Accounts Receivable
Collecting on Overdue Invoices: A Step-by-Step Escalation
Short answer
A clean four-step escalation — friendly text, phone call, formal demand letter with late fee, then collections or small claims — recovers 85%+ of overdue invoices on its own. Most never get past step two.
Collecting is uncomfortable, which is why most owners avoid it until 90 days have passed and recovery rates collapse. The fix is a written sequence you run every time, no emotion required.
The escalation
- Day +1: Friendly text. 'Hey [name], invoice #1234 was due yesterday. Quick link to pay: [URL]. Let me know if there is any issue.'
- Day +7: Phone call. Tone: helpful, not adversarial. Confirm they received it, ask if anything is blocking payment, set a hard date.
- Day +14: Formal email + mailed letter. Reference late fee, attach updated invoice, set a final date 10 days out.
- Day +30: Final notice — services paused, late fee added, collections or small claims next.
- Day +45: Send to collections agency (they keep 25–40%) or file in small claims (best for amounts under your state's limit, typically $5–10k).
Frequently asked questions
When should I charge a late fee?
Whenever your invoice terms disclose it. 1.5% per month (18% APR) is standard and enforceable in most states.
Is small claims worth it?
Yes for clear-cut amounts under your state limit. Filing fee is ~$50–100 and you do not need a lawyer.
Cash flow you can see.
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Sources & further reading
Primary sources we consulted when writing and reviewing this guide.