Collections
The process of pursuing payment on overdue invoices.
Collections is the process of recovering payment on past-due invoices through escalating efforts: friendly reminders, formal demand letters, phone calls, and ultimately third-party collection agencies or legal action. Most businesses begin internal collections at 30 days past due and consider outside help at 90+ days. The longer an invoice remains unpaid, the less likely it will be collected.
Example
At 30 days past due, a business sends a reminder email; at 60 days, the owner calls directly; at 90 days, the account is sent to a collection agency that charges 25% of recovered amounts.
Why It Matters for Your Business
Proactive collections prevent bad debt and protect cash flow—waiting too long to pursue payment dramatically reduces your chances of ever collecting.
Practical Tips
- •Establish a written collections escalation policy with specific actions at 30, 60, and 90 days.
- •Document every collection contact for legal protection if you need to take formal action.
Related Terms
More Invoicing Terms
AR Aging
A report categorizing outstanding invoices by age.
Billing Cycle
The recurring period between billing statements.
Credit Memo
A document reducing the amount owed by a customer.
Days Sales Outstanding
Average days to collect payment after a sale.
Invoice
A document requesting payment for goods or services.
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