to process multiple invoices at once.
• Automating approvals for expenses and supplier bills.

This ensures businesses never miss payment deadlines.

Strengthening Communication Between AP and AR Teams

Why Communication Matters

Accounts payable and accounts receivable impact each other. If customers delay payments, businesses may struggle to pay suppliers. Coordination between the two departments can help prevent cash flow shortages.

How to Improve Internal Collaboration

• Hold weekly cash flow meetings to align AP and AR strategies.
• Share real-time financial data using cloud-based software.
• Ensure finance teams understand upcoming obligations to avoid late payments.

Businesses that prioritise internal transparency avoid financial mismanagement.

Monitoring Aging Accounts

Tracking Overdue Payments

Regularly review aging accounts receivable reports to identify late-paying customers. Best practices include:

• Sending payment reminders at 7, 14, and 30 days past due.
• Offering payment plans for customers struggling to pay.
• Suspending services to customers with high overdue balances.

Handling Late Supplier Payments

If your business is late on supplier payments:

• Communicate early and request an extension if needed.
• Prioritise high-importance invoices (e.g., rent, payroll, tax obligations).
• Avoid unnecessary purchases until accounts are balanced.

Keeping on top of aging accounts prevents financial strain and protects your business credit rating.

Using Automation to Track Everything

Benefits of Automation for AP and AR

Automation reduces the risk of missed payments, duplicate invoices, and human errors. Key benefits include:

• Faster invoice processing – Automated invoice matching and approval workflows prevent payment delays.
• Real-time tracking – Businesses can instantly monitor outstanding invoices, payments, and supplier transactions.
• Reduced administrative workload – Fewer manual entries save time and minimise errors.
• Better cash flow visibility – Instant reporting helps businesses manage finances proactively.
• ATO integration – Automated tax calculations and reporting streamline GST, PAYG withholding, and BAS lodgements.

Recommended Accounting Software for Australian Businesses

Several accounting platforms cater to Australian tax laws and business requirements, making it easier to manage AP and AR efficiently:

Xero

• Cloud-based software with ATO integration for BAS, GST, and tax lodgements.
• Automates invoice creation, reminders, and batch payments.
• Syncs with bank accounts for real-time transaction tracking.

MYOB

• Ideal for small to medium-sized businesses managing payroll, supplier payments, and GST tracking.
• Provides automated invoice scheduling and reconciliation.
• Integrated SuperStream compliance for employee super payments.

QuickBooks Online

• Features smart invoice reminders and direct bank feeds.
• Automates expense categorisation and tax calculations.
• Suitable for businesses with multiple locations and suppliers.

How Automation Enhances Accounts Payable Management

Using automation for accounts payable ensures timely payments and prevents penalties. Features include:

• Automated invoice scanning and approvals – Optical Character Recognition (OCR) technology extracts details from supplier invoices.
• Scheduled payments – Businesses can set up recurring payments to avoid late fees.
• Batch processing – Paying multiple suppliers at once reduces administrative time.
• Fraud detection alerts – Some software can identify duplicate invoices or suspicious transactions.

How Automation Improves Accounts Receivable Management

For accounts receivable, automation helps businesses reduce outstanding invoices and improve cash flow:

• Instant invoice generation – Businesses can issue invoices immediately after a sale or service.
• Automated follow-ups – Scheduled reminders help chase overdue payments without manual effort.
• Customer payment portals – Many platforms allow customers to pay directly via BPAY, credit cards, or bank transfers.
• Debt tracking and aging reports – Businesses can prioritise follow-ups on overdue accounts.

ATO Compliance and Automated Tax Reporting

A major advantage of automation is ensuring ATO compliance with minimal effort. Accounting software integrates directly with the ATO to:

• Calculate and apply GST correctly on sales and purchases.
• Automate BAS lodgements and PAYG reporting.
• Ensure superannuation contributions are processed on time using SuperStream.

By using cloud-based accounting tools, businesses reduce the risk of tax errors, avoid fines, and ensure smooth financial reporting.

Staying Compliant with Australian Tax Regulations

Managing accounts payable (AP) and accounts receivable (AR) in Australia requires compliance with Australian Taxation Office (ATO) regulations to avoid penalties and ensure smooth business operations. Proper tax management helps businesses stay financially stable while meeting reporting obligations.

GST and BAS Requirements

Businesses with an annual turnover above $75,000 must register for Goods and Services Tax (GST). This includes:

• Charging GST (10%) on taxable sales.
• Issuing tax invoices for sales over $82.50 (including GST).
• Claiming GST credits on business-related purchases.
• Lodging a Business Activity Statement (BAS) monthly, quarterly, or annually.

Late lodgement can lead to fines, so businesses should set reminders or use accounting software integrated with the ATO.

PAYG Withholding and Superannuation Obligations

Employers must withhold PAYG tax from wages and report it in their BAS. For supplier payments, if no Australian Business Number (ABN) is provided, 47% must be withheld unless exempt.

Superannuation Guarantee (SG) payments are mandatory for employees, with the rate at 11,5%. Late payments are not tax-deductible and may result in Superannuation Guarantee Charge (SGC) penalties.

Claiming Business Tax Deductions

Businesses can reduce taxable income by claiming deductions on the following:

• Office rent, utilities, and insurance.
• Employee wages and super contributions.
• Business-related travel and professional services.
• Depreciation on assets like equipment and vehicles.

Keeping detailed records ensures deductions are valid and minimises audit risks.

Record-Keeping and ATO Compliance

For five years, Australian businesses must retain financial records, including invoices, payroll records, and BAS lodgements. Cloud-based accounting software like Xero or MYOB helps with digital storage and compliance tracking.

Avoiding ATO Audits

Common audit triggers include inconsistent BAS lodgements, large income fluctuations, and outstanding tax debts. To stay prepared:

• Lodge BAS and tax returns on time.
• Reconcile bank transactions regularly.
• Seek professional tax advice if uncertain about compliance.

Conclusion

Effectively managing accounts payable and accounts receivable is essential for Australian businesses looking to maintain cash flow and financial health. 

Businesses can ensure smooth operations and long-term stability by establishing clear credit policies, shortening transaction cycles, communicating effectively, monitoring aging accounts, automating processes, and staying compliant with ATO regulations.

Implementing these strategies will help reduce financial risks, improve relationships with customers and suppliers, and ensure compliance with tax obligations and beyond.