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How To Collect Past-Due Accounts (Step-By-Step)

Do you wonder how to collect past-due accounts owed to you or your business?

You have rendered a service or shipped a product but your client has failed to pay you! 

You can no longer wait for payment and need to collect your money asap!

If you are in this situation, we have some guidance and tips to share with you.

In this article, we provide you with a description of how you could legally collect past-due accounts for your business, step by step. We will look at tracking your aging account receivables, quickly engaging with your client, using clear and effective language, following up continuously, speaking to key stakeholders, hiring a debt recovery law firm and more.

This article is divided as follows:

Let’s get started!

Track Your Aging Account Receivable

To manage and collect your past-due accounts, you will need to track your aging account receivables.

It’s so frustrating to know that you have rendered a service, delivered a product or extended credit in good faith and now you are not being rightfully paid.

Small and large businesses may carry thousands, if not millions, in money sitting in their account receivables potentially resulting in bad debt.

Don’t let that happen to you.

By constantly tracking your aging receivables, you can track which accounts are past-due and which ones are hitting thresholds requiring you to take immediate action.

If you wait until your account is 90 days old before starting your collection campaign, you may realize that you are fighting an uphill battle.

Ensure your business implements appropriate processes to track account receivables and diligently initiate collection strategies as soon as your invoice is past-due.

Quickly Engage With Your Clients

Your speed of execution in engaging with your clients or companies owing you money will dramatically improve your ability to collect your past-due accounts.

Statistics show the following, you have:

  1. 90% chances of collecting your account receivable after 30 days have passed
  2. 74% chances of collecting your account receivable after 90 days have passed
  3. 50% chances of collecting your account receivable after 180 days have passed

As you can see, the sweet spot is to collect within 60 days.

If you start your collection process and only start engaging with your client when your account has hit 90 days, you should statistically expect to lose half of what’s owed to you.

Think about it, that’s a 50% loss to your business that could have been avoided.

Use Clear And Effective Language

Using clear and effective language in your collection process.

Even though your delinquent customer may be a pain, you still want to make sure you use proper language carefully selecting your words to ensure you encourage your client to pay.

According to Freshbooks, being polite increases your chances of getting paid by 5%.

This is quite interesting.

Not all customers can be treated the same way of course.

Some clients are normally very good and have missed a payment for the first time and others are usual suspects appearing on top of your aging report every single month.

You want to cater your language to the specific nature of your customer to maximize your chances of collecting your money.

Follow Up Persistently 

One trick that works well is a constant and persistent follow-ups.

Make sure you let your customer know that they are late in paying.

Follow up with them to see if they need any help with their invoice.

Do they have any questions or need further clarifications.

Take the lead with your delinquent customer.

Follow up with your client on a regular basis.

Remind them over and over that they must settle your fees so they end up wanting to settle your account just to get you out of the picture.

Keeping constant pressure on your delinquent customer will give you results.

Either you know that they will pay you or you know that they are playing delay tactics to extend their payment term or avoiding payment altogether.

Since you’ve been constantly following you, you will be able to quickly assess how to advance in your collection strategy.

Provide Clients With Payment Discounts or Payment Plans

Quick payment discount

With some of your customers, you’ll know that you may not be able to collect your money in full.

It may be worth considering giving a payment incentive to some of your delinquent customers. 

For example, if a customer owes you $10,000, you can give them a 20% discount if they make a payment within the next 10 days.

By getting an important discount, perhaps your customer will find it worth it to settle your invoice.

Some of your customers are just difficult customers to deal with.

They will give you a constant runaround when it’s time for you to get paid.

You should be careful not to give discounts too often signaling that you will reduce your fees if they give you a hard time.

You want to make sure that your discounting strategy is used to prevent a major loss of account receivable or perhaps to conclude a deal definitively for a customer.

Payment plans

In some other cases, a payment plan could also work out just fine.

Using the same example, if your client owes you $10,000, you can split up the payment in four or five installments so they can settle it in the next four to five months. 

Perhaps your client is experiencing cash flow problems and with a payment plan, they can better absorb paying your outstanding fees. 

Ideally, you should not agree to a payment plan for longer than six months.

If you reach an agreement on a payment plan, put in writing to ensure you are protected.

Giving a discount to incentivize your client to pay you quickly or a payment plan is a strategy to avoid writing off your account as bad debt or seeing your money lost in full. 

It’s not ideal, but it may be better to collect something than nothing.

Contact Key Stakeholders

It may not be as straightforward to collect your account.

Perhaps it’s a strategic customer owing you money.

Perhaps you’ve enjoyed a long-standing relationship with this customer and it’s been a year or two that they are giving you a hard time.

Or even you know that your client is going through a rough time and you are stuck not able to collect what’s owed to you.

Collecting an aged account receivable is not simple, but it must be done.

After you’ve tried all the possible tricks and tactics to collect your money, it may be worthwhile for someone in your company to reach out to a good contact in your delinquent client’s company.

Perhaps, by speaking to a good contact or a key stakeholder, you may be able to get the conversation going so you get paid.

Give it a shot, you have nothing to lose at this point.

Send Payment Notices

You have tracked your account receivable aging report, you contacted your client for payment when it went past-due, you did all the communications possible and you followed up.

Still, no payment!

This is where you need to elevate the stakes.

It’s time to let your delinquent customer know that you are serious about collecting your fees.

You should send a formal letter, signed by your controller, VP Finance, CFO or even president depending on the size of your account receivable.

In your letter, you inform your client that they must settle their past-due account failure of which you may transfer the matter to your external legal counsel to legally collect what’s owed to you. 

This letter should be generally sent by registered mail in original and a copy to your customer by email.

You should make sure that you have proof that they have received your letter.

Evaluate Your Relationship To Decide On Next Collection Steps

The final internal step you should consider is to evaluate your relationship with your delinquent customer and decide if you would want to legally pursue the matter.

You must recognize that if you pursue the matter legally, you may burn the bridges with your customer.

In some cases, the decision is easy.

If you had a one-time deal with this customer and have no future with them, it may be easier to decide to legally pursue the matter.

If you had a long-standing relationship with this customer, you’ll need to weigh the pros and cons of pursuing the matter legally.

If you decide that you have more of an advantage to pursue the matter legally, then you’ll need to hire a debt collection law firm to handle the case for you efficiently.

Hire A Law Firm To Collect Your Money

The final step in your debt collection journey to have your delinquent customer pay your past-due account is to hire a law firm to legally pursue the case.

A law firm or a debt recovery lawyer can be of great assistance as they can employ pressure tactics to have your client pay.

Typically, the law firm will send a final written notice to your customer advising them that they have been retained as counsel and they intend to pursue this matter.

They will give your client a final chance to pay the amounts due before filing a legal application in court.

If your client does not want to litigate the case, then they’ll reach out to your lawyers and find a way to negotiate and resolve the case.

If your delinquent customer does not collaborate or respond to your lawyers, the lawyers will immediately file a claim in court enforcing your contractual rights or seeking payment for what you are owed.

This is an important step as your client will have no choice now but to retain the services of their own lawyers to defend the case.

If they are cash-strapped, they’ll prefer to pay you some money to get rid of the lawsuit.

If they have money to spare, then they’ll need to find concrete and convincing reasons why they should not pay you.

In some cases, the delinquent customer will file a defense or even a counter-claim to level out the playing field hoping that you will also consider lowering your price point to settle the case.

If your case gets settled then you’ll get your money.

If not, you’ll proceed to trial and have the court render a judgment ordering the defendant to pay your money.

When you have a judgment in your hand, you can then execute it against the defendant.

That’s the power of legally pursuing your case.

Value of Hiring Our Debt Recovery Lawyers

Our law firm is experienced in dealing with debt collection, recovery of account receivables, enforcement of contractual obligations to pay and legally try non-payment cases.

We will speak to you to find a suitable fee arrangement where we can successfully pursue the collection of your claim in such a way that you get your money fast and in an affordable way.

Should you wish that our debt recovery lawyers support you with your case, reach out to us and we’ll be happy to assist you.


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