Accounts Receivable Management for Indian Manufacturers: Complete Guide 2026

Accounts receivable management is one of the most undermanaged functions in Indian manufacturing. Factories that spend weeks optimising production schedules and purchase rates often leave lakhs of rupees sitting in customer accounts for months, paying bank interest to fund operations while their own money earns nothing. For auto parts manufacturers, precision machining shops, sheet metal job shops, and MSME factories across India, poor AR management is not a minor inconvenience. It is a direct drain on profitability and a constraint on growth.

This guide covers every aspect of accounts receivable management for Indian manufacturers: why receivables pile up, what AR aging analysis tells you, how to set customer credit limits, the complete invoice-to-payment workflow, PDC management, Section 43B(h) compliance, TReDS financing, bad debt provisioning, and how cloud manufacturing ERP automates the entire AR process. We include practical examples from the factory floor and a clear comparison between spreadsheet-based tracking and a purpose-built ERP system.

Why Indian Manufacturers Struggle with Receivables

Receivables management problems in Indian manufacturing are structural, not accidental. Three forces conspire to create the problem.

Long Payment Cycles Are the Industry Norm

Payment terms of net 45 days, net 60 days, or even net 90 days are standard across most manufacturing supply chains in India. OEM customers, automotive Tier-1 buyers, and large trading houses routinely stretch payments to 75 to 120 days from invoice date, regardless of what the written agreement says. The MSME supplier, dependent on that customer for a significant share of revenue, rarely pushes back hard enough. The result is a permanent overhang of receivables that must be funded by bank borrowing at 11 to 14 percent per annum.

Manual Tracking Obscures the Reality

Most MSME manufacturers track outstanding receivables in a physical register, a Tally ledger, or an Excel file updated weekly. These systems have critical blind spots: they show the total outstanding but not the aging breakdown by customer, they miss partially adjusted invoices, they cannot send automated payment reminders, and they are rarely updated in real time. A factory owner who checks the debtor register once a week is always reacting to a problem that started three weeks ago.

Customer Relationships Create Payment Hesitation

In Indian manufacturing, many suppliers have personal relationships with their buyers that span years or decades. Pressing aggressively for payment feels like it damages a relationship that took years to build. The result is soft follow-ups, repeated deferrals, and mounting outstanding balances. The relationship dynamic changes only when the outstanding balance becomes so large that it becomes an existential problem, by which point some portion of it may already be at risk of becoming a bad debt.

What Is AR Management and Why It Matters for Factory Cash Flow

Accounts receivable management is the systematic process of converting your sales revenue into actual cash in the bank. It begins the moment you dispatch goods and generate a GST invoice, and it ends only when the payment is received, recorded, and matched to the correct invoice. Every day between dispatch and collection is a day your working capital is tied up in a customer's account.

For a manufacturing business with monthly dispatches of INR 1 crore and a 75-day DSO (Days Sales Outstanding), the average receivables balance is INR 2.5 crore at any given time. At a bank overdraft rate of 13 percent, funding that balance costs INR 32 lakh per year. Reducing DSO from 75 days to 55 days frees INR 67 lakh of working capital and saves approximately INR 8.7 lakh in annual interest. That saving comes purely from collecting what you already earned, faster.

The working capital management framework places receivables management as the single highest-leverage intervention available to most Indian manufacturers, because it directly reduces Days Sales Outstanding, which is the dominant component of the Cash Conversion Cycle for factory businesses with long payment terms.

The Real Cost of Poor Receivables Management

Most factory owners see overdue invoices as a temporary inconvenience. The actual cost is far higher and compounds over time.

Blocked Working Capital and Bank Interest

Every rupee sitting in overdue receivables is a rupee you have borrowed from the bank to fund your operations. At 12 to 14 percent interest, INR 1 crore of excess receivables (beyond your target DSO) costs INR 12 to 14 lakh per year. This is pure loss, directly reducing your net profit on the goods you have already manufactured and dispatched.

Missed Supplier Payment Discounts

Many raw material suppliers offer early payment discounts of 1 to 2 percent for payment within 10 to 15 days. A sheet metal manufacturer buying INR 4 crore of steel annually could save INR 4 to 8 lakh per year by taking these discounts. But if your own customers have not paid you, you cannot pay your suppliers early. Slow collections on the sales side translate directly into lost discounts on the purchase side.

Increased Bad Debt Risk

Invoices that age beyond 90 days have a significantly higher probability of becoming bad debts. For precision machining shops supplying multiple small buyers, a single customer insolvency can wipe out an entire month's profit. The longer you wait to follow up, the less likely you are to recover the full amount. A structured AR management process catches deteriorating accounts early, when there is still leverage to collect.

Opportunity Cost of Growth

A factory with INR 2 crore trapped in overdue receivables cannot invest that capital in a new CNC machine, a larger raw material stock, or a new product line. Poor AR management does not just cost interest. It caps your growth.

AR Aging Analysis: The Four-Bucket Framework

AR aging analysis is the foundation of receivables management. It classifies every outstanding invoice by the number of days it has been overdue, giving you a structured view of collection risk across your entire customer base.

The Four Aging Buckets

• 0 to 30 days (Current): Invoices within the agreed credit period. No immediate action required, but they should be on your radar for timely follow-up as the due date approaches.
• 31 to 60 days (Slightly Overdue): Invoices that have missed the payment due date by up to 30 days. These require a firm but courteous follow-up call or email. Most can still be collected without significant effort.
• 61 to 90 days (Significantly Overdue): Invoices more than 60 days past due. These require escalation: call the buyer's accounts payable team, escalate to your buyer's procurement manager, and send a formal reminder citing the agreed payment terms.
• 90 plus days (High Risk): Invoices more than 90 days overdue. These require senior management attention, a formal written notice, and a review of whether to continue supplying to this customer without advance payment. Begin provisioning for potential bad debt.

Reading the Aging Report

A well-structured aging report shows, for each customer: total outstanding amount, amount in each bucket, oldest invoice date, and last payment date. It tells you three things at a glance: which customers need immediate action, how concentrated your risk is (are 80 percent of your overdue receivables with one or two customers?), and whether your overall collection performance is improving or deteriorating month on month.

Setting Credit Limits and Payment Terms for Manufacturing Customers

Credit limit discipline is the most powerful preventive control in AR management. A credit limit is the maximum outstanding balance you allow a customer to carry before you stop fulfilling new orders. Setting limits correctly prevents the accumulation of unacceptably large exposures to any single customer.

How to Set Credit Limits

For a new customer, start conservatively: advance payment for the first two to three orders, then a credit limit equal to one month of expected monthly purchase volume. Review after six months of payment history and adjust based on actual payment behaviour.

For existing customers, the credit limit should reflect:

• Payment history: How consistently does this customer pay on time? What is their actual average DSO with you over the last 12 months?
• Customer financial strength: Is this a publicly listed company, a large private firm, an MSME, or an individual trader? The risk profile varies significantly.
• Volume and strategic importance: A large OEM customer who is a significant share of revenue warrants a higher limit, but not an unlimited one.
• Concentration risk: If one customer already represents 30 percent of your receivables, think carefully before extending more credit to that customer.

Payment Terms for Manufacturing Customers

Standard payment terms for Indian manufacturers vary by customer type. OEM buyers typically demand net 60 to 90 days. Trading customers typically operate on net 30 to 45 days. New customers or customers with weak credit history should be asked for advance payment or very short terms (net 15 days). Government and PSU customers can take 90 to 120 days, but they carry low credit risk.

Whatever terms you agree to, enforce them consistently. A credit limit that is never enforced is not a credit limit. It is a courtesy number. When a customer exceeds their credit limit, the ERP should block or warn on new sales order entry, forcing a conscious decision by management before further credit is extended.

Invoice-to-Payment Workflow for Manufacturers

A structured invoice-to-payment workflow converts the chaotic process of dispatching goods and hoping for payment into a disciplined, trackable sequence. Here is the complete workflow:

Step 1: Invoice on Dispatch Day

Generate and send the GST tax invoice on the same day as dispatch. Not at month end. Not when you get around to it. On the dispatch day. Batch invoicing at month end adds 10 to 15 days to your effective DSO unnecessarily. A cloud ERP like ERPDrive generates the GST e-invoice automatically as part of the dispatch workflow, including the IRN from the IRP portal.

Step 2: Share Invoice Immediately

Email the PDF invoice to the customer's accounts payable team on the day of dispatch. Many manufacturers dispatch the goods but forget to share the invoice, then wonder why payment is delayed. The customer's accounts team cannot process a payment they have not received an invoice for.

Step 3: Confirm Receipt and Due Date

For large invoices, confirm with the customer that the invoice has been received and note the expected payment date in the ERP. This one step eliminates a common dispute: "we never received the invoice" is a claim that is impossible to make if you have a read receipt or a confirmation call on record.

Step 4: Structured Follow-Up Schedule

Set a fixed follow-up schedule and stick to it:

• Day of due date: Automated payment reminder by email or WhatsApp.
• Day 7 after due date: Accounts team follow-up call to the customer's accounts payable contact.
• Day 15 after due date: Escalation to procurement or commercial contact at the customer.
• Day 30 after due date: Escalation to your senior management and the customer's senior management. Consider hold on new supply.
• Day 45 after due date: Formal written notice citing interest under MSMED Act Section 16 and Section 43B(h) implications for the buyer.

Step 5: Match Payment to Invoice

When payment arrives, match it immediately to the specific invoice or invoices it covers. Unmatched payments create reconciliation confusion and make it impossible to know the true outstanding balance. A cloud ERP does this matching automatically for NEFT and RTGS receipts when bank integration is configured.

Payment Follow-Up and Reminder Automation

Manual payment follow-up is inefficient and inconsistent. The accounts executive who has 60 open invoices to track cannot remember to call every customer on the right day. A cloud ERP system automates the entire reminder workflow, freeing the accounts team to focus on escalated cases rather than routine nudges.

ERPDrive's Finance and Accounting module supports configurable reminder rules: automated email reminders at specified intervals (3 days before due, on due date, 7 days overdue, 15 days overdue), WhatsApp message templates for field-friendly communication with buyers, and escalation alerts to the factory owner or CFO when an invoice crosses a threshold (say, 45 days overdue and above INR 2 lakh).

The key is consistency. Customers quickly learn which suppliers follow up reliably and which ones let things slip. Reliable follow-up does not damage relationships. It signals that you run a professional business that expects to be paid on time, which is a reasonable expectation.

PDC (Post-Dated Cheque) Management

Post-dated cheques are a widely used payment mechanism in Indian manufacturing. A customer who cannot pay immediately may hand over 3 to 6 PDCs dated for future months, providing a measure of payment assurance. PDC management is a critical AR function that many factories handle poorly, resulting in missed deposit dates, unrealised payments, and unclear outstanding balances.

PDC Tracking Best Practices

• Log every PDC on receipt: Customer name, cheque number, bank, branch, amount, and date. Record against the specific invoice it covers.
• Set deposit reminders: Alert the accounts team 2 to 3 days before each PDC date so the cheque can be deposited on time. Depositing a PDC a day late can mean a day's delay in clearing and creates operational confusion.
• Track clearing status: Record whether each PDC cleared, bounced, or was cancelled. A bounced cheque triggers both a legal remedy under Section 138 of the Negotiable Instruments Act and an urgent follow-up call.
• Update outstanding balance: Until a PDC clears, the invoice against which it was issued remains outstanding in your books. Do not treat a received PDC as a collected payment.

In ERPDrive, PDCs are recorded as a separate document type. The system flags PDCs due in the next 7 days, marks them as deposited when you record the bank transaction, and updates to cleared or bounced based on the bank reconciliation. The accounts team gets a daily dashboard of PDCs due, in process, cleared, and bounced without manually checking any register.

Section 43B(h): The MSME 45-Day Payment Rule

Section 43B(h) of the Income Tax Act, inserted by the Finance Act 2023 and effective from FY 2024-25, is one of the most significant statutory tools available to MSME manufacturers for accelerating payment collection. Understanding both sides of this provision is essential for Indian manufacturers.

How Section 43B(h) Works

Under Section 43B(h), any payment due to a registered MSME supplier that is not paid within 45 days from the date of acceptance or the date agreed in writing (subject to a maximum of 45 days) becomes a disallowed deduction in the payer's income tax computation. The buyer cannot claim this amount as a business expense in the year of purchase. It gets deducted only in the year of actual payment.

As an MSME Seller: Use 43B(h) as a Collection Lever

If you are a registered MSME manufacturer (Udyam registration), your buyers face income tax consequences for delaying payment beyond 45 days. A polite but firm communication to your buyer's finance team, referencing Section 43B(h) and its tax implications, gives a concrete financial incentive to prioritise payment to you over other creditors. Large corporate buyers with significant tax liabilities respond particularly well to this approach because the tax cost of delay often exceeds the financing benefit they gain from holding your payment.

To leverage 43B(h) effectively: register on Udyam, share your Udyam Registration Number with all your customers, and reference it on every invoice. This makes your MSME status unambiguous and activates the buyer's 43B(h) compliance obligation.

As an MSME Buyer: Tighten Your AP Discipline

If you buy raw materials or components from other MSME suppliers, Section 43B(h) tightens your own payables discipline. Delaying payment to your MSME suppliers beyond 45 days makes those amounts non-deductible in your income tax return. The tax cost of delay typically exceeds the working capital benefit. Pay your MSME suppliers on time; negotiate longer terms with non-MSME large corporate suppliers if you need to manage cash flow.

Read our related article on working capital management for SME manufacturers for a detailed treatment of how Section 43B(h) affects both the payables and receivables sides of your business.

TReDS: Trade Receivables Discounting for MSME Manufacturers

TReDS (Trade Receivables Discounting System) is a RBI-regulated electronic platform that allows MSME sellers to discount their accepted invoices against large corporate buyers at competitive rates from multiple financiers. For MSME manufacturers with large OEM or corporate customers, TReDS is a practical, low-cost alternative to bank overdraft for funding receivables.

How TReDS Works

1. You dispatch goods to a large buyer and upload the invoice on the TReDS platform (RXIL, M1xchange, or Invoicemart).
2. The buyer confirms or accepts the invoice on the platform.
3. Multiple financiers (banks and NBFCs) bid to discount the invoice. You receive the invoice amount minus the discount rate (typically 8 to 11 percent per annum, much lower than a standard overdraft).
4. On the invoice due date, the buyer pays the financier directly. Your collection risk is transferred to the financier.

Who Can Use TReDS

MSME sellers (Udyam registered) with buyers who are either large corporates (turnover above INR 500 crore, who are mandated to register on TReDS) or PSUs or government entities. Auto parts suppliers to major OEMs, precision machining shops supplying to defence or aerospace buyers, and sheet metal fabricators supplying to white goods or construction equipment manufacturers are all well-positioned to use TReDS.

TReDS Benefits for Manufacturers

• Immediate cash: Convert a 60 or 90-day receivable into cash within 1 to 2 working days of buyer acceptance.
• Lower financing cost: TReDS rates (8 to 11 percent) are typically 2 to 4 percentage points lower than bank overdraft or cash credit rates.
• Off-balance-sheet financing: TReDS discounting does not increase your outstanding bank borrowing.
• No collateral required: The invoice itself is the security. No need to pledge property or machinery.

Bank Reconciliation and Payment Matching

Bank reconciliation is the process of matching every payment received in your bank account against the corresponding customer invoice in your ERP. This step is essential because customers frequently pay without clear references, pay multiple invoices in one transfer, make partial payments, or apply TDS deductions that do not match the invoice amount.

Common Reconciliation Challenges for Manufacturers

• Partial payments: A customer pays INR 4.7 lakh against an invoice for INR 5.2 lakh. What is the balance? Is there a credit note? Is TDS of INR 50,000 deducted?
• Bulk payments: A customer pays INR 12 lakh against multiple invoices. Which invoices does this cover? What is the remaining outstanding?
• TDS deductions: Customers deduct TDS at source under Section 194C or 194J. The invoice outstanding is reduced by the TDS amount, and a TDS certificate (Form 16A) must be collected and matched against the 26AS statement.
• Credit notes and adjustments: If you issued a credit note for returned goods, the customer may net it against the next payment. The ERP must track credit note balances separately from invoice balances.

A cloud ERP with bank integration imports bank statements daily and allows semi-automatic or rule-based matching of receipts to invoices. In ERPDrive, unmatched receipts sit in a clearing account until matched. The accounts team sees a daily list of unmatched receipts, resolves them, and the customer ledger updates in real time.

Bad Debt Identification and Provisioning

Not every overdue invoice will be collected. Recognising bad debt early and provisioning appropriately is both a sound financial management practice and a regulatory requirement under Indian accounting standards.

Identifying Bad Debt Risk

The following signals indicate that a receivable is at elevated risk of becoming a bad debt:

• Outstanding for more than 90 days with no payment or credible payment commitment
• Customer has stopped responding to calls and emails
• Customer's business is known to be facing financial distress
• Bounced cheques with no replacement provided
• Customer has begun delaying payments to multiple suppliers simultaneously
• Legal disputes about the quality or quantity of goods supplied

Provisioning Framework

A standard provisioning framework for Indian manufacturers:

• 0 to 90 days overdue: No provision required.
• 91 to 180 days overdue: Provision 10 to 25 percent of outstanding amount.
• 181 to 365 days overdue: Provision 50 percent of outstanding amount.
• Beyond 365 days: Provision 100 percent. Write off after exhausting collection remedies.

Under the Income Tax Act, bad debts can be claimed as a deduction in the year they are actually written off, provided the amount was included in the computation of taxable income in a prior year. Consult your chartered accountant for the specific procedure and documentation required.

How Cloud ERP Automates AR Management: ERPDrive Features

A cloud manufacturing ERP transforms accounts receivable management from a reactive, manual process into a proactive, automated system. Here is specifically what ERPDrive provides for Indian manufacturers on the AR side:

Automated AR Aging Dashboard

Real-time aging analysis across all four buckets, updated every time a new invoice is raised or a payment is received. No manual report generation. The dashboard is available to the accounts manager, CFO, and factory owner at any time from any device.

Credit Limit Enforcement at Order Entry

When a salesperson tries to confirm a sales order for a customer who is over their credit limit, ERPDrive flags the violation immediately. The order can be blocked pending management approval or released with a documented override. This single feature prevents the most common AR escalation in manufacturing: a customer who is already 90 days overdue on INR 5 lakh getting another INR 3 lakh of fresh credit because the salesperson did not check.

Invoice-on-Dispatch Integration

As part of the dispatch and logistics workflow in ERPDrive, the GST tax invoice is generated and the e-invoice IRN is obtained in the same screen. The invoice is automatically linked to the sales order, the dispatch challan, and the e-way bill. DSO starts from dispatch day, not from the day someone gets around to generating the invoice.

Automated Payment Reminders

Configurable reminder rules send email and WhatsApp alerts to customers at set intervals: before due date, on due date, and at escalating intervals after the due date. The accounts team focuses only on customers who have not responded to automated reminders, rather than manually chasing every invoice.

PDC Register and Deposit Alerts

All PDCs are logged against the customer and invoice. The system alerts the accounts team 3 days before each PDC deposit date. Bounced cheques are flagged immediately and the customer's account is updated.

TDS and Credit Note Management

TDS deductions are tracked per customer and matched against 26AS data. Credit notes are linked to specific invoices and automatically netted in the customer outstanding balance. No more manual adjustments in Tally at month end.

Section 43B(h) Flag

For customers who are MSME buyers, ERPDrive flags invoices approaching the 45-day Section 43B(h) deadline, giving the collection team a compliance-based urgency lever for follow-up.

Spreadsheet vs ERP: AR Management Comparison

Common AR Management Mistakes Indian Manufacturers Make

Mistake 1: Invoicing at Month End Instead of on Dispatch Day

This is the single most common DSO-inflating habit in Indian manufacturing. A factory that dispatches on the 5th but invoices on the 30th has added 25 free days to the customer's payment cycle. At scale, this adds weeks to DSO and costs significant bank interest. The fix is immediate: invoice on dispatch day, always.

Mistake 2: No Credit Limits, or Limits That Are Never Enforced

Setting a credit limit of INR 5 lakh for a customer and then shipping INR 12 lakh worth of goods because "they are a good customer" is not credit management. It is wishful thinking. Credit limits must be enforced at the point of order entry, not reviewed after the damage is done.

Mistake 3: Mixing Up Receivables by Not Matching Payments to Invoices

When a customer pays INR 8 lakh in a bulk transfer, many factories credit the amount against the customer's account and move on. Three months later, disputes arise about which invoices were paid and which are still outstanding. Every payment must be matched to specific invoices at the time of receipt.

Mistake 4: Not Using Section 43B(h) as a Collection Lever

Many MSME manufacturers are aware that Section 43B(h) exists but do not actively reference it in their collection communications. A simple line in your payment reminder email, noting that your Udyam registration number is XYZ and that payment delays beyond 45 days have income tax implications for the buyer under Section 43B(h), is often all that is needed to push a payment to the top of the buyer's CFO's priority list.

Mistake 5: Waiting Too Long to Escalate Overdue Accounts

The longer an invoice sits unpaid, the harder it is to collect. Factories that send soft reminders for the first 90 days and only escalate when the amount is clearly at risk of becoming a bad debt have already lost significant leverage. A fixed, predictable escalation schedule from day 31 onward signals that you are a serious business, and serious businesses get paid faster.

Mistake 6: Continuing to Supply Customers with Large Overdue Balances

Supplying fresh goods to a customer with an INR 8 lakh overdue balance (well beyond credit terms) on the hope that the relationship will recover is a high-risk strategy. It increases your total exposure and removes your most powerful leverage: the ability to withhold supply. Once the overdue balance exceeds a meaningful threshold, hold on new supply until a payment plan is agreed and at least partially executed.

Frequently Asked Questions

What is accounts receivable management in manufacturing?

Accounts receivable management in manufacturing is the process of tracking, following up, and collecting payment for goods dispatched and invoiced to customers. It covers the entire lifecycle from invoice generation to cash receipt, including credit limit setting, AR aging analysis, payment reminders, PDC management, bank reconciliation, and bad debt provisioning. For Indian manufacturers, effective AR management is critical because payment cycles of 60 to 120 days are common, locking up large amounts of working capital in outstanding receivables.

What is AR aging analysis and how do I read it?

AR aging analysis is a report that classifies outstanding receivables by how long they have been overdue. The standard buckets are 0 to 30 days (current), 31 to 60 days (slightly overdue), 61 to 90 days (significantly overdue), and 90 plus days (high risk). For each bucket you see the outstanding amount, number of invoices, and the customer names. The goal is to keep as much of your receivables as possible in the 0 to 30 day bucket and take immediate action on anything beyond 60 days.

How does Section 43B(h) help MSME manufacturers collect payment faster?

Section 43B(h) of the Income Tax Act, effective from FY 2024-25, requires buyers to pay registered MSME suppliers within 45 days. If a buyer delays beyond 45 days, the unpaid amount becomes a disallowed deduction in the buyer's income tax return. For MSME manufacturers, a polite reminder to the buyer's finance team citing Section 43B(h) gives a concrete tax incentive to prioritise payment. Large corporate buyers who face significant tax liabilities respond particularly well because the tax cost of delay often exceeds their financing benefit from holding your payment.

What is TReDS and how do MSME manufacturers use it?

TReDS (Trade Receivables Discounting System) is a RBI-regulated platform where MSME sellers upload accepted invoices against large corporate buyers or PSUs. Multiple financiers bid to discount these invoices at competitive rates (8 to 11 percent per annum), and the MSME receives immediate cash. Corporate buyers with turnover above INR 500 crore are mandatorily required to register on TReDS. Auto parts suppliers, precision machining shops, and sheet metal manufacturers with large OEM customers are well-positioned to use TReDS to convert 60 to 90 day receivables into immediate cash at rates lower than a bank overdraft.

What is a post-dated cheque and how should manufacturers manage PDCs?

A post-dated cheque (PDC) is a cheque with a future date, used by Indian manufacturers as a payment assurance mechanism. The customer hands over cheques dated for future months, and the supplier deposits them on or after the date mentioned. PDC management requires logging every PDC against the customer and invoice, setting deposit reminders, and recording the outcome (cleared or bounced). A bounced PDC triggers a legal remedy under Section 138 of the Negotiable Instruments Act and an urgent follow-up. Cloud ERP systems automate PDC tracking, deposit alerts, and status updates.

How do I set credit limits for manufacturing customers?

Set credit limits based on the customer's historical payment behaviour, expected monthly purchase volume, your working capital capacity, and whether the customer is an MSME or a large corporate. A practical formula: two months of average monthly purchases for reliable payers, one month for medium-risk customers, and advance payment for new or high-risk accounts. Review and update every six months based on actual payment behaviour. Enforce the limit at sales order entry in your ERP so new orders are blocked when the limit is exceeded.

When should a manufacturer provision for bad debt?

Provision for bad debt in tiers based on the aging bucket: 10 to 25 percent for invoices 91 to 180 days overdue, 50 percent for 181 to 365 days overdue, and 100 percent for amounts outstanding beyond one year. Under the Income Tax Act, bad debts can be written off as a deductible expense when actually written off in the books, provided the debt was included in taxable income in a prior year. Consult your chartered accountant for the specific documentation and procedure required for your situation.

Conclusion: Make AR Management a Competitive Advantage

For Indian manufacturers, accounts receivable management is not a back-office accounting chore. It is a direct driver of cash flow, profitability, and growth capacity. Every day you shorten your DSO is a day less of bank interest, more working capital available for raw materials and machinery, and a stronger balance sheet for when you need bank financing for growth.

The tools to achieve this are not complicated. Invoice on dispatch day. Set and enforce credit limits. Use a four-bucket aging analysis. Send automated reminders on a fixed schedule. Leverage Section 43B(h) with your large corporate buyers. Explore TReDS for your highest-volume OEM receivables. Manage PDCs with a digital system that does not rely on memory. Match every payment to the right invoice on the day it arrives. And provision for bad debt before your auditor insists on it.

A cloud manufacturing ERP like ERPDrive automates all of this for Indian factories in a single, connected system. Your accounts team stops chasing invoices in a spreadsheet and starts managing exceptions that genuinely need human judgment. The factory owner gets a real-time view of every outstanding rupee, which customers are at risk, and what the cash position will look like in 30 days. That is the difference between managing your factory's finances and being managed by them.

If your factory is carrying more than 60 days of outstanding receivables and tracking them in Tally or Excel, book a free ERPDrive demo and see how Indian manufacturers are cutting DSO by 15 to 25 days within the first quarter. Or send us a message on WhatsApp to discuss your specific AR management situation.