Accounts receivable — terms, follow-up, and writing one off properly

An unpaid invoice is not neutral for an incorporated business. On the accrual basis, which almost every corporation uses, revenue was recognized when the invoice was issued. You have recorded the income and, if the invoice carried GST/HST, generally remitted the tax for the period of the sale. The customer is being financed by you and by the CRA.

Want receivables reported every month, client by client? That is part of fractional controller support.

Set terms that can actually be enforced

Terms that appear for the first time on the invoice are not terms; they are a hope. They belong in the quote or engagement document, so the customer agrees to them before the work starts. Be specific: what triggers the clock, what the due date is, what happens after it, and what is required up front. Deposits and progress billing do more for collections than any follow-up sequence, because they move the risk before the exposure exists.

Invoice promptly; a late invoice means late payment and signals flexible timing. Include a purchase order or job reference where one exists, the payment methods you accept, and what a registrant needs to claim input tax credits, including your GST/HST registration number. An invoice that cannot support the customer’s ITC claim will come back to you.

Collection follow-up that works

Follow-up should run on a schedule, not on how you feel about the customer: a short reminder a few days before the due date, a direct request on it, a call (not an email) after a week, and a written notice with a deadline and stated consequence at the month mark. Calls surface the real reason, often a missing purchase order, new accounts payable staff or an invoice that went to the wrong inbox.

Document each contact. If the account goes to collections, court or a write-off, the record shows it is uncollectible, not just late, which the deduction depends on.

When to stop extending credit

Run an aged receivable listing monthly. Three signals justify stopping work: terms breached without an agreed plan, a balance growing while the previous one is unpaid, and a customer who stops answering. Working on for a customer who has not paid for the last job turns a recoverable problem into a large one. Good accounts receivable collections start from that monthly aging, because it shows which balances and which customers are drifting while there is still time to act.

Stopping is also a tax decision, because everything you invoice afterwards is income you report and tax you remit on money you may never see. Where part of a contract is legitimately withheld, the accounting differs. See construction holdbacks.

Writing one off: the income tax side

Writing off a genuinely uncollectible account removes the receivable and gives the corporation a deduction, since the income was already reported. The deduction belongs in the year the debt is established as bad, based on evidence, and your collection record is that evidence. The guide to writing off bad debts covers the mechanics. In accounts receivable terminology, a late balance and a bad debt differ: a bad debt is one established as genuinely uncollectible, not merely late.

The flip side: a written-off amount later recovered comes back into income in the year received. A write-off reflects current facts; it is not permanent.

Writing one off: the GST/HST side

Separate from the income tax deduction, and often missed: if you remitted GST/HST on a credit sale that became a bad debt, you can recover the tax as an adjustment on your GST/HST return.

It goes on line 107 if you file electronically through GST/HST NETFILE or on paper, or in your line 108 calculation if you file by TELEFILE. Two conditions matter: you have to be dealing at arm’s length with the customer, and you have to actually write the amount off as a bad debt in your records first. The adjustment is calculated on the unpaid portion, including the tax and any applicable PST.

There is a deadline: the adjustment must be made on a return filed within four years of the due date of the return for the period you wrote the debt off. If you later receive payment on that debt, the GST/HST part goes back on your return for the period it is recovered.

If you file GST/HST annually, this interacts with your instalment obligations. See GST/HST instalments for annual filers.

The habit that prevents most of it

Review the aging monthly as part of the close, not once a year. It keeps follow-up timely and credit decisions ahead of the exposure, so by year end the list of bad accounts is short, documented and defensible. It fits a month-end close routine and pays for itself in cash, not just tidiness.

This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Tax rules change and your situation is unique, so please speak with a CPA before acting on anything here.