The Accounts Receivable Collections Process: Step by Step

Quick Summary

• The process starts before the invoice exists, not at the first reminder
• Most of the wins come from the first two stages: a correct invoice, delivered properly, followed by a pre-due confirmation
• The DPD ladder is a skeleton. Days past due sets the default, account context decides what you actually do
• Escalating means widening contacts, raising seniority, and formalizing. Volume isn't a form of escalation
• A disputed invoice leaves the dunning cadence immediately and goes to resolution, because chasing it corrupts both the relationship and your aging report
• Deductions are a separate discipline from lateness, needing reason codes, a fast validity call, and an upstream fix
• An unpinned promise is a customer buying three weeks of silence. Get the amount, the date, and the method
• The FDCPA doesn't govern B2B collections. It covers consumer debt, whoever is collecting

Reaching final notice should be rare. When it's not, the problem almost always started further up the trail.

The collections process at a glance

Most collections advice starts at "send the first reminder." That's already too late.

The real process starts before the invoice exists and runs all the way to the rare write-off. It has four stages:

• Before the invoice: set credit and terms, and get the invoice right
• Around the due date: confirm the invoice will be paid before it's late
• Past due: a ladder of escalating dunning, driven by behavior and risk
• End of the line: final notice, then agency, legal, or write-off

Most of your wins come from the first two. The escalation ladder gets all the attention, but the cheapest payment to collect is the one that was set up to land on time.

Two notes before the detail. DPD means days past due, and it's the unit this chapter works in. Dunning is the industry term for the reminder sequence itself, used throughout this guide.

The mindset that works is that you're getting a customer paid, not chasing a debtor. It shows up in your results.

Stage 1: Before the invoice

Collections starts before anything is owed.

Credit and terms at onboarding

Know who you're extending credit to, how much, and on what terms. Set a limit, assign a risk tier, and write terms that reflect both.

A customer you should never have put on net 60 is a collections problem you created for yourself. The risk tier you set here drives everything downstream: how fast you escalate later and whether you require a PO or payment up front.

What has to be right on the invoice

The cheapest collection of all is an invoice that was correct and delivered properly the first time.

Check these before it goes out:

• The right amount, legal entity, and payment terms
• The correct purchase order number, where the customer uses POs
• The right contact, and the delivery channel that customer actually accepts
• Clear remittance details, so the payment can be matched when it arrives
• A working payment link, or complete bank details

Get one of these wrong and you spend weeks chasing a problem that took seconds to create.

Delivery, including the AP portal

Sending an invoice and delivering an invoice are different things.

Where a customer mandates a portal like Coupa, Ariba, or Tipalti, that portal is the only channel that counts. Upload in their required format, attach the valid PO, and confirm it registered rather than assuming it did.

An invoice sitting in someone's inbox instead of their AP portal was never payable, so it can't be late.

Stage 2: The pre-due confirmation

The most valuable step in the process is also the one almost everyone skips. 3 to 7 days before the due date, send a confirmation: a check-in, not a chase.

"Just making sure you've got everything you need to pay this on time."

That single touch quietly confirms four things:

• The invoice was received
• The PO matches
• It landed in the right AP portal, in the right format
• You're talking to the person who will actually process it

Most late payment is decided here, before the invoice is ever late. Catch a missing PO now and you save the entire past-due cycle later.

Stage 3: The past-due escalation ladder

When an invoice goes past due, you climb a ladder. Each rung assumes good faith one notch less than the last, and none of them tip into aggression.

The tone arc runs collaborative → factual → firm → formal.

Escalating is widely misread as sending the same message more forcefully. It means three specific things:

• Widening: adding contacts you weren't talking to before
• Raising: moving up the AP chain, from clerk to AP manager to controller to CFO
• Formalizing: written notices, stated consequences, and dated deadlines

Volume isn't on that list.

There's a fourth direction teams forget, which is sideways. Your CSM, account manager, or sales rep may have a route into the customer's finance team that AR will never find alone.

Here is the default ladder at a glance:

Treat those bands as a default skeleton. How fast you climb and how hard you press depend on the account and the balance at stake. Chapter 4 covers how to segment for that.

T-0 (due date)

A neutral, factual reminder on the day it falls due. No pressure and no suggestion that anything has gone wrong, because nothing has.

"This is due today, here's the link to pay."

Include the invoice, the amount, and a working payment link. If the customer pays in batches, this is the touch that gets you into the current run rather than the next one.

1 to 7 DPD

A gentle nudge that assumes an oversight, because it usually is one. Warm tone, no edge.

"Looks like this one slipped past its due date, here's the link whenever you're ready."

Most invoices that clear at this stage were never really a collections problem. If it doesn't clear, you have learned something: an oversight would have been fixed by now, so something is actually in the way.

8 to 15 DPD

Firmer, and a second touch. The ask changes here, from payment to a commitment.

"When can we expect payment on this?"

You're moving the customer from vague intention to a specific date. If you get one, pin it down properly, covered further down this page. If you get silence, ask directly whether there's a query nobody has told you about, because an unraised dispute is a common cause of quiet at this stage.

16 to 30 DPD

Widen and raise. Bring in more senior AP contacts, and anyone on your own side with a relationship into the account.

Reference real consequences, such as late fees or a credit hold, but only ones you'll actually follow through on. A threat you don't execute teaches the customer that the rest of your process is theater.

This is where a phone call earns its keep, if you have a real number for a real person.

31 to 60 DPD

Formal. Issue a past-due notice carrying the amount, the age of the debt, and a dated deadline.

Open a payment plan conversation if the customer is willing and the underlying problem is cash rather than dispute.

Send a restriction warning before you apply any restriction, never after. The warning collects more than the restriction does.

60+ DPD

Final notice, then a decision. By this point you should already know which way the account is going, because you climbed deliberately rather than sending the same email louder for two months.

Stage 4: Final notice, agency, legal, and write-off

If the ladder runs its course without resolution, you reach the end of the line.

Choosing between agency, legal, and write-off

Three routes, and the right one depends on the size of the balance and whether recovery is realistic.

This stage should be rare. If a lot of accounts reach it, the problem is usually upstream, in credit decisions or in a dunning cycle that started too late.

For tooling that supports this end of the process, see our guide to debt collection software.

A note on compliance

The most common error in B2B collections content is implying that the Fair Debt Collection Practices Act shapes your process. For commercial collections, it generally does not.

Two separate tests get confused here:

• What kind of debt it is. The FDCPA and Regulation F cover consumer debt, meaning obligations incurred for personal, family, or household purposes
• Who is doing the collecting. Within consumer debt, the FDCPA primarily targets third-party collectors rather than original creditors

Commercial B2B debt fails the first test, so the second never comes into play. The first-party versus third-party distinction is real, but it's not what puts B2B outside the FDCPA.

That doesn't leave commercial collections unregulated. State law and your contract terms still apply, along with any industry codes you've signed up to. Some large companies also choose to hold their B2B collections to consumer-grade standards as internal policy, which is a deliberate choice rather than a legal requirement.

For UK readers, the Late Payment of Commercial Debts (Interest) Act 1998 is a real collections lever:

• Statutory interest at 8% above the Bank of England base rate, which applies automatically to qualifying commercial debts even where the contract says nothing about it
• Fixed compensation per invoice: £40 for debts under £1,000, £70 for £1,000 up to £10,000, and £100 for £10,000 and above
• Reasonable recovery costs on top of the fixed sum, where your actual costs exceed it

One detail that gets misapplied: the base rate used is the one in force on the preceding 30 June or 31 December, not the rate on the day you run the calculation.

This is general information rather than legal advice. Rates and thresholds change, and they vary by jurisdiction. Verify what applies to your business before acting on any of it.

Run collections with the account team, not around them

The AR team rarely owns the customer relationship alone. The account team carries context and standing that AR doesn't, and a clumsy chase can undo months of their work.

So check before you escalate. If the CSM has a business review with that customer on Thursday, you don't fire a restriction warning on Wednesday. You hand the ask to the CSM to raise in the room, or you wait.

The account team should be able to see what AR is about to do and say either "hold off, I've got this" or "let me introduce you to the right person in their finance team."

That handoff is routinely worth more than another email.

The failure mode is mundane and expensive. The CSM agrees a 2-week extension on an email thread ahead of a renewal, AR never sees it, and the scheduled restriction warning fires anyway. You have now threatened a customer days before they re-sign.

The stale record caused that, and no amount of chasing would have fixed it.

When a customer promises to pay and doesn't

A broken promise is rarely the customer's fault alone. Usually nobody pinned the promise down, and nobody circled back on the day.

Pinning the promise down

"Soon" is a promise with no rope on it. Get three things every time:

1. the amount
2. the date
3. the method

"So we'll see the full $12,400 by Friday the 27th, by bank transfer, correct?"

Then schedule the follow-up for the day after the promised date. This is where humans reliably fail. They forget to circle back, and the customer learns that promises cost nothing. Chapter 6 covers why this is the first thing worth automating.

When it breaks

Name it without accusing.

"You'd mentioned the 27th, just checking in since we haven't seen it land. What's changed?"

Nine times out of ten this surfaces a real blocker, usually a dispute they never raised or a PO that never got issued. You can't fix what you haven't surfaced.

A second broken promise is data. Stop accepting verbal-only commitments and require a partial payment now or a written, scheduled plan.

Track promise-kept rate per customer. It's one of the earliest risk signals available, well ahead of DSO.

Structuring a payment plan that holds

When you do move to a plan, make it real. Four components:

• A down payment up front, so the customer has something at stake from day one
• A written schedule of dated installments, rather than a vague monthly intention
• The payment method fixed in advance, ideally direct debit or a scheduled transfer
• A stated default trigger, where a missed installment snaps the full remaining balance due

A plan without a down payment and a default clause is just a slower broken promise.

See how Lunos solves this

Pinning down a promise is easy. Remembering to circle back the day after, on every account, is where humans fail. The Lunos collections agent logs the amount, the date, and the method from the customer's own reply, then follows up the moment a promise slips.

Handling disputes and deductions

A dispute leaves the chase loop

The moment a customer raises a dispute or a query, the invoice comes out of the dunning cadence and goes to resolution. Chasing an invoice the customer has disputed is the fastest way to destroy trust in your whole collections process:

1. It tells the customer you aren't listening.
2. It corrupts your numbers.

A disputed balance shows as delinquent when it's actually blocked, which inflates your aging and hides where the real risk sits.

Send a holding reply the same day, even before you have the answer, and loop in whoever owns it. Then measure how long disputes take to clear. A slow resolution process quietly fills your past-due buckets with money that was never really late.

Deductions are a separate discipline

A customer who short-pays has taken a deduction. They have decided that part of the invoice isn't owed and paid the rest.

That's a different situation from lateness, and a dunning notice is the wrong response to it.

The types worth coding separately:

• Pricing or quantity discrepancy: the invoice doesn't match what was agreed or what arrived
• Trade or promotional deduction: an agreed allowance, rebate, or co-op marketing claim
• Unauthorized deduction: taken with no agreement behind it
• Shortage or damage claim: goods missing, short-shipped, or unusable on arrival
• Chargeback: a compliance or logistics penalty applied by the customer

Each one needs a reason code, a validity call, and a resolution path.

Triaging valid against invalid

Speed matters more here than being right on any individual item.

Valid deductions get approved and written off cleanly. Arguing a legitimate $200 allowance destroys goodwill for pennies.

Invalid deductions get documented and collected back, with the supporting evidence attached to the claim.

The skill is deciding which is which quickly, because an unresolved deduction ages exactly like a real receivable. It sits in your aging, inflates DSO, and eats collector time that should be going elsewhere.

In deduction-heavy sectors such as CPG, food and beverage, and anyone selling into large retailers, deduction volume is high enough to justify dedicated headcount rather than being absorbed into collections.

Fixing the cause, not just the item

A rising dispute or deduction rate is a signal about something upstream.

The usual sources: a pricing table that doesn't match the contract, an invoice template missing a field the customer requires, a fulfillment problem generating shortage claims, or terms that sales agreed and finance never saw.

Resolve the item, then fix the source. Otherwise you pay to resolve the same dispute every month.

Every step on this page, run for you

Lunos sends the pre-due confirmation, climbs the ladder at the right pace for each account, and pulls disputed invoices out of the cadence the moment a query lands. Book a demo to see the whole process running on autopilot, with your team approving every move.