How to Write a Collections Policy for Your AR Team
A collections policy sets who follows up, when reminders go out, when accounts escalate and who approves exceptions. Here are the nine sections and a template.
Sia Ghazvinian
Co-Founder & CEO
Table of contents
Share
Most AR teams already have a collections policy. It just lives in three people's heads, and each version is a little different. Atradius found that 43% of credit-based B2B sales in the US were overdue in its 2025 Payment Practices Barometer. Intuit QuickBooks reported that 56% of small businesses were owed money from unpaid invoices, about $17.5K each on average, and 47% had invoices more than 30 days overdue. When that much of the ledger is late, the rules your team follows decide how much cash comes in this month.
A collections policy is a short written document that says who follows up on which accounts, when each reminder goes out, when an account escalates, and who can approve an exception. For a 3 to 5 person AR team, one to two pages is enough. It replaces case-by-case judgment with shared rules, so every account gets the same coverage no matter which collector owns it.
This guide walks through the nine sections a working policy needs, gives you a fill-in template, and shows how to roll it out so the team actually uses it.
What Is a Collections Policy and Why Does an AR Team Need One?
A collections policy is the operating manual for getting paid after an invoice goes out. It sits next to your credit policy, which decides who gets terms and how much. The collections policy picks up from there: what happens on day 1, day 15, day 45, and what happens when a customer disputes, promises, or goes quiet.
The main reason to write it down is consistency across collectors. Without it, one collector calls at 10 days past due and another waits until 40. One grants a 30-day extension on a phone call and another escalates. The customer notices, and so does your aging report.
Signs your team needs a written policy
Two collectors treat the same situation differently and both think they followed the rules.
Escalation happens when someone remembers, not on a set day.
A collector handoff takes weeks because the new owner has to relearn every account.
Sales hears about a credit hold from the customer before it hears from finance.
The team cannot say who is allowed to approve a payment plan or a write-off request.
What Should a Collections Policy Include?
A complete policy covers nine decisions. Each one should fit in a short paragraph or a few bullets. If a section needs a page of its own, it is probably a procedure, and it belongs in a linked document instead.
Policy section | What it decides | Example rule |
|---|---|---|
1. Scope and goal | Which customers and invoices it covers, and the target it serves | All open B2B invoices; goal is DSO within 10 days of average terms |
2. Account ownership | Who owns each account and who covers when they are out | Accounts assigned by segment; named backup for every collector |
3. Account tiers | How follow-up differs by balance and risk | Top 20 balances get a call; the long tail gets email and SMS |
4. Reminder cadence | What goes out, on which day, through which channel | Courtesy note 5 days before due; reminders at +3, +10, +20 |
5. Escalation triggers | When an account moves up a level and to whom | 45 days past due goes to the AR manager; 60 days triggers a hold review |
6. Disputes | How a dispute is logged, routed and closed | Logged same day; routed to the owner of the issue; reply within 2 business days |
7. Promises and payment plans | What counts as a promise and who can approve a plan | Promise needs a date and amount; plans over 60 days need manager sign-off |
8. Exceptions and approvals | Who approves extensions, holds, releases and write-off requests | Collector up to 15 days; manager above; controller for write-off requests |
9. Reporting and review | What the team reviews and how often the policy changes | Weekly aging review; policy reviewed every six months |
The example rules are illustrations, not benchmarks. Set your own numbers from your terms, your customer mix and your current aging.
How Do You Assign Account Ownership on a Small Team?
Every open account needs exactly one named owner and one named backup. Shared ownership sounds collaborative and usually means no call gets made. Most 3 to 5 person teams split the book by customer segment, by region or by balance size, and the article on structuring a collections team of 3 to 5 people covers the trade-offs of each split.
What the ownership section should say
How accounts are assigned, and who reassigns them when the book changes.
Who covers an account during time off, and how the backup finds open promises and notes.
Where account notes live (the ERP customer record, a shared log, or your collections tool), so nothing sits in a personal inbox.
How Should Follow-Up Differ by Account Tier?
Not every invoice deserves the same effort, but every invoice deserves some follow-up. A tier rule makes that explicit. The usual split is by open balance, with a risk flag that can move a smaller account up.
A simple three-tier model
Tier 1, key accounts: the largest balances or most strategic customers. Phone contact at the first sign of slipping, a named contact in their AP team, and a monthly statement review.
Tier 2, core accounts: mid-size balances. Scheduled email reminders plus a call once an invoice passes your second reminder.
Tier 3, long tail: small balances in high volume. Automated email and SMS reminders, with a call only when the total open balance crosses a threshold.
For ranking accounts inside each tier, the method in how to prioritize collections accounts sorts the book by dollars at risk instead of by due date.
What Reminder Cadence Should the Policy Set?
The cadence section should name the day, the channel and the message for every touch, starting before the due date. A courtesy note a few days before the due date catches missing invoices and wrong contacts while there is still time to fix them. After the due date, space the reminders so each one asks for something specific: a payment date, a remittance, or the name of the person who can approve payment.
Your ERP can carry much of this. Microsoft Dynamics 365 Business Central uses reminder terms and reminder levels, assigned to each customer card, with a grace period on each level. NetSuite's Dunning Letters SuiteApp uses dunning procedures and levels that can be assigned to customers or invoices, and dunning can be paused while a query is open. Write the policy first, then configure the system to match it, not the other way around.
If you need copy for each step, the past-due invoice email sequence gives a full set of templates.
When Should an Account Escalate, and to Whom?
Escalation is where most unwritten policies break down. A collector who likes the customer waits. A collector who is behind on the book never gets to it. A written trigger takes the decision off the individual and puts it on the calendar.
Triggers worth writing down
An age threshold: for example, any invoice 45 days past due moves to the AR manager.
A broken promise: a missed promise-to-pay date triggers a same-week call from the account owner.
Silence: three touches with no reply moves the account to a different contact or channel.
A balance threshold: any single account over a set amount past due gets a manager review.
Escalation should also say what happens to new orders. The credit hold policy guide covers when to place and release a hold, and when to escalate an invoice covers the judgment calls at the far end of the aging.
How Should the Policy Handle Disputes and Promises to Pay?
Disputes and promises are the two moments that stop the clock. Handle them loosely and an invoice can sit at "in discussion" for months.
Disputes
The policy should say that every dispute is logged the day it is raised, with a reason code, an owner and a target date. The collector does not have to fix a billing or delivery issue, but the collector does own the follow-up until it is closed. The workflow in how to resolve invoice disputes is a good base for this section.
Promises and payment plans
A promise counts only when it has a date and an amount. Log it, send a short confirmation, and check it the day after. The promise-to-pay tracking guide shows a simple log. For larger balances that cannot be paid at once, set out who can approve a payment plan for a past-due customer and the longest plan a collector can agree to alone.
Who Approves Exceptions?
An approval matrix keeps exceptions fast without making them invisible. List each exception type and the lowest role that can approve it. Keep it to one short table or list.
Short extension: collector, up to a set number of days.
Longer extension or payment plan: AR manager.
Credit hold and release: AR manager, with a same-day note to the account's sales rep.
Write-off request: controller, with the full contact history attached.
Every exception should be logged on the account with the approver's name. That log is what lets you review the policy later with real data instead of memory.
How Do You Roll the Policy Out So the Team Uses It?
A policy that lives in a shared drive and never gets opened changes nothing. Rollout matters as much as the writing.
A five-step rollout
Draft with the collectors, not for them. They know which rules already work and which customers will push back.
Share it with sales leadership before it goes live. Holds and escalation touch their accounts, and a surprise erodes trust fast.
Configure the ERP and collections tools to match. Reminder levels, templates and hold flags should mirror the document.
Tell key customers about any change they will notice, such as a new reminder schedule or a new AP contact request.
Review it every six months. Use the exception log, the aging trend and the AR KPIs worth tracking, including the collection effectiveness index, to decide what to change.
A Collections Policy Template You Can Copy
Use this outline as a starting point. Replace the bracketed items with your own rules.
Purpose: This policy sets how [Company] follows up on open customer invoices so every account gets consistent, timely contact.
Scope: All open B2B invoices in [ERP]. Excludes [intercompany, specific programs].
Ownership: Accounts assigned by [segment/region/balance]. Each collector has a named backup. Notes are kept in [system].
Tiers: Tier 1 = [criteria]; Tier 2 = [criteria]; Tier 3 = [criteria].
Cadence: [Day] before due: courtesy note. [Day] after due: reminder 1. [Day]: reminder 2 plus call for Tier 1 and 2. [Day]: escalation review.
Escalation: [Age] days past due moves to [role]. Missed promise triggers [action]. [Number] touches with no reply triggers [action].
Disputes: Logged within [time] with a reason code and owner; reply to customer within [time].
Promises and plans: Promises need a date and amount. Plans up to [length] approved by [role].
Approvals: [Exception type]: [role]. Every exception logged on the account.
Review: Weekly aging review on [day]. Policy reviewed every [period] by [role].
Where Does Abivo Fit?
The hardest part of any collections policy is coverage. A 3 to 5 person team can write a cadence that touches every account every week and still fall behind by the second week of the month, because calls, disputes and key accounts take the hours first.
Abivo's AI collections agent, Kate, runs the routine part of the policy as written: the scheduled emails, SMS and calls on every open invoice, promise capture, and notes back to your system. Your collectors keep the work the policy assigns to people, such as disputes, key accounts and exception approvals. You can see how that played out for a fire protection and service company in the OFS Group case study, and the broader levers are in how to lower DSO without hiring.
Practical Takeaways for AR Managers and Controllers
Keep the policy to one or two pages; push detailed procedures into linked documents.
Give every account one owner and one backup.
Start the cadence before the due date, and name the day and channel for each touch.
Write escalation triggers as dates and thresholds, not judgment calls.
Log every dispute, promise and exception on the account.
Configure your ERP to match the policy, then review both every six months.
Frequently Asked Questions
What is the difference between a credit policy and a collections policy?
A credit policy decides who gets payment terms and how much credit they get. A collections policy decides what happens after the invoice is sent: reminders, escalation, disputes, promises and exceptions. Many teams keep them as two short documents that link to each other.
How long should a collections policy be?
For a team of 3 to 5 collectors, one to two pages is usually enough. If a section runs longer, move the detail into a procedure or template and link to it.
How often should we update the collections policy?
Review it every six months, or sooner if your terms, customer mix or team size changes. Use the exception log and aging trend to decide what to change.
Should customers see our collections policy?
Customers do not need the internal document, but they should see the parts that affect them, such as your reminder schedule and who to contact about an invoice. Put those in your terms, invoices and onboarding emails.
Can software run a collections policy automatically?
Software can run the scheduled parts, such as reminders, calls and promise tracking, on every account. People still own disputes, key relationships and exception approvals. The policy should say clearly which is which.
Want every account covered by your collections policy, every week? Get Started with Abivo.
