Collections management 101: practical strategies for SMEs to get paid faster

Collections strategies for SMEs to get paid faster

When it comes to business finances, cash flow is king. And at the heart of healthy cash flow is effective collections management—the process of ensuring your company gets paid on time, every time. 

But as any CFO or AR manager knows, that’s easier said than done.

Between late-paying customers, invoicing headaches, and chasing down payments, collections can quickly become a bottleneck for your business. The good news? With the right strategies, you can streamline your collections process, reduce outstanding invoices, and improve overall financial stability.

Here’s your ultimate Collections Management 101 guide, packed with practical tips to help you master the art of getting paid.
 

1. Set clear credit and payment terms upfront

One of the biggest reasons businesses struggle with collections is unclear payment terms. Avoid future headaches by setting expectations from the start.

Best practice:

• Clearly outline your payment terms on every invoice (e.g., Net 30, Net 45).
• Require customers to sign agreements acknowledging your terms before extending credit.
• Use plain language instead of legal jargon to ensure customers understand their obligations.

Hot tip: Offer a small discount (e.g., 2% off for payments made within 10 days) to encourage early payments. This technique, known as 2/10 Net 30, can significantly reduce DSO (Days Sales Outstanding).
 

2. Automate your collections process

Manually tracking invoices and sending payment reminders is a thing of the past. Automation tools can handle follow-ups, flag overdue invoices, and even trigger escalation workflows.

Best practice:

• Use accounts receivable (AR) automation software, like Alevate AR (cloud-based) or FS²Collections (SAP-embedded), to send reminders at set intervals (e.g., 7 days before due, on due date, 3 days overdue, etc.).
• Automate late fees to discourage habitual late payers.
• Integrate collections software with your ERP system for real-time tracking.

Example: Companies using automation for collections typically reduce late payments by 30% or more, according to PYMNTS. Serrala’s solutions, for instance, can automate dunning letters and escalation processes to keep AR running smoothly.
 

3. Prioritize high-risk accounts

Not all customers are created equal—some always pay on time, while others are consistently late. Prioritizing high-risk accounts helps you focus efforts where they matter most.

Best practice:

• Categorize customers based on payment behavior (e.g., low-risk, medium-risk, high-risk).
• Assign personal follow-ups to high-risk accounts before invoices become overdue.
• Set stricter credit limits for customers with a history of late payments.

Hot Tip: If a customer repeatedly delays payments, consider requiring prepayment or deposits before fulfilling future orders.
 

4. Make it easy for customers to pay

A surprising number of late payments happen simply because it’s too difficult for customers to pay. Remove friction from the process by offering multiple, convenient payment options.

Best practice:

• Accept digital payments, ACH transfers, and credit cards.
• Enable online payment portals with one-click pay features.
• Offer installment plans for large invoices to make payments more manageable.

Example: A company that switched from paper invoices to digital payment links saw its average payment time drop from 45 days to 18 days—just by making payments easier!
 

5. Strengthen customer relationships (yes, it helps!)

Collections isn’t just about chasing payments—it’s about maintaining healthy relationships. A good rapport with customers increases the likelihood of on-time payments and reduces disputes.

Best practice:

• Assign dedicated AR reps to key customers to personalize communication.
• Regularly check in on customers and understand their financial situations.
• Be flexible with good customers who occasionally need a payment extension.

Hot tip: If a long-time customer suddenly starts paying late, don’t assume the worst. A quick call to check in can uncover issues (like an accounting system change) and prevent unnecessary friction.
 

6. Monitor collections performance with key metrics

To improve collections, you need to measure it. Tracking key performance indicators (KPIs) ensures you stay on top of trends and can adjust strategies accordingly.

Key metrics to track:

• Days Sales Outstanding (DSO): The average time it takes to collect payments.
• Collections Effectiveness Index (CEI): Measures how well you’re collecting receivables.
• Aging Reports: Breaks down outstanding invoices by time overdue (30, 60, 90+ days).

Hot tip: If your DSO is creeping up, it’s time to reassess your collections strategy—perhaps by tightening credit terms or increasing follow-up frequency.
 

7. Have a game plan for unpaid invoices

Despite your best efforts, some invoices will go unpaid. Having a structured approach to handling overdue accounts minimizes losses.

Best practice:

• At 30 days overdue: Send a firm but polite reminder.
• At 60 days overdue: Escalate the matter with a phone call.
• At 90 days overdue: Consider working with a collections agency.

Example: Some businesses use a “final notice” letter at 75 days overdue, warning customers that the account will be sent to collections. This often prompts payment without needing to escalate further.
 

Final thoughts

Collections management doesn’t have to be a constant battle. By setting clear expectations, leveraging automation, prioritizing high-risk accounts, and maintaining strong customer relationships, you can get paid faster and improve cash flow.

Want to take your collections process to the next level? 

Serrala’s AR automation solutions can help optimize collections, reduce manual work, and improve cash visibility. Learn more here.