A collections strategy is a written plan for getting you paid on time. It sets your payment terms and the dates you follow up on late bills. The calls you make.
Without one, late bills pile up. In a 2026 QuickBooks survey, 59% of small business owners said some invoices were at least 30 days late. A year earlier, it was 47%. Do you want to be among those business owners? Probably not. Late bills squeeze your cash flow, and staff and suppliers are on the wait list to get paid. This is something that needs to be avoided. Therefore, a simple debt collection strategy can help you get started this week. You’ll get a day-by-day follow-up calendar, call scripts, a payment plan example, and a clear way to decide when to hand a bill to an agency.
Key Takeaways
- A good collection strategy starts before the sale. Put payment terms, a deposit, and a late fee in writing.
- Follow up on set days: 5 days before the due date, then at 15, 30, 45, 60, and 90 days late.
- Once a bill is 30 days late or two emails go unanswered, stop emailing and call.
- Chance of being paid drops from 74% at 90 days late to 27% after a year. Hand bills to an agency at 60 to 90 days.
- Check your days sales outstanding (DSO) every week to see if your strategy is working.
Set Credit Terms Before You Send the First Invoice
In any debt collection strategy, creating a credit policy is the first step. A credit policy is a short set of rules that shows who can pay you later.Not only does it help reduce the number of late payments before they start, but for each new customer you can:- Run a credit check and ask for two supplier references.
- Ask for a 30% deposit before work starts.
- Give net 30 terms, so the bill is due 30 days after the invoice date.
- Put any late fee in the signed contract.
Manage Your Accounts by Risk and Invoice Age
When it comes to past-due accounts, age is crucial. A bill becomes more difficult to collect as it gets older.For this reason, an AR aging report provides you with a list of all outstanding bills arranged according to their late status.It usually groups bills into 1 to 30, 31 to 60, 61 to 90, and over 90 days late. According to Commercial Law League of America data, you have a 94% chance of getting a 30-day outstanding bill paid. It further drops to 74% at 90 days, 58% at six months, and 27% after a year. Take the numbers into consideration, and each past-due account has a risk level:- High risk: more than 60 days late, or the customer has paid late before.
- Medium risk: 31 to 60 days late.
- Low risk: 30 days late or less, and the customer has good payment history.
Build a Dated Debt Collection Strategy With an Owner at Each Step
Each late account goes through the same steps on the same days. One person owns each step. For this purpose, an escalation timeline, a calendar for late bills, is helpful. It takes out the awkward part, i.e., asking for the money owed. You’re not deciding whether to chase a customer. Your calendar decides it for you.
As you can see, the invoice number, amount, and due date are displayed on each notice. The late fee from your contract is added to the past-due notice. But the final demand adds a deadline. Keep copies, because an agency or judge will ask for them. Go directly to the last demand if a consumer fails to show up on a scheduled date. Silence doesn’t tell you as much as a broken promise.When What happens Who does it 5 days before due Friendly payment reminder email Bookkeeper Due date “Due today” email with a pay link Bookkeeper 15 days late Phone call to accounts payable Bookkeeper 30 days late Formal past-due notice Bookkeeper 45 days late Call to agree on a pay date or payment plan Business owner 60 days late Final demand letter and credit hold Business owner 90 days late Hand off to a collection agency or court Business owner Use software to send the first two reminders
Take collections away from sales at day 30
Match Your Script to Why the Customer Has Not Paid
Successful debt collection techniques start with one question: why hasn’t this customer paid? Usually, a customer loses the invoice, or they’re short on cash. At times, they even think the bill is wrong, or they don’t plan to pay. If a client says the bill is wrong, that’s a dispute. You need to put the calendar on hold, but only for the part they question. Fix the issue fast. The rest of the amount is still due.Ask one open question first
Keep a good customer who is short on cash
Offer Payment Plans and Early-Pay Incentives
A payment plan is a written deal to pay a bill in parts that you can offer to customers who want to pay but not all at once. Balances add up fast. Owners waiting on unpaid invoices are owed $17,700 on average. Say a customer owes you $12,000. They pay $3,000 at the time of signing the payment plan. Then they sign $3,000 a month. The first payment is proof they mean to pay the bill. If they miss the payment, the full balance is due at once. Offering an early-payment discount works wonders too.“2/10 net 30” gives 2% off for paying in 10 days instead of 30. It’s like paying 37% a year in interest to get your money 20 days sooner. So this way you are saving money for when you really need cash.Use Net Recovery Math to Compare Debt Recovery Techniques
Net recovery is the most equitable method of comparing debt recovery tactics.The money you truly keep after fees and expenses is known as net recovery. Subtract expenses after multiplying what you would keep if paid by your chances of being paid.Let’s say a $10,000 bill arrived ninety days late. Here are some examples of odds.
In this case, 60% odds indicate that, on average, 6 out of 10 invoices are paid. Even after its fee, the agency leaves you with the most money.Option Cost Example odds Cash you can expect Keep chasing it yourself ~$200 staff time 35% ~$3,300 Collection agency 25% of what’s collected 60% ~$4,500 Small claims court ~$300 in fees 45% ~$4,200 Write it off $0 0% $0 When a collection agency makes sense
A collection agency is an outside company that chases the bill for you. They take a contingency fee or a share of what it collects. They get nothing if they fail. Hand accounts over by 90 days, while your odds are still good. An agency makes sense when the customer stops answering, breaks a promise, or you fear losing them. Choose one that handles business debts and charges no upfront fees.What a small claims win does and does not get you
A decision from a small claims court is not yet payment. You might still have to file a lien or take money out of their bank account. Additionally, $10,000 exceeds the small claims cap in some jurisdictions. When a customer is closed, or the bill is too small to pursue, it makes sense to write off a bad debt. It still hurts, though. One lost $10,000 bill requires $100,000 in new sales at a 10% profit margin.If you count sales as income when you bill (accrual accounting), you may be able to deduct the loss. But the IRS wants proof you tried to collect.Stay Inside Debt Collection Laws
Most B2B invoices fall outside of the FDCPA. It is a federal law about how outside collection agencies chase debts that people owe for personal, family, or household debts. Do you bill individuals as well as companies? Then you must follow these two rules. First, use your original business name at all times. The law may classify Smith Plumbing as an agency, subject to all FDCPA regulations, if it sends a late notice signed “ABC Collections” to give the impression that it is an agency.Second, review your state’s regulations on collecting from individuals.You’ll stay secure with these three habits:- Fees should only be charged within the limitations of your state and as permitted by your contract.
- Never make a threat about something you won’t do.
- Record names, dates, calls, and promises in a collection log. The record is your proof in the event that a consumer later claims they owe you nothing.
Give Collections One Owner and Track Four Numbers
Most small business owners know last month’s sales by heart. Few know how long it takes to actually get paid. The average time between mailing a bill and receiving payment is known as days sales outstanding, or DSO.To calculate it, divide your accounts receivable (the amount your customers owe you) by your credit sales over the previous ninety days, then multiply the result by ninety.Owed $40,000 on $90,000 in sales? Your DSO is 40 days. Give one person the job of collections and a set time each week. In 15 minutes, they can check four numbers that show whether your collections strategy is working:- DSO: is it going up or down?
- Bills over 60 days late: this share should shrink.
- Promises kept: how many customers paid on the date they gave?
- Recovery rate: how much overdue money came in this month?
Too Busy to Chase Invoices? Let Remote Scouts Run the Follow-Up
All eight stages are not necessary at once. This week, get your aging report, identify your top three high-risk bills, and give them a call. After that, mark the timeline on your calendar. These collection strategy best practices are only effective if they are used on a weekly basis. That’s where it breaks down for the majority of owners. An excellent client slips toward day 90 and a collection agency, the day-15 calls slide, and a busy month arrives.There’s a middle option between doing it yourself and calling an agency. Remote Scouts is a remote staffing company that places pre-vetted virtual team members with growing businesses.A virtual collections specialist works remotely on your accounts only, using your tools and following your calendar.They call under your company’s name, unlike an agency, so your clients continue to hear from you and positive connections endure a late payment. Without the time and expense of a full in-house hire, you decide the tone and the terms of the payment plan.
Most Frequently Asked Questions
What is the 7-7-7 rule in debt collection?
It is a federal regulation that collection companies must follow while pursuing debts owed by individuals. If they call for a single debt more than seven times in a seven-day period or within seven days following a phone conversation, it is assumed that they have broken the law. Although it doesn’t cover the majority of B2B bills, it’s still a wise restriction to adhere to.
What are the steps of a collections strategy?
Prior to the transaction, establish the terms of payment. Sort late bills according to risk and age. On certain days, follow up by sending emails first, then making phone calls. Provide clients who wish to pay with payment arrangements. Transfer to a court or agency within ninety days. Monitor your DSO each week.
Is it possible to apply interest to a late invoice?
Yes, provided that the client gave their written consent, as in your signed contract. Before you set a rate, find out if your state has a cap on the amount you can charge.
