Collection policy for a small business: what to write, with a template

Without a policy, late payments get decided by mood. Say an agency has two clients on 30-day terms, both 20 days overdue. One gets a friendly email from the owner, who knows the contact well. The other gets nothing, because the bookkeeper is off that week. Neither client was treated badly on purpose, but the agency has now taught both of them that the due date is optional.

A written policy removes that difference. Every client knows the rules before they sign, and every member of staff follows the same steps. It also protects the relationship. When you say "our policy is a reminder on the due date, then a follow-up after seven days," you are describing a routine, not accusing anyone.

A policy is not a list of email templates, and it is not a step-by-step guide to a particular accounting package. It sets the rules that the templates and the process follow. If the policy says a customer on hold gets no new work until the balance is cleared, the reminder emails only need to say that clearly.

Credit and payment terms

State the terms you offer, such as 14, 30 or 60 days from the invoice date (the invoice terms and conditions guide covers what to print on the invoice itself), and say whether any deposit or stage payment is required before work starts. Then say who can change those terms and in what circumstances. If the answer is "the owner, in writing," put that in the policy.

Invoice timing and due dates

Set a rule for when invoices go out. For example, "Invoices are sent within two working days of completing the work, to the billing contact named on the customer record." A prompt invoice with a clear due date is the easiest way to avoid a late payment, because nobody has to ask when it is due.

Reminder steps

List the steps and the timing for each one. A simple version looks like this:

• A reminder on the due date.
• A follow-up seven days after the due date.
• A personal email from a named manager 21 days after the due date, asking for a payment date.
• A written notice at 30 days, saying what happens next under the agreed terms.

Keep the list short. Three or four steps are easier to follow than ten. The wording for each reminder is in the payment reminder email templates guide, and the stages after the due date are in the guide to collecting unpaid invoices.

Late fees and interest

Only charge a late fee or interest that the customer agreed to in writing before the work started. The rules on what can be charged differ by country and, in the United States, by state, so check the position for your own location before you write any figure into the policy. If you are not sure, leave the fee out and say so in the policy.

When work stops

Decide in advance when new work is paused for a customer with an overdue balance. For example, "New jobs are not started for a customer with an invoice more than 30 days overdue, unless the owner approves it." Stating the rule up front means the decision is about the policy, not about the customer.

Disputes

Say what happens when a customer disputes an invoice. A common rule is that reminders pause, the dispute is logged with the reason and an owner, and the reminder steps restart only once the dispute is settled. Without this rule, a customer can receive a payment reminder for an invoice they have already questioned, which damages the relationship.

Exceptions and who decides

Name the person who can approve an exception, such as a longer payment date, and say that every exception is written down with the reason. Exceptions are normal. What makes them safe is that they are recorded.

Copy this into a document and fill in the square brackets. Keep the final version short enough that a customer or a new member of staff will read the whole thing.

Collection policy for [Company name]
Effective date: [Date]
Policy owner: [Name and job title]

1. Credit and terms
   Standard payment terms are [14 / 30 / 60] days from the invoice date.
   Deposits of [Percentage] are required before work starts on jobs over [Amount].
   Changes to terms must be agreed in writing by [Name].

2. Invoices and due dates
   Invoices are sent within [Number] working days of completing the work,
   to the billing contact on the customer record.

3. Reminders
   Day 0: reminder on the due date.
   Day 7 after due: follow-up email.
   Day 21 after due: personal email from [Name], asking for a payment date.
   Day 30 after due: written notice of the next steps under the agreed terms.

4. Stopping work
   New work is not started for a customer with an invoice more than
   [Number] days overdue, unless [Name] approves it in writing.

5. Disputes
   A disputed invoice is logged with the reason and an owner.
   Reminders for that invoice pause until the dispute is resolved.

6. Exceptions
   Any change to these rules is approved by [Name] and recorded with the
   customer, the reason and the date.

Reviewed: [Date]

1. Write it on one page first. If it runs past two, the rules are probably too detailed to be followed.
2. Check it against your last ten late invoices. For each one, ask whether the policy would have given a clear answer. Fix every gap you find.
3. Put it in front of every new customer before the first invoice, with the terms in the customer agreement or quote.
4. Tell the team who owns each step. The policy only works if a named person knows when a reminder is due.
5. Review it every six months, or after any case that went badly, and record the change.

The most common problem is a policy that says what you hope will happen rather than what you will actually do. The table below shows the difference.

A rule is only useful if someone can apply it on a Tuesday afternoon without asking for help. If the rule needs a judgement call every time, rewrite it until it does not.