A collection policy is a written set of rules that defines how a business collects overdue invoices: the payment terms, the reminder schedule, when late fees apply, and the steps that follow if an account stays unpaid. It gives staff a consistent playbook and gives customers clear, fair expectations, which is what keeps cash coming in without damaging relationships.
Without one, collections depend on whoever happens to chase, and customers get treated inconsistently. A documented policy turns that into a repeatable process anyone can run.
It is your collections playbook.Terms, reminder timing, late fees and escalation steps, written down.
Consistency is the point.Every customer is treated the same way, so chasing is fair and predictable.
Firm but fair.A good policy protects cash flow while keeping customer relationships intact.
A practical collection policy covers six things. Use these as the section headings when you write yours.
Payment termsStandard terms (e.g. net 30), accepted methods and any deposits.
Reminder scheduleWhen reminders go out before and after the due date.
Late fees and interestThe charge, when it starts and the wording you will use.
Escalation stepsWho acts, and when accounts move to a final demand.
Stop-credit and recoveryWhen to pause supply or hand off to collections or legal.
Roles and exceptionsWho owns collections and how to handle disputes or hardship.
A short, plain-English starting point you can copy and adapt. Replace the bracketed values with your own.
Collection Policy: [Company Name]
Payment terms. Invoices are due within [30] days of the invoice date. Accepted payment methods are [bank transfer, card, direct debit].
Reminders. We send a reminder [3] days before the due date, on the due date, and at [7] and [14] days overdue.
Late fees. Accounts unpaid after [14] days may incur a late fee of [1.5%] per month on the outstanding balance, applied in line with our terms.
Escalation. At [21] days overdue the account is escalated to [role] for direct contact. At [30] days a final demand is issued.
Stop-credit and recovery. Further supply may be paused at [30] days overdue. Accounts unresolved after [45] days may be referred to a collections agency or for legal recovery.
Disputes. Any query must be raised within [7] days of the invoice. Disputed amounts are paused until resolved; undisputed amounts remain due.
For questions about this policy, contact [billing contact].
The reminder and escalation steps in your policy are exactly what tools like automated reminders and escalations are built to run. For the late-fee section, see ready-made wording in our late fee policy wording examples, and pair this with a clear dunning cadence.
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