Accounts Receivable Collections Playbook: Dunning, Disputes, and DSO Reduction
Terms That Prevent Late Pay
Net 15 for new, Net 30 standard, deposits for custom. Pull credit reports over threshold; set limits in system.
Pair with DSO Management, Cash-Flow Analysis, Invoicing, and Month-End Close.
Dunning SOP
| Day | Action | Owner |
|---|---|---|
| -3 | Reminder + portal link | AR auto |
| 1 | Overdue notice | AR |
| 7 | Second notice + late-fee warning | AR |
| 14 | Call + payment plan offer | AR + sales |
| 30 | Manager call, hold new orders | Controller |
| 60 | Collections/legal review | CFO + counsel |
Log disputes separately with root cause (price, delivery, invoice error) and SLA — link to Revenue and E-Invoicing.
Allowance and Write-Offs
Age weekly, reserve specifically, approve write-offs independently, retain support per Audit Procedures and SOX 404.
Tie AR to cash in Bank Rec via subsequent-receipts test.
KPIs
- DSO, % current, dispute age, promise-to-pay kept rate.
- Report to Audit Committee if material.
Dispute Resolution (Where DSO Really Lives)
Overdue balances are usually disputes wearing a collections costume. The five repeat offenders:
| Root cause | Fix | Owner |
|---|---|---|
| Price mismatch (quote vs invoice) | Price-master sync; sales approves deviations pre-invoice | Sales ops |
| Delivery short / damaged | Proof-of-delivery attached to invoice; claim clock starts on delivery scan | Ops |
| Missing PO / wrong cost center | PO required over threshold; invoice blocked without it | AP/buyer |
| Invoice error (tax, address, entity) | E-invoicing validation + master cleanup — see E-Invoicing | AR |
| “Never received” | Portal delivery + read receipts; resend within 24h | AR auto |
SLA: acknowledge in 1 business day, resolve or escalate in 5. Every dispute over 15 days old gets a named owner and next date in the weekly AR meeting. Disputes without owners are write-offs in slow motion — age them into the allowance specifically rather than the general pool.
Early-Pay Discounts: The Math Before the Offer
2/10 net 30 on a $50k invoice: $1,000 discount for ~20 days early = ~36% annualized cost. Compare against your revolver rate (see Debt): if borrowing costs 9%, paying 36% to get cash early destroys value — unless the cash prevents a covenant breach or payroll gap (see Cash Forecast). Rules that keep discounts sane: offer only to slow-but-sure payers (not chronic late payers — they take the discount and still pay late), cap total discount budget monthly, and never discount disputed invoices (it rewards the dispute). Track discount-taken vs on-time rate; kill the program for accounts that abuse it.
Collections Calls That Work (Script, Not Pressure)
- Open with the invoice, not the balance. “Calling about invoice #4821 for $18,400 due the 12th” beats “you owe us money.”
- Ask for the obstacle, then the date. “What’s holding this up — and what date can I put down for payment?” A specific date is a commitment; “soon” is a dismissal.
- Confirm in writing same day. Email recap with amount, date, and payment details. No recap = no commitment.
- Escalate on broken promises, not tone. First broken promise → manager call; second → hold shipments + finance review; third → counsel. Calm, documented, inevitable beats aggressive and forgotten.
Log every touch (date, channel, promise, next action) in the AR system, not inboxes — collectors change, logs persist. Review promise-to-pay kept rate weekly; below 70% means the dunning is noise and the terms, credit checks, or customer mix need fixing upstream.
FAQ
Should we offer discounts for early pay?
Only with cost-of-capital math and controlled terms (e.g., 1/10 net 30). Uncontrolled discounts erode margin.
When to use a collector?
After 90 days with documented effort, or sooner for large at-risk balances with counsel review.
Next Steps
- Lock dunning SOP and owners this week.
- Scrub aging and dispute log to current.
- Review allowance before month-end lock.
