Chasing down an unpaid invoice can take away time and resources that could be better served elsewhere in your business. It's important to understand when and how to follow-up on invoices. Obviously you don't want to appear too needy but you don't want your clients getting away with paying late or not at all, either. And when should you get help from a professional collections service?
When exactly is the best time to send an invoice to third party collections?
First vs. Third Party Collections
Let's begin with defining the difference between first and third party collections. Your client's invoice begins with creation by your accounts receivable department. The A/R department then follows up on the collection of what's owed. This is commonly referred to as first party collections because your in house team is actually running down the invoice.
When all attempts by your collections team have been exhausted, then the invoice can be sent to a professional collections agency or third party collections.
What is a Good Collections Process?
A good collections process begins with first party collections via your accounts receivable department. If you consider the move to third party collections as part of your overall collections process, especially if you work with an agency that protects your brand, it doesn't have to put a strain on your business or your client relationships.
Consider the following as a good collections process:
- Before the invoice is due: Send a reminder that the due date is approaching
- On the due date: Resend the invoice and reminder that it's due
- Week past due: Call your client and resend the invoice
- Month past due: Continue to contact, resend invoice, get a commitment to pay in writing
- Over a month past due, up to 90 days: Stop work, continue to contact client, resend invoice with late fees
- Three months past due: Send invoice to third party collections
If you're not able to connect with your client at all, if they refuse to pay or if they simply cannot pay, it is advisable to escalate the invoice to third party collections sooner.
Also, remember to include the following in your agreement/contract/invoice:
- easy payment options
- contact information
- payment terms
- late fees
- consequences for non-payment
To reiterate, there are a few things that would trigger the need for third party collections:
- When all first party collection attempts have been exhausted
- Between 45 to 90 days past due if no contact
- After 90 days past due
- If the client refuses to pay or cannot pay
As a third party collections service, Enterprise Recovery doesn't charge a fee for trying to collect on your accounts. We only charge a contingency fee if we collect on your behalf. We also help to escalate your account to legal review if the account isn't recovered and you'd like to pursue litigation. Learn more about how our collections process works and get started!