A Collections Process That Gets You Paid

Read your DSO properly

Days sales outstanding is average accounts receivable divided by revenue for the period, multiplied by the number of days in the period. It tells you how long, on average, your revenue sits as a promise rather than as cash.

The number alone means little without its reference point, and the reference point is your own stated terms. On net 30, a DSO of 38 is healthy — a few days of processing on each side. A DSO of 55 on net 30 means customers are taking nearly an extra month, and you are financing it.

What that costs is easy to calculate and is usually larger than people expect. A business doing $6M a year carries roughly $16,400 of revenue per day. Cutting DSO from 55 to 40 releases about $246,000 of cash, permanently, without selling anything more.

Most delinquency is manufactured upstream

Before building a follow-up process, fix the causes. A meaningful share of late payments are not collection problems at all — they are invoicing problems wearing a disguise, and no amount of polite chasing fixes them.

• The invoice went to the wrong person. Your contact is the person who bought, not the person who pays. Capture the AP contact during onboarding, not during collections.
• A required reference is missing. Larger companies will not pay an invoice without a purchase order number, and their system rejects it silently. Nobody tells you.
• The invoice arrived late. Billing on the 15th for work delivered on the 1st has already consumed half your terms before the clock starts.
• The terms were never agreed. "Net 30" printed on an invoice is not a contract term if the signed agreement said nothing about it, and enterprise AP departments default to their own policy, often net 60.
• The detail does not match expectations. Any discrepancy between what the customer expected and what the invoice says stops the payment entirely while it gets investigated.
• There is no easy way to pay. A mailed check requirement adds a week. ACH and card links remove it.

A follow-up ladder

The principle is that contact begins before the due date and escalates on a schedule that is decided in advance rather than improvised. The reason to write it down is that improvised collections are driven by how the cash position feels that week, which produces inconsistency customers learn to read.

• Seven days before due. An automated reminder. This alone resolves a surprising share of lateness, because the invoice was simply sitting in a queue.
• Due date. A short automated notice with the invoice attached and a payment link.
• Day 7 past due. A personal email from a named person, asking whether there is an issue with the invoice rather than demanding payment. This is where genuine disputes surface.
• Day 15. A phone call. Email is easy to defer; a conversation produces a commitment and a date.
• Day 30. Escalate on both sides — your account owner contacts their business contact, not just AP. Put the service relationship explicitly on the table.
• Day 45. A formal notice stating the consequence and the date it takes effect.
• Day 60. Suspend service or stop work, having given the warning you promised at day 45.
• Day 90. Third-party collections or legal. Recovery rates fall steeply after this point, so it is a decision to make rather than to drift into.

Give it an owner

Collections fails most often because it belongs to everyone. The bookkeeper thinks sales should handle the relationship, sales does not want to be the one asking for money, and the founder steps in only when the cash position gets uncomfortable.

One named person owns the aging report. They run the ladder, they track promises made and whether they were kept, and they escalate on schedule. In a business under roughly $10M this is a few hours a week, not a full role.

The one part the owner should not do alone is the day-30 escalation. That contact is more effective coming from whoever holds the relationship, because it converts a billing matter into a business conversation, which is what actually moves a stalled invoice inside a large organization.

Change the incentives, not just the follow-up

Structural changes outperform process improvements, because they remove the collection problem rather than managing it.

• Deposits on project work. 30-50% up front is standard in most services and changes the cash profile of the entire engagement.
• Progress billing rather than billing at completion. Smaller, more frequent invoices are paid faster and expose problems earlier.
• Autopay for recurring revenue. Card or ACH on file for subscriptions removes the collection question entirely. Failed payment recovery becomes the process instead.
• Early payment discounts, used carefully. 2/10 net 30 is an expensive annualized rate, so offer it where cash timing genuinely matters to you rather than as a default.
• Credit limits and terms tied to payment history. A customer who has been 60 days late twice does not get expanded terms on the third order.
• Credit checks above a threshold. For any new customer whose first order exceeds what you could comfortably write off.