Definition of Collections
Collections refers to the process of pursuing and obtaining payment on outstanding invoices or debts owed to a company. Once a sale has been made on credit and an invoice is issued, collections ensures that the amounts owed are actually paid. In practical terms, collections is the function responsible for converting accounts receivable into cash.
What Collections Includes
Collections activities can range from light-touch reminders to more formal recovery actions. This typically includes sending payment reminders, resending invoices, following up by email or phone, applying late fees where applicable, managing payment plans, and escalating severely overdue accounts to collection agencies or legal action. The exact approach depends on the age of the debt, customer relationship, and company policy.
How the Collections Process Works
The collections process usually begins immediately after an invoice becomes overdue. Initial steps are often automated and customer-friendly, such as reminder emails or payment retry attempts. If payment is still not received, follow-ups become more frequent and may involve direct outreach. In extreme cases, unpaid balances may be written off as bad debt or transferred to third-party collection agencies.
Collections Explained for a General Audience
Collections is what happens when a company hasn’t been paid on time and needs to follow up. If you’ve ever received a reminder saying “Your invoice is past due,” that’s part of collections. The goal isn’t punishment, but getting paid while preserving the customer relationship whenever possible. Effective collections help businesses keep cash flowing so they can pay their own expenses.
Collections and Cash Flow
Collections plays a direct role in cash flow management. Even profitable companies can face financial strain if customers delay payments. When large amounts of revenue sit unpaid, businesses may struggle to fund payroll, growth initiatives, or operational costs. Strong collections practices reduce this risk by shortening the time between invoicing and cash receipt.
Collections and Dunning
Collections often includes a dunning process, which is a structured sequence of payment reminders sent at defined intervals after an invoice is overdue. Dunning typically escalates gradually, starting with polite reminders and progressing to firmer notices if payment is not resolved. Well-designed dunning workflows can significantly reduce involuntary non-payment.
Collections in Subscription and SaaS Businesses
In subscription and installment-based models, collections can become operationally complex due to frequent, recurring payments. Failed credit cards, expired payment methods, or missed installments can quickly accumulate. As a result, many SaaS companies automate collections and dunning to reduce manual effort and prevent revenue leakage.
Collections and Automation
Modern finance teams increasingly rely on automated collections tools to handle invoicing, reminders, payment retries, and reporting. Automation improves efficiency, reduces human error, and ensures consistent follow-up. It also allows finance teams to focus on exceptions rather than routine payment chasing.
Collections in Quote-to-Cash Workflows
Collections is a critical final step in the Quote-to-Cash (Q2C) process. A deal is not truly complete until payment is collected. Platforms that integrate collections into Q2C workflows help ensure smoother transitions from sale to billing to cash, reducing delays and improving revenue realization.
Summary
Collections is the process of turning billed revenue into actual cash. It ensures that invoices are paid, supports healthy cash flow, and reduces financial risk. Effective collections balance persistence with customer experience, often using automation and structured dunning to recover payments efficiently. Without strong collections, revenue may exist on paper but fail to materialize where it matters most — in the bank.
