An automated collections workflow has seven phases: a reminder before the due date, a notification on the due date, escalating reminders up to 30 days, internal escalation with an order hold, a payment plan proposal, handover to an external collections agency and, as a last resort, legal action or write-off. The early phases resolve themselves. The value of automation in the later ones lies in making sure the decision is taken on time, with the full history in view, rather than being forgotten in a mailbox.
This distinction matters. In a well-configured automated process, 65 to 80 per cent of overdue invoices are recovered without human intervention, as set out in automated collections management, which covers why automation works and the reminder cadence. This article deals with the remaining 20 to 35 per cent, which is where the money is lost and where most processes, automated or not, stop having rules.
The seven phases of the workflow
The table below describes each phase by the trigger that fires it and by who decides. The timings are a common starting point in B2B and should be adjusted to the sector and the customer profile.
| Phase | Trigger and action | Who decides |
|---|---|---|
| 1. Advance notice | Three days before the due date. Informational reminder with the invoice attached and the payment reference | Nobody, it is automatic |
| 2. Due date | On the day. Neutral notification, with no collections language | Nobody, it is automatic |
| 3. Escalating reminders | At 7, 15 and 30 days, with a progressively firmer tone and the account manager copied from day 15 | Nobody, it is automatic |
| 4. Internal escalation | At 30 days. Alert to the commercial lead and a proposal to hold new orders | Commercial management, with a deadline to respond |
| 5. Payment plan | At 60 days. Instalment plan proposal, with the agreement formally recorded | Finance, within pre-approved limits |
| 6. External agency | At 90 days, or earlier if there are signs of insolvency. Complete file sent for recovery | Finance director, case by case |
| 7. Legal action or write-off | Once out-of-court recovery is exhausted. Court claim or recognition of the loss | Senior management, with legal advice |
The most common failure is not the absence of phases, it is the absence of triggers. A process where phase 6 depends on somebody remembering to propose it never reaches phase 6. The useful automation here does not decide, it creates the obligation to decide within a defined window, with the file already assembled.
Payment retries and partial payments
Where payment is by direct debit or card, a share of the delays is not reluctance, it is a collection attempt that failed. In those cases the retry sequence is worth more than any reminder.
Three rules make the difference. First, space the retries out rather than repeating them the next day, because most insufficient-funds failures resolve with the customer's own cash cycle. Second, distinguish the reason for failure: an expired card requires a request to update details, insufficient funds requires a later retry, a closed account requires immediate human contact. Third, stop the sequence when payment arrives, which sounds obvious and fails often when reminders and collection live in different systems.
Partial payments are the case that most often breaks the automation. A customer who pays half the invoice is no longer in full default but is still in debt, and many workflows treat that as either paid or unpaid, with no middle ground. The correct handling is to reduce the open amount, keep the invoice in the cycle with the remaining balance, and record the partial payment as a positive signal, which usually justifies a softer tone in the next message. This depends on reliable reconciliation between the bank and the ERP, covered in automated bank reconciliation.
When the invoice is disputed, not forgotten
An overdue invoice may be under dispute, and sending reminders to a customer who has already complained about a billing error damages the relationship without recovering anything. Any serious workflow needs a dispute status that suspends the automatic escalation, assigns resolution to someone with a deadline, and resumes the cycle from where it stopped once the matter is closed.
This is worth measuring. If a significant share of overdue invoices is under dispute, the problem is not collections, it is invoicing upstream: wrong prices, mismatched quantities or documents issued without customer validation. In that case the return lies in fixing issuance, covered in how to automate your company's invoicing, and not in collecting better.
When to hand over to an agency or go legal
This is the decision most often postponed, and postponing it is expensive: the older the debt, the lower the probability of recovery. Four objective criteria help decide without relying on the discomfort of whoever decides.
- Age of the debt. Beyond 90 days with no agreement being honoured, internal recovery rarely improves with more time. Setting a fixed limit avoids a case-by-case debate.
- Value against the cost of recovery. Agencies typically work on commission over what they recover; legal action carries upfront costs. Below a certain amount, the cost of recovering exceeds what is recoverable, and the honest decision is to write it off.
- Customer risk signals. Insolvency proceedings, known attachments or simultaneous default with other suppliers justify bringing the handover forward, because in an insolvency the order of arrival counts.
- Value of the commercial relationship. A repeat customer with a one-off delay is not the same as a customer who no longer buys. This criterion is legitimate, but it has to be explicit and recorded, not a permanent informal exception.
On the operational side, what automation delivers here is the file: a copy of the invoice and the purchase order, proof of delivery, the complete contact history with dates, agreements proposed and the customer's response. Assembling this by hand takes hours per case and is the reason so many debts go unpursued. Assembled automatically, the decision becomes about the case and not about the effort.
As for legal action, most jurisdictions offer a simplified procedure for documented commercial debt alongside ordinary court proceedings, and late payment interest plus compensation for recovery costs are commonly available. In Portugal, for instance, the injunction procedure is the one most used for documented commercial debt. The choice of route, the applicable time limits and the amounts recoverable should be confirmed with legal advice for each case, because they depend on the amount, the type of contract and whether the debtor contests the claim.
What the platform needs to support
To support the seven phases without adding headcount, the platform needs seven concrete things:
- Triggers by days overdue and by open amount, configurable per customer segment rather than a single rule for the whole book.
- Retry sequences for failed collections with the failure reason distinguished, for direct debit and card.
- A dispute status that suspends escalation and resumes at the right point.
- Automatic reconciliation with the bank and the ERP, including partial and on-account payments.
- Tasks with deadlines for humans in phases 4 to 7, escalating if the deadline passes without a response.
- An exportable file per customer, with the full history, ready for an agency or a lawyer.
- An auditable record of every message sent and every decision taken, with author and date.
None of these capabilities requires artificial intelligence. This is rule-based automation over reliable data, and the real difficulty is almost always the integration between invoicing, bank and ERP, not the escalation logic.
Without a dedicated collections team
In companies of up to around a hundred people, there is rarely anyone dedicated to collections. The task piles up in finance or is spread across account managers, who face an obvious conflict: the person who sells to the customer is the one least willing to press them.
The design that works in that context separates the automatic phases from the phases with an owner. Phases 1 to 3 should consume nobody's time. Phases 4 to 7 need a single owner, and there is a case for that not being the account manager, precisely to take the discomfort out of the commercial relationship. What automation solves is not the lack of time, it is the lack of consistency: with defined triggers, the customer is contacted on the right day regardless of who is on holiday or how awkward the conversation is.
The impact on working capital is quantified, with a formula and reference ranges, in automation ROI.
Common mistakes
- Escalating by time and ignoring value. A 200 euro invoice and a 40,000 euro invoice do not deserve the same effort. Without segmentation by amount, the process spends attention where it does not pay.
- Automating collection but not reconciliation. Continuing to send reminders for an invoice already paid is the fastest way to lose the customer's trust in automated communication.
- Having no exit phase. A process with no write-off criteria keeps uncollectible debt open for years, distorts the metrics and consumes attention.
- Hardening the tone too early. Most delays up to 15 days are administrative oversight. Treating the customer as a defaulter at that stage costs more than it gains, a pattern discussed in common mistakes when implementing automation.
Frequently asked questions
What does an end-to-end automated collections workflow look like?
Seven phases, fired by days overdue: notice three days before the due date, notification on the day, escalating reminders at 7, 15 and 30 days, internal escalation with an order hold at 30, a payment plan proposal at 60, handover to an external agency at 90 and, if necessary, legal action or write-off. The first three are entirely automatic. The rest generate deadlined tasks for named people.
When should a debt be passed to a collections agency?
Typically from 90 days with no agreement being honoured, or earlier if there are signs of customer insolvency. The decision should weigh the amount owed against the cost of recovery, the age of the debt and the value of the commercial relationship, with the criteria defined in advance rather than case by case.
How many automatic payment retries make sense?
Three to four, spaced out rather than consecutive, and with the failure reason distinguished. An expired card requires a request to update details, insufficient funds requires a later retry, a closed account requires immediate human contact. Repeating the same attempt the next day rarely works.
Do we need to hire someone for collections?
For the automatic phases, no. From internal escalation onwards a named owner is needed, but not necessarily a dedicated or newly hired one, and there is an advantage in it not being the customer's account manager.