A collections process is a systematic strategy for recovering overdue payments, involving steps like invoicing, tracking, sending reminders, negotiating payment plans, handling disputes, escalating follow-ups (calls, letters, emails), potentially adjusting credit, and finally referring to agencies or legal action if needed, all while aiming to maintain customer relations and improve cash flow.
Key Stages in a Typical Collections Process
Invoice Generation & Sending: Accurate, timely invoices with clear terms are sent.
Payment Tracking: Monitoring paid, due, and overdue invoices.
Reminders & Dunning: Automated or manual notices (email, mail, text) sent before and after the due date.
Customer Contact: Calling customers to discuss overdue amounts.
Negotiation & Arrangements: Settling payment plans or installment agreements.
Dispute Resolution: Addressing any customer disagreements about the invoice.
Escalation: Increasing intensity of follow-ups for persistent non-payers.
Credit Adjustment: Modifying credit limits based on payment behavior.
Referral: Sending accounts to third-party collection agencies or legal action if internal efforts fail.
Goals of the Process
Revenue Recovery: Convert delinquent accounts into cash.
Cash Flow: Ensure steady influx of owed money.
Customer Retention: Balance debt recovery with maintaining relationships.
Legal Aspects (US Context)
Regulated by laws like the Fair Debt Collection Practices Act (FDCPA) to prevent harassment, abuse, or misleading tactics.