Collections outsourcing: how it works for B2B invoices

First-party collections start around the due date and run while the customer still expects to keep working with you. The provider writes from your address and in your voice, asks for a payment date, sorts out what is blocking payment such as a missing PO or a wrong contact, and follows up if a promise is missed. The customer may never know someone else is involved.

Third-party collections usually start once an invoice is months late and earlier follow-up has failed. The agency contacts the customer in its own name, and the customer knows the debt has been passed on. It can recover money, and it generally ends the relationship.

The two are not alternatives so much as stages. Good first-party work means fewer invoices ever reach the second stage. Our page on collections software covers the tools used for the first.

• Monthly fee. Common for first-party services and software. Predictable, and the provider is paid whether or not a given invoice is collected.
• Hourly. Common for freelancers and offshore teams. You pay for time, so check what gets done in it.
• Per invoice or per account. Some services charge for each invoice or customer they work.
• Contingency. Common for agencies: a percentage of what they recover, often higher for older or smaller debts. You pay nothing if nothing is collected, and a share of everything that is.

Contingency looks attractive because there is no fee up front. For invoices that would have been paid after a couple of polite emails, it is the most expensive option, because you give up a share of money you would have collected anyway.

• AR firms, onshore or offshore, that run follow-up as part of a wider receivables service. See accounts receivable outsourcing for how these compare.
• Bookkeepers and accountants who add chasing to the work they already do for you.
• Freelancers and virtual assistants working a few hours a week from your process.
• Software with people behind it, where an AI agent does the routine follow-up and a team handles the cases that need judgement.
• Collection agencies, for third-party work on old debts.

1. Whose name is on the emails? For first-party work it should be yours, from your address.
2. What will they say? Read the templates. Firm is fine. Threats, invented deadlines or anything you would not say to the customer's face is not.
3. What stops the chasing? A payment, a dispute or a promise should each change what happens next. Nobody should be chased for money they already paid.
4. Who decides on disputes and payment plans? That should be you, or someone you have given authority to.
5. How do you see what happened? Every email, reply and promise should be visible to you against the customer and invoice.
6. What happens to the data? Know what access they need to your accounting system and inbox, and how it is removed.

Outsourcing collections makes sense when following up takes more time than anyone has, when invoices slip past due because nobody noticed, or when the person doing it is the owner or a senior manager whose time is worth more elsewhere.

It makes less sense when a handful of invoices are late each month and a short, regular habit would keep on top of them. Our guide to asking for payment politely has wording for doing it yourself.