Nuts & Bolts: a Simple Collections Procedure

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[Nuts & Bolts is a new category focusing on basic business practices for the entrepreneur or established business. Look for new Nuts & Bolts posts approximately weekly.]

I saw my brother-in-law over the holiday, and he mentioned a friend who had started a business selling duck calls. This friend was having trouble collecting from his retailer customers, with the result that he had outstanding receivables of $20,000. Did I have any advice as to how he could collect better?

Collections is the lifeblood of any small business. It’s easy to get intimidated by big customers’ payment processes, or get distracted by other urgent matters in the business. You can also lose confidence in the value you’re delivering to customers. The result is tolerating slow-payers, short-payers, or no-payers. I have three words of advice for you if you’re in this situation:


At my last full-time job I ended up being the collector of last resort, which was a bit stressful, but also rewarding when I was able to collect on a long-overdue, big invoice. I also helped a lawyer friend unstick a bunch of payments tied up in the bureaucracy of his state government customers.

My experience taught me that collections is 1/3 attitude (If I give you service, you need pay me), 1/3 strategy (invoice timely, and don’t delay on collections activities), and 1/3 raw tactics.

I wrote up a simple procedure for my brother-in-law to share with his friend, and I thought it might be useful to print here.

Simple Collections Process:

Recommend setting these reminders automatically in QuickBooks. Be especially vigilant of new clients, with whom you don’t have a payment history. The longer you take to collect, the less chance you’ll collect 100% of your invoice. This process stops, of course, when you receive full payment for the invoice.

Day 1: Invoice, net 30. (If payment terms are shorter or longer, adjust timing of following steps accordingly.) Send invoices by email if possible, rather than snail mail, to save some time.

Day 20: Courtesy letter/email. “Making sure you got invoice; any questions, any disputes?”

Day 30: Call. Payment now due. Have you sent it? If not, what is holding up the process? Any questions? When will you send it? Try to ask closed-ended questions to eliminate ambiguity, such as: “You’re telling me, then, that the payment has been approved and a check is being cut Tuesday?” Ambiguity in payment processes helps the payer, not the collector. [If client blames his accounts payable process for the delay, ask him/her to detail that for you. Who approves what? What is the next step? Etc. Then you can follow up on individual steps… but if the amount is not large, say less than $10,000, you shouldn’t have to get involved in this level of complexity.]

Day 45: Follow-up Call. Where is payment in process? When can I expect it? What if anything is holding it up? Is there anyone else I need to talk to to get this moving? (The last question often spurs people to action.)

Day 60: Letter. Demand payment. Reinforce that you have provided value and that value must be repaid. Refer to contractual terms (ability to terminate contract, cease providing services) if appropriate.

Day 90: Registered letter. Demand payment immediately. Make it clear that you will not service clients who don’t pay. Don’t sell any more to this client (assuming your contract allows this) until all old amounts are paid. If they hold unpaid inventory, demand that it be shipped back to you. Consider moving past due amount to bad debt.


— if client wants new products or services from you, make sure payments are up to date before shipping new product or doing any new services. Make new shipments contingent on receiving past payments.

— if client promises to send a check “Monday,” call on Monday to ensure it was sent as promised.

— the client’s cashflow issues are not your problem. If they bought your product, got value from it, they need to pay. It’s the most basic transaction of business. Let them short-pay someone else.

— always assign payments to oldest outstanding invoice. That is, don’t let them pay the current invoice but keep the older ones unpaid. If they send a payment, they pay the oldest ones first.

If you have any suggestions or recommendations to improve this process, please post them in the comments. Businesspeople everywhere will appreciate it.

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