--- title: "Accounts Receivable Collections: Terms, Follow-Up, Write-Offs" url: https://www.everstonecpa.com/blog/accounts-receivable-collection-small-business description: "Accounts receivable collections: payment terms, follow-up that works, when to stop extending credit and how bad debts are written off. See the steps." type: guide updated: 2026-10-08 summary: "Accounts receivable is revenue a business has recorded but not yet collected. Because a Canadian corporation reports on the accrual basis, income tax and GST/HST are generally triggered by the invoice rather than the payment, so an aged receivable has already cost the company money before it is written off." faq_count: 6 publisher: EverStone CPA Inc., a Chartered Professional Accountant firm registered with CPA British Columbia and CPA Alberta service_area: British Columbia, Alberta, Ontario and Manitoba language: en-CA contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online --- [Home](https://www.everstonecpa.com/) [Blog](https://www.everstonecpa.com/blog) Accounts receivable and collections for a Canadian small business Cash flow # Accounts receivable *— terms, follow-up, and writing one off properly* By EverStone CPA · Reviewed July 2026 · 9 min read 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. **Quick answer:** Accounts receivable is revenue a business has recorded but not yet collected. Because a Canadian corporation reports on the accrual basis, income tax and GST/HST are generally triggered by the invoice rather than the payment, so an aged receivable has already cost the company money before it is written off. Want receivables reported every month, client by client? That is part of [fractional controller support](https://www.everstonecpa.com/fractional-controller-services). A follow-up sequence that runs on a schedule, not on how you feel. ## Key takeaways - Accrual reporting means the tax follows the invoice, not the payment. - Terms only work if they are on the invoice, on the quote, and applied consistently. - Aging tells you when to stop extending credit — before the balance grows. - A bad debt write-off has two separate parts: the income tax deduction and the GST/HST adjustment. ## 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. **Customers paying late?** Our monthly bookkeeping, from $325 a month, keeps an aged receivables list current so you know who to chase and when, and writes off bad debts correctly at year-end. See [our bookkeeping](https://www.everstonecpa.com/accounting-services), or [get a quote](https://www.everstonecpa.com/book-online). [Get My Fixed Quote](https://www.everstonecpa.com/book-online) ## 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. Not sure how this applies to you? Every corporation’s situation is different. Send an enquiry to a CPA and get a straight answer for your own books. [Send an Enquiry →](https://www.everstonecpa.com/book-online) [Bookkeeping & year-end](https://www.everstonecpa.com/accounting-services) ## 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](https://www.everstonecpa.com/blog/construction-holdbacks-accounting-canada). ## 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](https://www.everstonecpa.com/blog/writing-off-bad-debts-canada) 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](https://www.everstonecpa.com/gst-hst-filing-services). 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](https://www.everstonecpa.com/blog/gst-hst-instalments-annual-filers-canada). ## 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](https://www.everstonecpa.com/blog/month-end-close-checklist-small-business) and pays for itself in cash, not just tidiness. Sources - [Canada Revenue Agency — RC4022 General Information for GST/HST Registrants](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4022/general-information-gst-hst-registrants.html) - [Canada Revenue Agency — T4012 T2 Corporation Income Tax Guide](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4012.html) - [Canada Revenue Agency — Keeping records](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/keeping-records.html) 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](https://www.everstonecpa.com/book-online) before acting on anything here. About this article **EverStone CPA** Prepared and reviewed by a CPA at EverStone CPA, serving businesses in BC, Alberta, Ontario and Manitoba. [About the firm →](https://www.everstonecpa.com/about) · [Send an enquiry →](https://www.everstonecpa.com/book-online) ### Keep reading [Writing off bad debts →](https://www.everstonecpa.com/blog/writing-off-bad-debts-canada) [Cash flow in a seasonal business →](https://www.everstonecpa.com/blog/managing-cash-flow-seasonal-business-canada) [Cash vs accrual accounting →](https://www.everstonecpa.com/blog/cash-vs-accrual-accounting-canada) Common questions ## Frequently asked questions **Do I pay tax on invoices my customers have not paid?** If your corporation reports on the accrual basis, effectively yes. Revenue is recognized when the invoice is issued rather than when the payment arrives, and GST/HST is generally reported for the period the sale was made. That is why an aged receivable has already cost the company money before anyone decides to write it off. **What payment terms should a small business use?** Whatever your sector supports, agreed before work starts, not announced on the invoice. Put them in the quote or engagement document, state what triggers the due date and what follows, and use deposits or progress billing on large jobs. Selective terms undermine all of them. **When should I stop working for a customer who has not paid?** When terms are breached without an agreed plan, when a new balance grows while the old one is unpaid, or when the customer stops responding. Invoicing past that point creates reportable income and remittable GST/HST on money you may never collect. **Can I claim back the GST/HST on a bad debt?** If you already reported and remitted GST/HST on a credit sale and all or part of it became a bad debt, you can recover the tax as an adjustment on your GST/HST return — on line 107 if you file through GST/HST NETFILE or on paper, or in the line 108 calculation if you file by TELEFILE. You must be dealing at arm’s length with the customer and must have written the amount off in your records. **Is there a deadline for the GST/HST bad debt adjustment?** Yes: within four years of the due date of the return for the period you wrote off the bad debt. Because the clock runs from the write-off, unreviewed old receivables can quietly put it out of reach. **What if a written-off customer pays later?** It comes back into income for the year received, and if you claimed a GST/HST bad debt adjustment, the tax portion goes back on your return for the period it is recovered. A write-off reflects the facts at the time; it is not permanent. ## Receivables getting away from you? Tell us roughly how many invoices you send a month. A CPA replies by email within one business day with a fixed monthly fee. [Get My Fixed Quote](https://www.everstonecpa.com/book-online)[Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) ## Have a question about this? Ask free through [the quick-question form](https://www.everstonecpa.com/quick-question); a CPA replies within one business day. Need more? A 45-minute **Advice Call** is $225 plus GST, credited to your first invoice if you become a client within 60 days. Want us to take it on? [Send an enquiry](https://www.everstonecpa.com/book-online). Ageing tells you what is owed; [the cash forecast receivables feed](https://www.everstonecpa.com/cash-flow-management) tells you whether it arrives before the money is needed. [Ask a Free Question](https://www.everstonecpa.com/quick-question) [Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) Email info@everstonecpa.com ★★★★★ “…have been completing my bookkeeping, taxes and financials for the last 2 years and they have been amazing. Thank you!” R. 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