To spend less time chasing overdue invoices, check and sort every overdue account before anything is sent. Automate the reminders for the clear cases, where nothing has been paid and nothing is in dispute, and route the rest to a person with the facts attached. The hours go into the checking, not the writing, so that is the part to fix.
Why scheduled reminders alone don’t fix it
Accounting software can already send reminders on a schedule. QuickBooks Online, for example, lets you set a first, second and third reminder, each up to 90 days before or after the due date, and Xero lets you choose when and how often its reminders go out. A schedule knows the due date and the balance. It doesn’t know what your inbox, your bank deposits and your sales team know:
- The customer paid yesterday, and the payment hasn’t been applied yet.
- The customer paid two invoices out of three and explained why in the remittance email.
- A short shipment or a price disagreement sits in an email thread.
- The customer promised to pay on Friday.
- The account is one of your largest, and a form letter would be a mistake.
So someone checks every account by hand first, or the reminders get switched off. A reminder sent to a customer who already paid costs goodwill and a phone call.
A sorting system for overdue accounts
Put every overdue account into one group before anything is sent. You need three sources: the aging report from your accounting system, recent payments (including cash received but not yet applied) and the inbox where customers reply about invoices.
| Situation | How you know | What to do | Who |
|---|---|---|---|
| Clean overdue | No payment, dispute or promise | Send the reminder for its stage | Automation |
| Paid, not applied | A deposit or remittance email | Apply it; send nothing | Accounts receivable |
| Short payment | Paid less than the invoice | Ask why; treat a deduction as a dispute | A person |
| Dispute | Email about price, quantity or damage | Pause that invoice and resolve it | A person |
| Promise to pay | The customer gave a date | Hold until the date, then check | Automation, then a person |
| Key account | Flagged by sales or finance | Draft a note for the owner | Account owner |
| Far past due | Beyond your credit policy | Review credit and any hold | Credit manager |
Write your own version of this table. It becomes the rules an automation follows, and the list of cases that always go to a person.
A sample reminder sequence
Escalate in steps, and set the timing to your terms. For example, for invoices on net 30 terms, a sequence could look like this:
- A few days before the due date (optional): a courtesy note with a copy of the invoice, for new customers or large invoices.
- About 3 days past due: a friendly reminder.
- About 14 days past due: a firmer reminder that asks for a payment date.
- About 30 days past due: a phone call from a person (confirmed by email) and a heads-up to the sales rep.
- Beyond your credit policy: a credit review and a decision on holding new orders.
Here is example wording for steps 2 to 4. The parts in brackets are placeholders; adapt the tone to your customers.
Example, step 2. Subject: Invoice [number] was due on [date]. Hi [first name], a quick note that invoice [number] for [amount] was due on [date], and we don’t show a payment yet. If it’s already on its way, thank you, and please ignore this. If anything on the invoice looks wrong, reply to this email and we’ll sort it out. You can pay at [payment link] or by [remittance details]. Thanks, [your name], [direct phone]
Example, step 3. Subject: Invoice [number] is now two weeks past due. Hi [first name], invoice [number] for [amount] is now two weeks past due. Could you reply with the date we should expect payment? If something is holding it up, tell us what it is so we can fix it. [Your name], [direct phone]
Example, step 4, after the call. Subject: Invoice [number]: confirming our call. Hi [first name], thanks for speaking with me today. As agreed, you’ll pay invoice [number] for [amount] by [date]. I’ll look for the payment that day. If anything changes, please let me know before then. [Your name], [direct phone]
Every message should carry the invoice number, amount and due date, one clear ask, an easy way to pay and a real person to reply to. Send it from an address someone reads, because a reply to a reminder may be the first you hear of a dispute.
How to handle disputes and partial payments
Handle disputes and short payments the day they arrive:
- Log it. The invoice, the amount in question, the reason (price, quantity, damage or terms), an owner and a next date.
- Pause only what’s disputed. Keep following up on the undisputed invoices, and on the undisputed part of a short-paid one.
- Route it to whoever can resolve it. Sales for price, the warehouse for shortages and proof of delivery, customer service for damage.
- Close it. Issue a credit memo or a corrected invoice, or explain why the charge stands. Then restart reminders for whatever is still owed.
For partial payments, apply the cash to the invoices named in the remittance advice, the customer’s note of which invoices a payment covers. If a customer paid less without saying why, ask once and specifically: “We received [amount] against invoice [number]. Can you tell us what the [difference] is for?” If the deduction has a reason, such as damage or a shortage, handle it as a dispute. Decide in advance the largest difference you’ll write off without chasing, and who approves it.
A payment plan is a person’s decision. Once it’s agreed, record the dates and let reminders follow the plan instead of the original due date. Count dispute reasons each month, too: a run of pricing or shipping disputes is a problem to fix upstream, not a collections problem.
Working with sales reps and key accounts
Agree on a few rules with sales in advance:
- Which accounts are key, and who owns them. Keep the list short and written down, so “key account” never becomes a reason not to follow up.
- When reps hear about it. Send each rep a short list of their overdue accounts before the second reminder goes out.
- What reps can promise. Extended terms, payment plans and credits go through finance, even when the rep negotiates them.
- Who decides on a credit hold. Finance decides, tells the rep first and states what releases the hold: a payment or an agreed plan.
For key accounts, draft the note and let the account owner send it or make the call. Ask reps to record what they hear (a new buyer, a dispute, a promised date) as a note on the customer record. And capture the payables contact when you set up a new customer: a reminder sent to the buyer instead of accounts payable can sit unread.
What to automate, and what stays with a person
- The checking. Pull each overdue account’s invoices, payments and recent emails into one view.
- The sorting. Apply your table to put each account in the right group.
- The standard reminders. Draft them for the clean cases, and send them once your team trusts the drafts.
- The handoffs. Send disputes, short payments and judgment calls to a person with everything on one screen.
- Statements. Send monthly statements to accounts with several open invoices.
Keep the rules themselves with a person, along with disputes, payment plans, credit holds, write-offs and anything that touches a relationship.
Kestrel’s agent, now in development, is designed to do the checking and sorting for you: gather each overdue account’s invoices, payments and recent emails, draft the right reminder for the clear cases and route disputes, short payments and key accounts to a person with the context attached. Nothing is sent until your team switches the automation on, and every message is logged. See invoice follow-up automation.
Measure it
Count a baseline before you change anything, then compare month by month.
- Days sales outstanding (DSO): ending accounts receivable divided by credit sales for the period, times the number of days in the period. This is the formula the Credit Research Foundation publishes.
- Average days delinquent: DSO minus best possible DSO, which is the same formula run on receivables not yet due (same source). It shows the days caused by late payment rather than by your terms.
- Overdue balance by age: 1 to 30, 31 to 60, 61 to 90 and over 90 days past due.
- Wrong reminders: reminders sent to customers who had paid or disputed. The target is zero.
- Disputes found early: disputes caught before the second reminder instead of after the third.
- Time spent: hours a week on collections, before and after.
For example, with illustrative numbers: over a 90-day quarter you invoice $1,800,000 on credit and end with $800,000 in receivables, $560,000 of it not yet due. DSO is $800,000 divided by $1,800,000, times 90 days: 40 days. Best possible DSO is $560,000 divided by $1,800,000, times 90 days: 28 days. Average days delinquent is 40 minus 28, or 12 days. Your terms account for 28 of the 40 days; better follow-up works on the other 12.
DSO also moves with sales: a strong sales month raises receivables before anyone pays late. Compare like periods, and watch average days delinquent alongside it.