What are collections?

Collections refers to the activities and processes for pursuing payment on outstanding invoices, from initial follow-up through escalation to formal collection actions. For professional service firms, effective collections convert receivables to cash while maintaining client relationships.

Key characteristics

• Pursuing payment on invoices

• Includes follow-up and escalation

• Converts AR to cash

• Should balance speed with relationships

• Requires a systematic approach

• Critical for cash flow

Why it matters for professional service firms

Revenue means nothing until it is collected. Effective collections ensure work translates to cash. Professional service firms need systematic collection processes that pursue payment while preserving relationships. Poor collections lead to cash problems and eventual write-offs.

Real-world example

Tom's firm had passive collections: send invoice, wait, hope. AR aging was 25% over 60 days. Implementing systematic collections: invoice sent on day 1, automated reminder on day 20, phone follow-up on day 35, escalation to the partner on day 50, payment plan or formal action on day 65. Collection scripts provided for consistency. Result: over 60-day AR reduced from 25% to 8%, DSO improved from 52 to 38 days, and write-offs decreased 70%. Systematic collections efficiently turned AR into cash.