Accounts Receivable Collection Process: from Overdue Invoices to Legal Action

The accounts receivable collection process involves the systematic pursuit of payments that are past their agreed maturity date. This scope ranges from friendly reminders for a misplaced invoice to high-stakes collection lawsuit actions against a non-performing corporate debtor. It is a bridge between customer service and legal enforcement.

While accounts receivable collection refers to the active pursuit of money owed, bad debt is the accounting recognition that a specific amount is unlikely to be recovered. The primary goal of a structured collection strategy is to prevent outstanding balances from ever being reclassified as bad debt, which results in a total loss of the asset's value.

An invoice becomes legally collectible the moment the due date passes without full payment. Most commercial agreements operate on Net 30 or Net 60 terms. If the funds are not received by the 31st or 61st day, the payment obligation is breached, and the creditor has the immediate right to begin formal pursuit.

A default is more than just a late payment: it is a failure to meet the core financial duties of the contract. In many high-value agreements, a single missed payment can trigger an acceleration clause, making the entire outstanding balance due immediately. Recognizing these triggers early allows a creditor to seize the initiative before a debtor enters insolvency.

The first stage involves professional communication.

• Courtesy Calls: Verifying if there is a dispute or a simple clerical error.
• Email Reminders: Creating a digital trail of the unpaid invoices.
• Dunning Letters: Increasingly firm notices that escalate in tone as the debt ages.

When informal efforts fail, a formal demand letter from legal counsel serves as a high-leverage tool. It signals to the debtor that the creditor is prepared to move toward a collection lawsuit. In many cases, this prompts a debtor to propose an installment payment plan, which secures a steady stream of recovery without the upfront costs of litigation.

Time is a terminal factor in accounts receivable collection. Every state has a statute of limitations for contract claims, typically ranging from three to six years. If you wait too long to file, your legal right to recover the money is permanently barred, regardless of how clearly the money is owed.

The primary vehicle for debt recovery is a lawsuit for breach of contract. If the debtor fails to respond to the summons, the creditor can obtain a default judgment, which is a formal court order stating the money is owed.

A judgment is the first step toward judgment enforcement. With a judgment in hand, SJKP LLP can initiate:

• Bank Levies: Seizing funds directly from the debtor’s operating accounts.
• Property Liens: Attaching a claim to the debtor’s real estate or equipment.
• Wage Garnishment: In cases involving individual guarantors, taking a portion of their income to satisfy the debt.

Smaller unpaid invoices are often better handled through specialized collection agencies. However, high-value commercial debts require the analytical stewardship of a law firm that can navigate complex corporate structures and counterclaims.

Winning a lawsuit against a bankrupt company results in a paper judgment, which is a total victory in court but a zero recovery in the bank. We conduct an asset search before filing a collection lawsuit to ensure there are tangible assets available for judgment enforcement.

If a debtor files for bankruptcy, an automatic stay is triggered, halting all collection efforts immediately. Creditors then become part of a long line of claimants, often receiving only pennies on the dollar after months of waiting.

A payment obligation is only as strong as the evidence supporting it. If you lack a signed contract, proof of delivery, or clear invoices, a debtor can successfully dispute the claim in civil court. Forensic record-keeping is the best defense against these challenges.