Chasing payments is one of the most frustrating parts of running a contracting business. You’ve done the work, delivered the quality, met the deadline — and now you’re spending time calling, emailing, and waiting for money you’ve already earned. For many contractors, outstanding accounts receivable is their biggest asset — and their biggest headache. This guide shows you how to build accounts receivable systems that minimize payment delays, reduce disputes, and ensure you get paid on time without damaging client relationships.
What Is Accounts Receivable for Contractors?
Accounts receivable (AR) is money owed to you by clients for work you’ve completed but haven’t yet been paid for. On your QuickBooks Balance Sheet, AR appears as a current asset — it’s money you’ve earned that will (hopefully) convert to cash in the near future. For contractors, AR often includes outstanding invoices for completed work, unbilled work in progress (earned but not yet invoiced), and retainage — the percentage withheld until project completion. Tracking all of these accurately in QuickBooks gives you a complete picture of what’s owed to you at any moment.
The AR Aging Report: Your Most Important Collections Tool
The Accounts Receivable Aging Report in QuickBooks shows all outstanding invoices grouped by how long they’ve been outstanding: Current (not yet due), 1–30 days past due, 31–60 days past due, 61–90 days past due, and 90+ days past due. Review this report weekly. Invoices in the 31–60 day column need immediate attention — the longer an invoice ages, the harder it becomes to collect. Invoices in the 90+ column are serious collection risks. Don’t let the report grow without acting on it.
Building Your AR Follow-Up System
Inconsistent follow-up is the primary reason contractors don’t get paid on time. Here’s a systematic approach: On invoice date, send the invoice by email with a professional message and confirmation request. Three days before due date, send an automated reminder through QuickBooks Payments or email. On the due date, verify payment was received. Day 1 past due: send a polite past-due reminder by email. Day 5 past due: follow up by phone — don’t just rely on email. A phone call communicates urgency that email doesn’t. Day 15 past due: send a formal demand letter. Day 30 past due: issue a Preliminary Notice (if not already sent) and seriously consider mechanics lien recording. Day 60+ past due: engage a collections attorney or collections agency, and evaluate whether to file suit.
Preventing AR Problems Before They Start
The best AR strategy is prevention. Require deposits before starting work — typically 30–50% for residential, 10–25% for commercial, depending on your relationship with the client. Verify credit for new commercial clients before starting work. Get a signed contract with clear payment terms before mobilizing. Include late payment fee provisions in your contracts. On larger jobs, use progress billing to collect throughout the project rather than waiting for one large payment at the end. Qualify your clients — contractors who are selective about the clients they work for have dramatically fewer collection problems than those who take every job that comes their way.
Using Mechanics Liens to Accelerate Payment
In California, contractors have powerful lien rights that provide significant leverage in collections. When a client is 30+ days past due on a significant invoice, filing a mechanics lien on the property often accelerates payment quickly. Owners cannot sell or refinance a property with a recorded lien, which creates strong incentive to resolve the debt. The mechanics lien process requires serving a Preliminary Notice within 20 days of starting work — if you haven’t done this, you may have lost lien rights for earlier work. Going forward, serve Preliminary Notices on every project as a standard procedure, not just when you think there might be a problem.
Setting Up AR Correctly in QuickBooks
In QuickBooks Online, accounts receivable is managed through Invoices (create an invoice when work is performed or a milestone is reached), Payments (apply client payments to the correct invoices), and the Customers module (view outstanding balances by client). Set up automated payment reminders in QuickBooks to send reminder emails before and after due dates automatically. QuickBooks Payments allows clients to pay by credit card or ACH directly from the invoice email — reducing payment friction significantly. Track retainage in a separate Retainage Receivable account so your AR aging report shows current invoices separately from withheld retainage.
Frequently Asked Questions
How do I write off a bad debt in QuickBooks?
If an invoice is uncollectible, you can write it off as a bad debt expense in QuickBooks. Create a Bad Debt expense account in your Chart of Accounts. Then create a credit memo for the uncollectible amount against the client, using the Bad Debt account as the category. Apply the credit memo to the outstanding invoice to zero it out. The bad debt expense reduces your taxable income by the uncollected amount (if you’re on accrual accounting — on cash basis, you never recognized the income, so there’s no deduction).
For more information, see our guide on invoicing best practices to get paid faster.
For more information, see our guide on filing a mechanics lien if needed.
For more information, see our guide on managing retainage in your contracts.
For more information, see our guide on maintaining healthy cash flow.
Let Bookkeeping Champs Manage Your AR
Bookkeeping Champs helps contractors in Los Angeles and Ventura County set up AR systems in QuickBooks, maintain weekly aging reports, and implement the invoicing and follow-up processes that get you paid faster. Call (818) 679-4451 today.
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