Summary
The AR collections process is the sequence a business follows to turn a sent invoice into collected cash: invoice promptly, track due dates, send escalating reminders, follow up on late accounts, escalate past 30 days, and reconcile payment when it lands. Consistent timing matters more than the number of steps.
- The core cadence: A friendly reminder before the due date, a polite follow-up in the first week overdue, a firmer notice with a late fee from around day 7 to 14, and escalation past 30 days.
- The metric that matters: Days Sales Outstanding (DSO) measures how long the process is taking; Paidnice customers see half as many late invoices in the first 30 days.
- Where automation helps: Paidnice runs the reminder cadence, late fees and escalation automatically on top of Xero or QuickBooks, so nothing depends on someone remembering to follow up.
This guide is the one-page overview of the accounts receivable collections process: the steps, the reminder cadence, the metrics and the legal limits. For the stage-by-stage email sequence, see the dunning process explained. For what to do at 30, 60 and 90 days overdue, see the invoice escalation ladder.
What are the steps in the AR collections process?
The AR collections process runs seven steps: invoicing, due-date tracking, reminders, follow-up on late payments, escalation, payment reconciliation, and reporting. Each step has an owner and a trigger, and the process fails wherever one of those is missing.
- Invoice creation and delivery. Raise an accurate invoice and send it the day the goods or service are delivered, with the due date, the late-fee terms and a payment link on it.
- Due-date tracking. Watch upcoming due dates so the first reminder is ready before the invoice is late, not after.
- Reminders. Send a reminder before the due date and on it, then firmer reminders once the invoice is overdue.
- Follow-up on late payments. Contact the customer to find out why the invoice is unpaid and agree a date.
- Escalation. For invoices past 30 days, change the action: a statement, a late fee, a message from a director, or a final notice.
- Payment reconciliation. When the payment lands, apply it to the invoice and close it in Xero or QuickBooks.
- Reporting. Review aging and DSO monthly to see where invoices are getting stuck.
The common failures are the same in most businesses: invoices sent late, due dates tracked manually, follow-up that depends on who is in the office that week, and no view of the whole ledger, so the biggest overdue balance is not the one being chased.
How do you build a collections cadence?
A working collections cadence sends a reminder 3 to 5 days before the due date, one on the due date, a follow-up at 1 to 3 days overdue, a phone call or firmer notice at 7 to 10 days, and escalation past 30 days. The dates are fixed in advance, so every customer gets the same sequence and nobody has to decide when to send the awkward email. Our data shows how many reminders an overdue invoice needs and which day to send them.
- 3 to 5 days before the due date: a friendly reminder with the amount, the date and a payment link.
- On the due date: a second reminder if the invoice is still open.
- 1 to 3 days overdue: a polite follow-up that asks for a payment date.
- 7 to 10 days overdue: a phone call or a firmer notice, and the late fee your terms allow.
- 30 days overdue and beyond: a full account statement, then a final notice, then a decision on collections, legal action or write-off at 90 days.
When Paidnice runs this sequence consistently, 8 in 10 invoices are paid within the first 60 days of using Paidnice, and the accounts left are the genuine stragglers. The sample emails for each stage are in the payment reminder email templates, and the 30, 60 and 90 day steps are in the invoice escalation ladder.
Plan 4 follow-ups. When you chase an overdue invoice, it usually takes 2 to 3 follow-ups to get it paid. 6 in 10 are paid by the second follow-up and 8 in 10 by the fourth. About 1 in 10 is still unpaid 180 days after the due date.
How do you keep collections professional?
Effective collections stay factual and courteous: confirm the customer's concern before pushing for payment, document every interaction, and offer a payment plan to a valued customer in temporary difficulty. The tone gets firmer as the invoice ages, but it never gets personal, because the customer is usually a business you want to keep.
Three habits do most of the work. First, keep every message specific: the invoice number, the amount, the due date and the next step. Second, listen before you push. A customer with a dispute or a missing purchase order will not pay until it is resolved, so ask what is holding it up and fix that first. Third, log every call and email against the invoice, so whoever picks it up next knows what was agreed.
For a difficult customer, be firm on the money and fair on the method. Enforce the terms they agreed to, offer a payment plan if they want to pay but cannot clear the balance today, and put the agreement in writing. Sales and finance should share the same view of overdue accounts, so a salesperson is not chasing a new order from a customer who is 60 days late on the last one.
Which collections steps fit your business?
Reminders, statements and escalation change with who pays the invoice and how often you bill.
| Your business | Start with | Watch out for |
|---|---|---|
| Manufacturers | Chase each part shipment on its own due date, with one monthly statement of every open invoice. | Slow trade payers. UK manufacturing waited 37.6 days to be paid in September 2026, against 29.6 for all industries (Xero). |
| Health clinics | A polite reminder and a monthly statement with a pay button for patients, and the full ladder up to a call task for corporate accounts. | A queried invoice. Take that one out of the chase and the rest of the account keeps its schedule. |
| Transport and logistics | Reminders to the shipper's accounts payable team, with the invoice and proof of delivery attached. | A shipper with several sites. Send one consolidated parent statement that covers every site. |
| Commercial cleaning | One statement per property group, with each building linked under the parent account. | The late fee clause. What is allowed varies by state and by your contract, so check your service agreement before you apply a fee. |
What should AR automation software do?
AR automation software should run the reminder schedule for you, sync with Xero or QuickBooks in real time, apply late fees and prompt payment discounts without manual work, send by email and SMS, and show you which customers are likely to pay late before they do. The test is whether the process still runs when the person who owns it is on leave. For the definition and the core functions, see what is accounts receivable automation. Dynamics 365 Finance has its own collections workspace, and where it stops is covered in Dynamics 365 Finance collections.
The features to look for:
- A reminder schedule per customer group, so reliable payers get a lighter touch than repeat late payers.
- A live two-way sync with the accounting ledger, so a paid invoice stops being chased the same day.
- Late fees and interest applied on the ledger, so the fee is a real receivable and shows in the customer's payables.
- Email and SMS reminders sent from your own domain and your own templates.
- Statements, payment plans and a customer payment portal that takes card and bank payment.
- Escalation rules that create a task for a person when an invoice or a customer's total balance crosses a threshold.
- Aging, DSO and forecast reporting that comes from the ledger data, not from a spreadsheet.
Forecasting is the feature most guides describe vaguely. In Paidnice every customer carries a credit score from 0 to 100, built from how they have actually paid, and it moves as their behaviour changes. That score feeds a weekly cash forecast of what will land, based on each contact's expected payment behaviour rather than the invoice due date. The score tells you who is drifting; the forecast puts it on dates.
Where does Paidnice fit in this process?
Paidnice automates the reminder, late-fee, escalation and reporting steps of this process on top of Xero or QuickBooks, so none of it depends on someone remembering to act. You set the terms once, and Paidnice applies them: reminders by email and SMS, late fees and interest on the ledger, statements, payment plans, and escalation workflows that hand a task to a person when an account needs one.
Customers see half as many late invoices in the first 30 days, get 8 in 10 invoices paid within the first 60 days of using Paidnice, and reduce manual chasing by up to 90%. Signing up is free with no card, and the first 20 actions (an email, an SMS, a late fee or an escalation) are free with no time limit.
What legal rules apply to AR collections?
AR collections must follow the debt-collection and consumer-protection rules of the customer's country, which set limits on the interest you can charge, how often you can contact a debtor and the tone you can use. Business-to-business collection is lightly regulated in most markets, but late-fee and interest caps still apply, and consumer debt has stricter rules such as the FDCPA in the US.
The late-fee and interest rules for each market are in our country guides: United States, Canada, United Kingdom, Singapore, South Africa, Australia and New Zealand. Whatever the market, keep a record of every message and payment, and know at what point you hand an account to legal counsel or a collection agency. If the customer has stopped responding altogether, see what to do when a customer ignores invoice reminders.
What metrics measure AR collections performance?
Four metrics matter most: Days Sales Outstanding (DSO), the Collection Effectiveness Index (CEI), the bad-debt-to-sales ratio, and Average Days Delinquent (ADD). DSO tells you how long the process takes, CEI tells you how much of what was collectable you collected, and the other two tell you what you lost and how late the rest was. For benchmarks from real invoices, see our credit control statistics.
| Metric | What it measures | Formula |
|---|---|---|
| Days Sales Outstanding (DSO) | The average number of days from sale to payment. | (Accounts receivable / Total credit sales) × Days in period |
| Collection Effectiveness Index (CEI) | How much of the collectable receivables you collected in the period. | ((Beginning receivables + Monthly credit sales − Ending total receivables) / (Beginning receivables + Monthly credit sales − Ending current receivables)) × 100 |
| Bad debt to sales ratio | The share of credit sales written off as uncollectable. | (Bad debt expense / Total credit sales) × 100 |
| Average Days Delinquent (ADD) | The average number of days invoices are paid past their due date. | DSO − Best possible DSO |
Track all four monthly and set a target for each. A DSO that falls while CEI rises means the process is working. Paidnice customers see half as many late invoices in the first 30 days after turning the reminder schedule on.
Frequently asked questions
What is the process of collection of receivables?
The collection of receivables is the sequence from a sent invoice to cash applied: create and send the invoice, track the due date, send reminders before and after it, follow up on late payments, escalate the accounts that stay unpaid past 30 days, and reconcile the payment when it lands. The process works when each step fires on a fixed date rather than when someone remembers.
What are the steps in the collection process?
The main steps are invoice creation, due-date tracking, reminders, follow-up on late payments, escalation, payment reconciliation and reporting. Reminders and escalation are the two steps most businesses run inconsistently, and the two that automation fixes first.
How do you handle AR collections?
Handle AR collections with a written cadence, one owner per step and a firm but courteous tone. Send the first reminder before the due date, apply the late fee your terms allow from around day 7 to 14, and escalate past 30 days. An app such as Paidnice runs the cadence, the fees and the escalation on top of Xero or QuickBooks, so the process does not stop when the person who owns it is away.
What is the AR aging and collections process flow?
The AR aging and collections process flow groups open invoices by how long they have been outstanding (current, 1 to 30 days, 31 to 60, 61 to 90, and over 90) and sets the action for each bucket: reminders in the first 30 days, a statement and late fee at 30 to 60, a final notice at 60 to 90, and a decision on collections, legal action or write-off past 90. The aging report is the input; the ladder is what you do with it.
Next step: read the dunning process explained for the stage-by-stage playbook and sample emails, or sign up for Paidnice and run the cadence on your own Xero or QuickBooks invoices.
Paidnice features in this article
About the editorial team
Denym started Paidnice in 2022 after customers paying late left his own business short on payroll. He has led it to $1 billion collected on time across more than 1 million invoices, and writes about credit control, late fees and getting paid on Xero and QuickBooks.
Ashley is a co-founder and lead developer of Paidnice and has built accounting software for more than 10 years. He builds the ledger connections that put reminders, late fees and payments into Xero, QuickBooks and ERPs such as NetSuite and Business Central. Before Paidnice he co-founded A2X, ecommerce accounting software for Xero and QuickBooks.
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