Collections Strategy: Professional Approaches to Getting Paid

Collection is often treated as an adversarial activity—us versus them. That's the wrong mindset. Most collection issues stem from process problems (invoice didn't reach the right person), confusion (questions about the bill), or customer cash flow (they're managing tight cash too).

A good collections strategy addresses these root causes while being persistent enough to ensure you're not forgotten in the payment queue.

Collection Philosophy

Key Principles

• Professional, not aggressive: You're not a debt collector. You're a business partner requesting payment for services delivered.
• Persistent, not annoying: Regular follow-up shows you're serious. Harassment damages relationships.
• Solution-oriented: Ask "how can we resolve this?" not "why haven't you paid?"
• Document everything: Notes on every conversation, every promise, every outcome.

Understanding Why People Don't Pay

• Invoice never arrived: Went to wrong person, spam folder, lost in AP pile
• Dispute or confusion: Questions about what was billed
• Cash flow issues: They're managing their own tight cash
• Process problems: Missing PO number, needs approval, in the system
• Deliberate slow pay: Some companies stretch payments as policy
• Actual inability to pay: Financial distress

Collection Cadence

A structured timeline ensures consistent follow-up without over- or under-communicating.

Sample Collection Timeline (Net 30)

Adjusting the Cadence

• Large invoices: Start follow-up earlier, escalate faster
• Key accounts: More personal touch, involve relationship owner
• Small invoices: May rely more on automation to be cost-effective
• Repeat offenders: Tighter terms, faster escalation

Communication Templates

Friendly Reminder (Pre-Due)

First Past Due

Phone Script

Escalation Email

Final Notice

Escalation Paths

Internal Escalation

• Relationship owner: Sales rep or account manager may have influence
• Finance leadership: CFO-to-CFO can sometimes cut through
• Executive contact: CEO or owner for strategic relationships

External Escalation

• AP supervisor: Above the AP clerk who handles day-to-day
• Controller/CFO: Decision makers on payment
• Operations contact: Person who uses your product/service

Collection Actions

• Credit hold: Stop new orders until paid
• Service suspension: If contract allows
• Collection agency: Third party (typically for older/smaller debts)
• Legal action: Last resort (costly, time-consuming)

Payment Plans and Negotiations

When to Offer Payment Plans

• Customer expresses inability to pay full amount: Better to get something than nothing
• Good customer in temporary difficulty: Preserve relationship for future
• Large balance: Structured payments may be only option

Structuring Payment Plans

• Initial payment: Require meaningful first payment (30-50%)
• Short duration: 2-4 months, not years
• Automatic payments: Set up auto-debit for installments
• Written agreement: Document terms and consequences of default

Settling for Less

When might you accept less than full payment?

• Genuine dispute: Part of invoice legitimately contested
• Customer financial distress: Something better than bankruptcy claim
• Cost of collection: Legal fees exceed recovery
• Very old debt: Time value of money, uncertainty

Document the business rationale for any settlement and get appropriate approval.

Write-Off Decisions

At some point, uncollected receivables should be written off. This is an accounting recognition that you won't collect, not permission to stop trying.

When to Write Off

• Customer bankruptcy: Debt likely unrecoverable
• Customer out of business: No one to collect from
• Extensive collection efforts exhausted: All reasonable efforts made
• Cost exceeds recovery: Legal costs more than debt
• Time-based policy: Many companies write off at 180+ days

Write-Off Process

• Document collection efforts: Show you tried to collect
• Approve at appropriate level: CFO or controller typically
• Record in accounting: Debit bad debt expense, credit AR
• Continue collection: Write-off doesn't mean give up
• Tax treatment: May be deductible; consult tax advisor

Bad Debt Reserve

Rather than writing off individual invoices, many companies maintain a bad debt reserve:

• Estimate percentage of AR that won't collect (based on history)
• Book reserve against AR
• Adjust reserve as actual write-offs occur
• Provides smoother earnings impact

Preserving Customer Relationships

Balance Firmness and Relationship

• Always professional: Never angry, accusatory, or personal
• Give benefit of doubt: Assume good intent until proven otherwise
• Offer solutions: Help resolve what's preventing payment
• Know when to push: Polite persistence gets paid

After Collection

Once paid, don't hold grudges:

• Thank them: "Thank you for bringing this current"
• Rebuild relationship: Return to normal business interaction
• Adjust terms if needed: Shorter terms or deposits for repeat late payers
• Learn and improve: Was there something we could have done better?