Ask a founder why receivables are slow and you will usually hear that customers pay late. Look at the actual ledger and a different picture shows up. A handful of invoices are genuinely disputed. Most of the balance is invoices that were sent, never followed up on, and quietly aged past sixty days because following up was nobody's job in particular.
That is good news, because a process problem is fixable in a week. Here is what the process looks like.
Fix two policies before you fix the process
Chasing harder does not help if the terms invite lateness. Two decisions do most of the work:
1. Decide what your terms actually are
Net 30 written on an invoice and net 45 tolerated in practice is really net 45, and everybody involved knows it. Pick the number you will actually enforce. Shorter is usually better than you expect: net 15 is normal in plenty of service businesses, and the client who cannot do net 15 will tell you, which is information.
2. Decide who is allowed to keep buying
A customer ninety days past due who can still place orders has learned exactly what your terms mean. Set a threshold where new work pauses, write it into the agreement, and make sure the person who takes orders can see the balance.
If nobody in the company can name your payment terms without checking, you do not have payment terms. You have a suggestion.
The seven touchpoints
The core of a working process is a schedule, applied the same way to everybody, mostly before the invoice is late.
- At delivery. The invoice goes out the day the work is accepted, not at month end. Every day of batching is a day of float you gave away for free.
- Three days after sending. A short receipt confirmation. Not a chase. You are checking it arrived, reached the right person, and matched a purchase order if they use them. Most disputes that surface at day sixty were visible at day three.
- Seven days before due. A friendly note with the invoice attached again. This one collects more money than any other message in the sequence, because it lands while the payment run is still being built.
- On the due date. Short, factual, no apology.
- Seven days past due. Now you ask a question rather than send a reminder. Is there anything blocking this. A question needs an answer, and an answer tells you whether it is a process delay or a problem.
- Twenty-one days past due. Escalate sideways, to whoever signed the agreement rather than accounts payable. This is a different conversation and it should sound like one.
- Forty-five days past due. A decision point, not another email. Payment plan, pause on new work, or collections. Pick one and say which.
Most of that sequence happens before the invoice is late at all, which is the point. Collections that start at day sixty are already a recovery exercise.
Who owns it
The most common failure is not the schedule, it is ownership. Founders chase their own invoices badly, because the person who sold the work is the worst person to ask for money and knows it. Sales avoids it for the same reason.
Give it to whoever runs your books, with a rule about when it escalates to the relationship owner. That way the routine messages are routine, and the founder only appears when something has genuinely gone wrong. When the founder appears, it means something.
What to measure
Two numbers, monthly:
- Days sales outstanding. Receivables divided by revenue, times the days in the period. Watch the direction over a quarter rather than the absolute number, which varies by industry.
- The aging bands. Current, 1 to 30, 31 to 60, 61 to 90, over 90. The shape matters more than the total. A balance that is mostly current is a growing business. The same total sitting in 61 to 90 is a problem that has been building for two months.
If most of what is outstanding is over sixty days, the fix is not a better reminder email. Something upstream is broken: invoices going out late, going to the wrong person, or landing without the reference the customer's system needs to pay them.
The invoice itself
A surprising share of late payment is an invoice that cannot be paid quickly. Before blaming the customer, check that yours carries the purchase order or reference number their system expects, names a specific person rather than an accounts inbox, states the due date as a date rather than as terms, lists payment methods with the details filled in, and describes the work in language the approver will recognise from the agreement they signed.
Each of those removes a reason for the invoice to sit in somebody's queue waiting for a question to be answered.
When to stop
Some balances are not collectible, and carrying them makes your numbers worse in two ways. The receivable overstates what you own, and the effort spent chasing is effort not spent on customers who pay. Set a point where you write it off, take the deduction, and stop. Reserving for what you realistically expect to lose is not pessimism, it is the difference between a balance sheet you can plan from and one you cannot.
Getting it running
You do not need software to start. A schedule, five saved email templates and a named owner will move most of what is stuck. Software helps once the volume makes the schedule hard to keep by hand, and most accounting systems will send the first few touchpoints automatically once you have decided what they should say.
Finsightic runs collections as part of the monthly close for the companies we work with, which means the sequence actually happens whether or not anybody remembers. You can see how the monthly work is structured or talk to us about your aging.