Accounts receivable collections process for a small service firm

In a small service company, collections usually happen in bursts. Cash gets tight, someone runs the aging report, a flurry of emails goes out, a few customers pay, and then the work of running jobs takes over again until the next squeeze. The invoices that slip through those gaps are the ones that end up 90 days late.

An accounts receivable collections process replaces the bursts with a routine. It does not need software or a finance team. It needs clear terms, a reminder schedule you follow every time, a record of what each customer told you, and an hour a week. This guide lays out that process for a 5 to 50 person company that invoices other businesses, from the moment an invoice goes out to the point where the owner picks up the phone.

Step 1: Make the invoice easy to pay

Collections start before anything is late. A lot of the friction in getting paid comes from invoices that cannot be approved as sent:

• Agree terms up front. Net 30, net 15 or due on receipt, written into the quote or contract, and printed on every invoice.
• Bill the right person. Ask each new customer who handles payables and whether they need a purchase order number, a vendor form, a W-9 or a portal submission before they can pay you.
• Put everything on the invoice. The PO number, the job or site, the service dates, the due date, and how to pay.
• Send it promptly. An invoice sent two weeks after the work starts its clock two weeks late.

Step 2: Choose a reminder schedule and keep to it

Decide once when each reminder goes out, and send it every time, to every customer. A common schedule for business customers:

Put the invoice number, amount, due date and your company name in every reminder, and send one email per customer listing all their late invoices rather than one per invoice. Keep each reminder at least a week after the last, so a customer who answers is not chased again before you have read their reply. Our guide to past due invoice emails has templates for all three.

Some firms prefer the traditional 30, 60 and 90 day marks that match the aging report. That works too; see 30, 60 and 90 day past due letters. The important thing is that the schedule runs whether or not anyone is worried about cash that week.

Step 3: Record every answer

The reminders are only half the process. The other half is what customers say back, and what you do about it. Keep one line per customer, in your accounting system's notes, a spreadsheet, or a tool, with the date and the answer. Most answers fall into a few kinds:

• Promise to pay by a date. Hold reminders until a few days after it. Then check: paid, or follow up.
• Says already paid. Check deposits and payments received. If it is there, apply it. If not, ask for the date, amount and method.
• Dispute. Stop reminders, find out what is wrong, and fix it: a credit, a corrected invoice, or a conversation about the work. Agree a date for whatever is not in dispute.
• Wrong contact. Get the right person and resend the latest reminder to them. Update the customer record.
• No answer. The schedule carries on until the final notice, then it is a phone call.

This record is what stops the two most damaging mistakes in collections: chasing a customer who has already paid, and sending a final notice to someone who told you last week the invoice was wrong.

Step 4: Run the weekly review

Pick a fixed hour each week. Monday morning is a good choice because it sets up the week's calls. Work through it in order:

1. Refresh the list. Run the open invoices or A/R aging report so you are working from today's balances. In QuickBooks Online, the Open Invoices and A/R Aging Detail reports both export to Excel.
2. Close what has been paid. Make sure every payment received is applied, so nobody gets a reminder for a paid invoice.
3. Send the reminders that are due under your schedule, or check that they went out.
4. Check promises. Any promised date more than a few days past with no payment goes on the call list.
5. Build the call list. Disputes, missed promises, customers who say they paid but you cannot find it, wrong contacts with no replacement, and anyone who has had the final notice and gone quiet.
6. Make the calls, or assign them, and record the answers.
7. Send the owner a short summary. Total past due, the accounts on the call list, and what changed since last week.

Step 5: Know your next step after the final notice

Decide in advance what happens when a customer has had every reminder and a phone call and still has not paid or answered. The options depend on your contract and your relationship: putting further work on hold, a payment plan, applying a late fee your terms provide for, or bringing in outside help. Check what your contract allows before you raise any of them, and if the amounts are large, talk to your accountant or attorney. Whatever you choose, make it a decision rather than a threat in an email.

What to measure

You do not need a dashboard. Three numbers, checked weekly, tell you whether the process is working:

• Total past due, and how much of it is over 45 days.
• The number of accounts on the call list. It should be short, and the names on it should change from week to week.
• Missed promises. If promised dates keep slipping for the same customers, those customers need a different conversation.

Making the routine stick

The process fails in the weeks nobody has the hour. Past Due Nudge runs the reminder and answer steps from your QuickBooks Online open-invoice export, which you upload weekly as Excel or CSV. It sends reminders signed with your company's name at 7, 21 and 45 days past due, one email per customer, lets customers answer in one click (paying by a date, already paid, disputing, or wrong contact), pauses reminders when they do, and puts the accounts that need a call at the top of your list. Reminders pause if your latest upload is more than a week old, so it does not keep chasing from an out-of-date list.