Collection letters are one of the most effective ways to recover overdue invoices when payment reminders and phone calls go unanswered. They provide a structured and professional way to follow up on late payments, increase urgency, and protect customer relationships while ensuring you get paid.

Whether you’re creating your first collection process or refining an existing one, having the right approach and templates in place can make a significant difference in how quickly you collect payments. Keep reading to explore:

Want to prevent late payments from reaching the stage of collection letters? Click the banner below to connect with our cash collection experts and build a personalized strategy for your business.

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What is a Collection Letter?

A collection letter is a formal written notice sent to a customer or client who has an overdue or outstanding invoice. Its purpose is to remind the debtor of the due payment, establish a sense of urgency, and provide a clear request for the balance to be settled.

Unlike the initial friendly reminders, collection notices or letters typically signal a more serious stage in the accounts receivable process, especially when prior email reminders or phone calls have gone unanswered.

Collection letters often escalate in tone over time, from polite initial requests to firmer demands as the delinquency period increases.

They may also outline potential consequences of non-payment, such as late fees, service disruptions, or legal action. Businesses typically send these letters after exhausting softer communication approaches, but before taking formal legal action.

A well-structured collection letter should include details such as the amount due, invoice number, payment terms, deadline for payment, and instructions on how to resolve the matter.

It is always advised to send polite collection emails before moving towards collection letters. Click on the banner below to download our free collection email templates

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By tailoring the payment experience to individual customers, using segmentation and contextual knowledge from past interactions, Upflow ensures businesses like WorkMotion are able to engage the right person at the right time and place, specifically within the finance pillar of the customer journey. It’s an approach we call Financial Relationship Management.

But what are the common steps in a cash collection strategy?

It generally begins with a friendly reminder a few days before the due date, followed by another on the due date. Once the invoice has passed its due date, the first set of email reminders should be polite and gentle, assuming the delay might be unintentional. The goal is to prompt payment without damaging rapport.

If the first reminder after the due date fails to generate a response, the second and third communications should gradually become more assertive. By the third outreach, it may be time to escalate the situation by introducing phone calls, which allow for more direct interaction and quicker resolution. Phone calls also create a more personal connection, showing that you’re serious about receiving payment but still value the relationship.

If emails and phone calls do not yield results, the next step is to send collection letters. These formal collection notices indicate urgency, making it clear that further delays may result in more serious actions.

The final escalation is often a legal notice, indicating that the debt will be pursued through legal channels if it remains unpaid. This step should only be taken as a last resort, after all reasonable attempts to collect the debt have been exhausted.

What to include in a Collection Letter?

A well-crafted collection letter helps ensure clarity and urgency while maintaining professionalism. Here’s what you should include:

Personal Information: Address the letter directly to the recipient, including their full name, company name, and any details about the services or products you’ve provided. This personal touch not only ensures that the letter reaches the right person but also reminds them of your relationship and the value your business has delivered.
Your Contact Information: Provide multiple ways for the recipient to contact you. Include your business address, email, and phone number, making it easy for them to resolve the payment issue or get in touch with any questions.
Attach All Overdue Invoices: Always include copies of all overdue invoices. This ensures the client has a clear view of each outstanding balance, including invoice numbers, amounts due, and due dates. If there are multiple invoices, create a concise list in the body of the letter to ensure transparency and avoid confusion.
Invoice Details and Due Date: Reference the original invoice numbers, the amount owed, and the number of days past due. Emphasize this information to highlight the urgency of the situation and remind them of the missed deadlines.
Updated Invoice with Late Fees (If Applicable): If your business charges late fees, include an updated invoice reflecting the additional charges. Make sure to clarify that the late fee will continue to accumulate if the payment is further delayed, depending on your terms and conditions.
Payment Methods: Provide clear and convenient payment options. List all acceptable payment methods such as credit card, bank transfer, or online payment links. The easier it is for the client to pay, the quicker you’ll receive payment. Providing a direct payment link can significantly speed up the process.
Offer a Payment Plan (Optional): If applicable, offer the option of a payment plan. This is particularly helpful if the client is struggling financially. Outline potential terms for weekly or monthly payments, making it easier for them to manage the overdue balance.
Consequences of Non-Payment: Detail the next steps if payment isn’t made within a specified time frame. This could include suspending services, transferring the debt to a receivable management services company, or taking legal action. Mention any contractual terms that support these actions, such as late fees or penalties. Be clear but professional when outlining these potential consequences.

By including all these elements, your collection letter remains clear, actionable, and professional, maximizing the chances of payment without harming your business relationship.

Collection Letter Templates

A well-timed series of collection letters can help recover debts without damaging client relationships. Below are four collection letter template samples that escalate from a polite reminder to a formal legal notice, helping guide the communication process and ensure timely payment.

Formal Reminder of Due Payment: Collection Letter Template 1

This first letter is a polite reminder following previous communication (emails, phone calls or even SMS) about overdue payments. It provides a clear summary of the outstanding invoices, includes payment details, and gently urges the client to take immediate action to avoid further escalation.

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How to Prevent Late Payments Early On?

Preventing late payments starts well before invoices are overdue, with a combination of clear communication, strong client relationships, and efficient processes. By taking proactive steps and utilizing automation tools, businesses can minimize the risk of escalating to the point of sending collection letters. Here’s how you can prevent late payments:

Set Clear Payment Terms: Establishing clear payment terms upfront is key to avoiding late payments. Clearly define due dates, accepted payment methods, and any penalties for delays in the contract. This ensures both parties are on the same page from the beginning.
Send Proactive Reminders: Instead of waiting until a payment is overdue, send timely, friendly reminders. Tools like Upflow allow you to automate these reminders, customizing the tone and frequency without needing to write the same email over and over. Upflow even reminds you when it’s time to send a reminder.
Offer Flexible Payment Options: The easier it is for clients to pay, the faster they’ll settle their invoices. Offering multiple payment options, such as credit cards, bank transfers, or ACH ensures you’re catering to their preferences and speeding up the process.
Automate Payment Processes: Automating your collection and payment reminders with software like Upflow means fewer manual tasks and fewer errors. Upflow integrates seamlessly with your billing, accounting, ERP and CRM systems, ensuring that you always have the latest information at your fingertips without having to manually update spreadsheets or chase after invoices.
Segment Your Client Base for Better Focus: While automating reminders helps streamline processes, some clients need personalized attention. Upflow allows you to group clients based on their payment history, making it easier to focus on those who may need a phone call or more personalized outreach, while automating the rest.
Incentivize Early Payments: Encourage prompt payments by offering small incentives, such as discounts for early payment. This gives clients extra motivation to pay before the due date, improving your cash flow.
Utilize Real-Time Dashboards: Upflow also offers real-time dashboards that give you a clear view of your accounts receivable, enabling you to take swift action when needed. With all your data centralized, you can monitor payment statuses, track overdue accounts, and ensure you’re not caught off-guard by unpaid invoices.
Provide a Dedicated Payment Portal: A dedicated payment portal for each customer, like the one offered by Upflow, makes it easy for your clients to settle their accounts, helping you get paid faster without constant back-and-forths.
Focus on Strategic Actions: Automating repetitive tasks frees up your team’s time to focus on higher-value activities that can move your business forward. With less time spent chasing payments, your team can dedicate their efforts to nurturing key client relationships and driving growth.

By integrating Upflow into your accounts receivable process, you can streamline payment collection, reduce the risk of overdue invoices, and maintain stronger client relationships, all while ensuring that your business runs more efficiently.

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Accounts receivable collections is the process of getting paid for work you’ve already done. Most businesses treat it as a back-office function. The ones that actually get paid on time treat it as a core part of how they run.

Payments go overdue not because customers refuse to pay, but because invoices go to the wrong contact, follow-ups happen too late, and no one owns the escalation path. Fix the process and the payments follow.

If your accounts receivable management is running on a shared inbox and a spreadsheet, you’re already behind. The companies collecting reliably have documented workflows, proactive follow-up built in, and the right tools connecting their order-to-cash process end to end. Keep reading to explore:

Looking to make your accounts receivable collection process more efficient? Click on the banner below to book a call with one of our experts and get started now

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What is Accounts Receivable Collections?

Accounts Receivable (AR) Collections is the process of tracking and collecting payments owed to your business by customers for goods or services sold on credit. In simpler terms, it’s about ensuring that the money your customers owe is paid on time.

A strong AR collections system is more than just chasing overdue invoices. It involves a structured approach to managing payment terms, issuing accurate invoices promptly, and maintaining open communication with customers. This helps reduce late payments, improve cash flow, and keep customer relationships intact.

Efficient AR collections are critical to the financial health of your business. Late or missed payments can lead to cash flow issues, delayed growth, and even difficulty meeting your own financial obligations. That’s why businesses need a proactive, well-organized collections process to stay on top of receivables and minimize payment delays.

The Accounts Receivable Collections Process

An effective AR collections process is essential to maintaining cash flow and fostering strong customer relationships. Below are the five key steps to managing accounts receivable collections efficiently:

1. Invoice Generation and Delivery

The process starts with creating and sending accurate invoices promptly. Each invoice should clearly outline payment terms, due dates, and accepted payment methods to avoid confusion or delays. Sending invoices on time sets the foundation for smooth collections.

2. Payment Tracking

After invoices are sent, it’s important to monitor payments effectively. This step provides visibility into which invoices are paid, overdue, or approaching their due dates. A tool like Upflow can simplify this process by offering real-time tracking dashboards, helping you act quickly on overdue payments and improving your cash flow management.

3. Payment Reminders

Sending reminders before and after the due date can significantly reduce delays. These reminders should be polite yet firm, reinforcing the importance of timely payments while maintaining a professional tone. Automating reminders ensures consistency and saves your team valuable time. Click on the banner below to download our free collection email templates

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7 Steps to Improve Your Accounts Receivable Collections

Now that you know what is accounts receivable collections and how does the process look like, follow these steps to improve your accounts receivable collections:

1. Systemize Invoicing and Payment

Before you take action to collect a late payment, you have to be able to confirm the customer received your invoice and give them a clear and easy way to pay.

Electronic billing and payment options (credit card, ACH, etc.) streamline this process in real time and prevent errors and complications that would keep your customers from paying.

Automating your invoicing with software can also help you send an invoice as soon as possible after delivering services or products. This ensures customers aren’t surprised by your bills and are prepared to pay them.

2. Develop a New Collections Strategy

If you’re using a reactionary or ad hoc collections strategy, take some time to review and systematize it. Consistent collection procedures will improve internal and external communications, and help you respond quicker to past due invoices.

Finance teams need to focus on laying solid foundations for their collections strategies by focusing on actions that will impact results. You’ll also have to keep in mind that when starting to improve your collection strategy the important part is that you start.

Remember that it won’t be perfect right away. To not get overwhelmed, the trick is to focus on actions that will have the most impact. Most often this will mean focusing on the most overdue invoices or largest unpaid invoices. This is especially true if many of your outstanding balances are distributed across only a few clients, which is quite often the case.

A good method is to focus first on the big overdue accounts and then refine your process and fine-tune your collection strategy from there. You can then implement processes that will ensure these overdue payments don’t happen again and that your AR stays in a healthy state. By doing so you’ll hopefully never have to perform a write-off again!

You can also segment your customers and develop collection strategies for each segment based on their size and payment behavior.

Collection strategy example:

For example, large customers are likely to require high-touch communication from your account management team, while small customers may be fine with automated messages to resolve simple issues. Or you could adjust your terms for late payers so they have to pay upfront before you deliver services, thus avoiding bad debt.

We recommend you take an approach that combines automation with customization:

Process reminders based on client balances, not invoices, so clients with multiple invoices have a consolidated view of what they owe you at any time and aren’t overwhelmed by due dates and reminders.
Automate the first late-payment reminder with a personalized email that goes to the customer the first-day payment is late.
Send later reminders more frequently with individual, manual emails that address a customer’s unique circumstances.

Having trouble writing effective email reminders to improve your debt collection? Have a look at our free templates.

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3. Ensure a Quality Customer Experience

Over-automation is a fast way to frustrate customers. A sequence of generic reminder emails with no context, no personalization, and no acknowledgment of the customer’s situation does more damage than a late payment.

The goal is a process that’s systematic on the inside and personal on the outside. Your team should spend less time on repetitive admin, but customers should never feel like they’re talking to a machine.

That balance matters because late payments usually have a reason. Understanding the reason determines how you respond. Four scenarios come up most often:

The invoice went to the wrong contact or is missing information. This is a billing process failure, not a customer problem. Fix the invoice, update your records, and adjust your process so it doesn’t happen again. Sending a forceful reminder on a disputed invoice erodes trust and delays payment further.

The customer can’t pay through your payment processor. A technical blocker is the easiest fix. Give them an alternative payment method, confirm receipt, and update their billing setup going forward. Use invoicing software with integrated payment processing so customers can pay directly from the invoice without having to navigate a separate system.

They’re holding payment because of a service or product issue. This is where sales and customer success earn their place in the collections process. Loop them in. They have context you don’t, and the customer relationship is already on the line. Resolving the underlying issue is the only path to getting paid.

They’re having cash flow problems. Offer a payment plan. Adjust their billing cycle if it makes sense. Keep the conversation open. A customer who can’t pay everything now is better than a customer who goes dark. And a late fee structure communicated upfront, before invoices are overdue, gives you a lever without damaging the relationship.

The thread running through all four scenarios is the same: collections is a customer touchpoint. Every interaction either strengthens or weakens the relationship. Treat it accordingly.

Ready for Tip 4?

4. Align Your Team on AR Collection

Most finance teams carry the collections process alone. That’s the problem.

Getting paid isn’t a finance function. It’s a business function. Every team that touches a customer relationship has information that’s relevant to why an invoice is unpaid, and leverage that can help resolve it. Keeping them out of the process doesn’t protect the relationship. It just slows down the money.

Sales teams close deals. But a deal that doesn’t turn into cash isn’t a closed deal. When a customer goes delinquent, the account manager often knows why before anyone in finance does. They know if there’s a product issue, a contract dispute, or a relationship problem that’s causing the holdback. That context is exactly what your collections process needs to prioritize correctly and respond appropriately.

Customer success has the same advantage. They’re in regular contact with the accounts most likely to delay payment, and they’re the right voice for a sensitive conversation when the relationship is at risk.

The practical version of this looks like shared visibility. Everyone who touches an account should be able to see its payment status. Your AR collections process should log every customer touchpoint in one place so finance, sales, and CS aren’t duplicating outreach or contradicting each other in the same week.

It also means agreeing on escalation paths upfront. Who reaches out first when an invoice hits 30 days? Who takes over at 60? What’s the trigger for involving legal or a collections agency? These decisions shouldn’t be made case by case. Document them, share them, and hold every team to them.

When AR collections is treated as a shared responsibility, it gets faster, more consistent, and less damaging to the customer relationships that drive revenue in the first place.

5. Prioritize Your Collection Efforts

In your new collections process, prioritize accounts based on client balances, not individual invoices. Look at your key AR performance metrics by client to segment them based on easiest and most difficult to collect. This will help you get paid in a timely manner.

These metrics can help you prioritize clients in collections:

Aging report: Just like your DSO (days sales outstanding) can tell you the average amount of time your company takes to collect payment overall (in number of days), you can use individual client balances to spot delinquent accounts to focus on in your collection efforts. This metric can help you determine which actions might be most effective with which clients. The longer a balance remains overdue, the harder it’ll be to collect, so you might use this metric to determine when to send debts to a collection agency. It can also help you prioritize quick follow up with the least delinquent clients.
Average Payment Delay: At the client level, this metric can help you spot repeated problem clients. Clients with a higher Average Payment Delay take longer to pay overdue balances. Spotting these early can help you customize the client experience to reduce late payments in the future. Through upfront billing, payment plans, or sending reminders when invoices are still outstanding, you can set a more proactive collections plan for that account.

Aging reports per account manager: Look at aging client balances segmented by account manager to help you identify any issues elsewhere in the pipeline. For example, if there’s an issue in the sales process with a particular AM, you can catch it and fix it before you build up several delinquent accounts under that rep.
Create your AR aging report with our free template now

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6. Offer Discounts and Payment Instalment

Not every late payment is a collections problem. Some customers pay late because your payment terms don’t fit how their business actually runs. Adjusting those terms proactively is cheaper than chasing invoices after the fact.

Early payment discounts are the most straightforward lever. Offer a small percentage off for customers who pay within 10 days instead of 30. The discount costs you less than the DSO impact of waiting, and it gives customers with healthy cash flow a reason to prioritize your invoice over others sitting in their queue.

For customers on monthly billing cycles, consider pushing for annual upfront payment instead. The discount you offer to close that deal is offset by the cash certainty you get in return, and it removes 11 invoices from your collections workload for that account.

Payment instalments are worth offering to customers with genuine cash flow constraints, but with guardrails. Agree on a specific schedule, get it in writing, and track it with the same rigor you’d apply to any outstanding balance. The risk with instalments is that a customer uses them to delay rather than to pay. The difference usually shows up in communication: customers who intend to pay stay in contact. Customers who are stringing you along go quiet.

If a customer is consistently late regardless of terms, the problem isn’t the payment structure. Revisit their credit limit, tighten their payment terms on the next contract, or require partial upfront payment before the next engagement starts. Early payment discounts work as an incentive for good payers. They don’t fix a customer who doesn’t prioritize paying you.

7. Continuously Improve AR Performance

Strong accounts receivable collections require ongoing measurement and adjustment. Regularly tracking key AR metrics such as Days Sales Outstanding, average payment delay, and overdue balances helps you spot issues early and focus efforts where they matter most.

Use these insights to refine your collections approach over time. Adjust payment terms, reminder timing, or follow-up methods for customers who consistently pay late. Small, data-driven changes can lead to meaningful improvements in cash flow and payment behavior.

Sharing AR performance data with sales and customer-facing teams also helps align expectations and prevent future delays. When AR collections is treated as a continuous process, it becomes more predictable, efficient, and effective.

Why AR Collections Software Matters

Managing accounts receivable collections with spreadsheets, shared inboxes, or basic ERP tools often leads to limited visibility and inconsistent follow-ups. As invoice volumes grow, manual processes make it harder to track overdue balances, prioritize collection efforts, and collaborate across teams.

AR collections software helps finance teams centralize receivables, automate follow-ups, and gain real-time insight into payment behavior. It enables more proactive collections by identifying at-risk accounts early and ensuring customers receive timely, relevant communication.

Upflow is an AR collections platform built to help teams get paid faster with less manual work. It centralizes invoice data, tracks key AR metrics, and sends personalized reminders based on customer balances and payment behavior. With built-in collaboration and multiple payment options, Upflow helps finance, sales, and customer teams align around cash collection and improve cash flow predictability.

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“Hi [Name], it’s [Your Name] from [Company].

I wanted to follow up on our conversation from [last week/date]. You’d mentioned that payment for invoice #[Number] would be processed by [date], but I’m not seeing it reflected in our account yet.
[Pause for response]

[Listen to their explanation without interrupting]
I understand these things happen. What I’d like to do is figure out a realistic timeline that works for your team. What’s the soonest you can commit to having this processed?
[Get specific date]

Okay, so [date]. And just so I can set expectations on my end, is there anything that might prevent that from happening? Any approvals still pending or issues I should be aware of?
[Address any concerns]

Great. I’m going to note this as a firm commitment for [date], and I’ll plan to check in with you on [day after] if I haven’t seen payment come through. Does that work for you?
[Confirm]

Thanks for working through this with me, [Name]. I know things get busy on your end, and I really appreciate you being upfront about the situation.”

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“Hi [Name], this is [Your Name] from [Company].

I’m calling about invoice #[Number] for [Amount], which is now [number] days past due. This has moved into a more urgent category on our end, and I need to understand what’s happening so we can resolve it.
[Pause for response]
[If they provide a legitimate reason:]

I appreciate you explaining that. Here’s the situation from my side: at this stage, I need to either see payment processed within [timeframe], or we’ll need to set up a formal payment arrangement. Which of those works better for your situation?
[If they’re evasive or non-committal:]

I understand this might not be the most comfortable conversation, but I do need a concrete resolution today. Without that, I’ll have to escalate this to [your manager/their account manager/collections], which I’d prefer to avoid if we can work this out directly.

What I’m hearing is [summarize their explanation]. Based on that, here’s what I’d like to propose: [offer payment plan or partial payment option].

If we can agree on that today, I can keep this from escalating and we can maintain the working relationship we’ve had. Does that work for you?
[Get verbal commitment to specific terms]

Okay, so we’re agreed: [restate payment terms clearly]. I’m going to send you a confirmation email right after this call, and I’ll follow up on [specific date] to confirm the first payment has been made. If something changes before then, I need you to contact me directly at [your email/number] so we can adjust the plan. Fair enough?

Thanks for working with me on this, [Name]. I know this isn’t easy, but I appreciate you being willing to find a solution.”

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“Hi [Name], this is [Your Name] from [Company].

I’m calling about invoice #[Number] for [Amount]. I wanted to check in because our records show it was sent on [date], but I want to make sure it actually made it to you.
[Pause for response]
[When they say they didn’t receive it:]

No problem at all, these things happen. Let me get that over to you right away. What’s the best email address for you, and is there anyone else who should be copied?
[Confirm email]

Perfect. I’m going to send that within the next [15 minutes/hour], and I’ll include the original invoice date and the payment terms. Since this is already past due based on the original terms, when can I expect payment once you receive it?
[Get commitment]

Great. So I’ll send the invoice to [email] right after we hang up, and you’re committing to process payment by [date]. I’ll make a note of that and follow up with you on [date] to confirm everything went through.
Is there anything else you need from me to ensure this doesn’t get held up again?

Thanks so much for your time, [Name].”

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“Hi [Name], this is [Your Name] from [Company].

I’m calling about invoice #[Number]. I understand there’s some question about the charges, and I wanted to talk through that with you directly so we can get this resolved quickly.
[Pause for response]
[Let them fully explain the dispute without interrupting]

Okay, I think I understand the issue. Let me make sure I have this right: [summarize their concern back to them].
[Confirm you understood correctly]

Here’s what I’d like to do. For the portion that’s undisputed, can we get that processed while we work through the [disputed amount]? That way we’re making progress while we investigate.
[If they agree to partial payment:]

Perfect. So we’ll process payment of [undisputed amount] by [date], and I’ll work with our team on [the dispute] and get back to you by [specific date] with a resolution. Does that timeline work?
[If dispute seems legitimate:]

I’m going to open a case on this internally and get you an answer by [specific date]. In the meantime, can I ask what documentation would help resolve this on your end? Would you need [revised invoice/delivery confirmation/contract terms/etc.]?
[If dispute seems like a delay tactic:]

I want to make sure we resolve this fairly, but I also need to keep things moving. While we investigate, would you be open to processing payment into a holding status, or would a payment plan make more sense while we work through the details?

Thanks for walking me through this, [Name]. I’ll get you an update by [date], and let’s plan to connect again then to finalize everything.”

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About the Author

Côme is the Director of Financial Services at Upflow, where he leads the development of cutting-edge solutions at the intersection of technology, finance, and customer experience. He plays a key role in shaping the vision and execution of Payments by Upflow, Upflow’s next-generation B2B payment platform.

At Upflow, Côme focuses on delivering frictionless, secure, and intuitive payment experiences that bring the best of B2C e-commerce to B2B transactions. From modern payment infrastructure to AR financing, his work helps finance teams streamline collections, enhance customer satisfaction, and unlock greater cash flow efficiency.

Known for his insights into fintech innovation, payment optimization, and regulatory navigation, Côme is a regular contributor to Upflow’s blog. He shares expert perspectives on how finance teams can use modern tools to enhance cash flow, improve customer experiences, and future-proof their payment operations.

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About the Author

Côme is the Director of Financial Services at Upflow, where he leads the development of cutting-edge solutions at the intersection of technology, finance, and customer experience. He plays a key role in shaping the vision and execution of Payments by Upflow, Upflow’s next-generation B2B payment platform.

At Upflow, Côme focuses on delivering frictionless, secure, and intuitive payment experiences that bring the best of B2C e-commerce to B2B transactions. From modern payment infrastructure to AR financing, his work helps finance teams streamline collections, enhance customer satisfaction, and unlock greater cash flow efficiency.

Known for his insights into fintech innovation, payment optimization, and regulatory navigation, Côme is a regular contributor to Upflow’s blog. He shares expert perspectives on how finance teams can use modern tools to enhance cash flow, improve customer experiences, and future-proof their payment operations.

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A dunning letter is a formal written notice sent to a customer when an overdue invoice has not been settled despite earlier reminders. It marks a specific escalation point in the accounts receivable process: emails and phone calls have already gone out, payment still hasn’t arrived, and the situation now requires something more formal.

Getting this right matters. A poorly written dunning letter either fails to prompt payment or damages a client relationship that might otherwise be salvageable. A well-structured one recovers the debt while leaving the door open for the relationship to continue. This guide covers

What Is a Dunning Letter?
A Typical Dunning Strategy
Dunning Email vs Dunning Letter
Things to Include in a Dunning Letter
Our Dunning Letter Templates
How to Avoid the Need for a Dunning Letter

Looking to prevent late payments from escalating to the stage of sending a dunning letter? Click the banner below to connect with our cash collection experts and develop a customized dunning strategy for your business.

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What Is a Dunning Letter?

A dunning letter or notice, is a formal written communication sent to a customer or client with an overdue or past due invoice. Its primary purpose is to remind the debtor of their pending payment, convey a sense of urgency, and clearly request that the balance be settled promptly. Unlike email payment reminders, dunning letters mark a more serious phase in the accounts receivable process, often issued when initial emails or phone reminders have not led to payment. This escalation highlights the importance of settling the debt to avoid potential consequences, such as penalties or legal action.

A Typical Dunning Strategy

The dunning process typically begins a few days before the invoice due date with a friendly reminder, followed by another on the due date itself. After the due date has passed, initial payment reminder emails should be polite and gentle, assuming any delay might be unintentional. The goal at this stage is to encourage prompt payment while maintaining a positive customer relationship.

If there’s no response after the first overdue reminder, subsequent emails should gradually become more assertive. By the third reminder, it may be appropriate to escalate to phone calls, which allow for direct communication and quicker resolution. Phone calls also add a personal touch, signaling both the importance of the payment and the value of the relationship.

When emails and calls do not secure payment, the next step is to send formal dunning letters, which signal a heightened level of urgency and convey that further delays may lead to more serious actions.

If these efforts are unsuccessful, the final escalation involves issuing a legal notice, indicating that the debt may be pursued through legal channels if left unpaid. This step is a last resort, to be taken only after all reasonable collection attempts have been made.

Need help with getting started with your first payment reminder emails? Click on the banner to download free payment reminder email samples

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Dunning Email vs Dunning Letter

Both are part of a structured dunning strategy, but they serve different stages of the collections process and carry different weight with the recipient.

A dunning email is sent earlier in the escalation sequence, typically before or shortly after an invoice becomes overdue. The tone is lighter, the format is digital, and the intent is to prompt payment before the situation becomes formal. Payment reminder emails land in a billing contact’s inbox alongside dozens of other messages. They are easy to act on quickly, but also easy to deprioritise.

A dunning letter is a physical or formal written document sent when emails and phone calls have already gone unanswered. It signals that the matter has escalated beyond routine follow-up. Receiving a formal letter in the post carries more psychological weight than another email, which is precisely why it tends to prompt action when earlier reminders have not.

The practical difference for your AR process is timing and channel. Emails handle the early and mid-stage reminders. Letters come in when those efforts have been exhausted and the goal shifts from gentle follow-up to formal documentation of the debt and your attempts to collect it.

One thing both formats share: the more personalised they are, the better they work. Generic mass communications, whether email or letter, get treated as spam. A message that references the specific invoice number, the exact amount, and the customer’s name and company performs significantly better across both channels.

Things to Include in a Dunning Letter

While drafting an effective dunning letter, it’s essential to include specific details that encourage payment while maintaining a professional tone. Here’s a breakdown of key elements:

Recipient’s Information: Address the letter to the appropriate individual by including their full name, title, and company name. Adding details about your provided services or products serves as a reminder of the relationship and reinforces the value you’ve delivered.
Your Contact Information: Offer multiple ways for the recipient to get in touch. List your business address, email, and phone number to make it simple for them to resolve the payment issue or ask questions. The easier it is to contact you, the more likely they’ll address the payment promptly.
Overdue Invoice Attachments: Attach copies of all overdue invoices to provide the recipient with clear visibility into what’s owed. This should include invoice numbers, amounts, and due dates, with a summary of these details in the body of the letter. A concise list helps avoid confusion, especially if multiple invoices are outstanding.
Invoice Details and Payment Deadlines: Reference the specific invoice numbers, the total amount due, and the days past due to underscore the urgency. Reinforcing these details emphasizes missed deadlines and can motivate the client to act quickly.
Available Payment Options: Clearly list payment methods such as credit card, bank transfer, or online payment options. Make payment as easy as possible by providing direct payment links if available. The more straightforward the process, the quicker you’re likely to receive payment.
Consequences of Continued Non-Payment: Outline potential next steps if the debt remains unpaid, such as suspension of services, assignment to a collection agency, or legal action. Refer to any contractual clauses that back these actions, like late fees or penalties, while maintaining a respectful, professional tone. This demonstrates the importance of payment without damaging the client relationship.

Our Dunning Letter Templates

Using a structured, phased approach to dunning letters can significantly improve payment recovery rates while maintaining strong client relationships. Below, we provide four dunning letter templates that escalate from a friendly reminder to a final legal notice, guiding the process and helping ensure timely collection of outstanding payments.

Template #1: Gentle Reminder for Payment

The first dunning letter serves as a courteous reminder, typically sent after initial emails or phone calls haven’t resolved the overdue payment. It provides a summary of outstanding invoices, includes payment methods, and gently encourages the client to address the balance promptly.

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How to Avoid the Need for a Dunning Letter

To prevent situations leading to the use of a dunning letter, let’s look at ways to reduce late payments for your business:

Establish Clear Payment Terms:Set precise payment terms in contracts, including due dates, payment methods, and late fees. Transparent terms help clients understand their obligations from the outset.
Use Proactive Payment Reminders:Schedule gentle reminders before invoices are due. Using tools like Upflow to send automated reminders can keep clients informed without the need for frequent follow-ups, keeping payments top of mind.
Offer Multiple Payment Options:Make it easy for clients by offering a range of payment methods, like bank transfers, credit cards, or online portals. Convenience can help reduce payment delays.
Incentivize Early Payments:Encourage timely payments by offering small discounts or incentives for early settlement. This motivates clients to prioritize your invoices.
Automate Invoicing and Payment Tracking:Implement automated systems to send invoices and track payments. Real-time tracking lets you take quick action if a payment is nearing overdue status.
Segment Clients Based on Payment Behavior:Identify and categorize clients by their payment history, allowing you to give extra attention to clients with frequent delays and streamline communications for others.

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Alex is the Co-founder and CEO of Upflow, where he leads the company’s mission to revolutionize how B2B businesses manage their cash flow. Backed by top-tier investors like Hedosophia, YCombinator, Hexa, and Lorimer Ventures, with more than $25m in funding to date, he is a strong advocate for financial transparency and operational excellence, bringing a founder’s perspective to the biggest challenges and opportunities in modern revenue management.

Alex developed Upflow’s widely recognized “5 Maturity Stages of Cash Collection” framework, a model that has helped hundreds of companies build scalable and efficient finance operations. He also co-hosts The Growth-Minded CFO podcast, where he engages with finance and business leaders on innovative approaches to financial leadership. His thought leadership explores the intersection of business strategy, financial discipline, and organizational growth.

As a regular contributor to Upflow’s blog, Alex shares insights on leadership, scaling SaaS businesses, and the future of B2B finance. His writing helps founders, CFOs, and revenue leaders make smarter decisions and build financially resilient companies.

Follow Alex on LinkedIn

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About the Author

Côme is the Director of Financial Services at Upflow, where he leads the development of cutting-edge solutions at the intersection of technology, finance, and customer experience. He plays a key role in shaping the vision and execution of Payments by Upflow, Upflow’s next-generation B2B payment platform.

At Upflow, Côme focuses on delivering frictionless, secure, and intuitive payment experiences that bring the best of B2C e-commerce to B2B transactions. From modern payment infrastructure to AR financing, his work helps finance teams streamline collections, enhance customer satisfaction, and unlock greater cash flow efficiency.

Known for his insights into fintech innovation, payment optimization, and regulatory navigation, Côme is a regular contributor to Upflow’s blog. He shares expert perspectives on how finance teams can use modern tools to enhance cash flow, improve customer experiences, and future-proof their payment operations.

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Past due invoices are one of the most common cash flow problems in B2B. Even with clear payment terms and good customer relationships, invoices slip past their due dates, reminders go unanswered, and balances that should have been collected months ago are still sitting in your AR aging report.

The difference between finance teams that collect consistently and those that spend months chasing the same balances usually comes down to one thing: having a clear, repeatable cash collection process rather than reacting to each overdue invoice as a one-off problem. Keep reading to know:

Need help writing effective payment reminders? Click on the banner below and download our free templates.

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Past Due or Overdue Invoice Meaning

A “past due” or “overdue” invoice refers to a bill that remains unpaid beyond its agreed-upon due date. Businesses typically set standard payment terms such as net 30, 60, or 90 days, though these vary based on client agreements or negotiated payment plans.

Once a payment deadline passes without settlement, the invoice is considered past due and requires follow-up action. The longer it stays unpaid, the harder it becomes to recover, which is why having a structured process matters more than chasing invoices one by one.

For finance teams managing a high volume of accounts, getting visibility into which invoices are past due and by how many days is the starting point. The 6 steps below cover how to do that and what to do next.

1. Analyze & focus on your most overdue accounts

Start with the accounts most likely to go unrecovered if you wait any longer. That means sorting your AR aging report by days overdue and total balance, then working down from the most at-risk.

Most finance teams already know which customers pay late. What they often lack is a current, accurate view of exactly where each account sits: how many invoices are outstanding, the total balance, how many days past due, and whether any reminders have already gone out. Without that picture, collections becomes guesswork.

Your aged receivables report breaks this down by aging bucket: 0 to 30 days, 31 to 60, 61 to 90, and beyond 90. The 61 to 90 day bucket is where most teams underinvest attention. By 90 days, recovery becomes significantly harder. Accounts in that window need immediate action, not another round of automated reminders.

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Once you have a clear ranking of your past due accounts by risk, you can build an action plan that matches the urgency to each situation rather than treating all overdue invoices the same way.

2. Send an overdue invoice email

n about a third of cases, late payments happen because your customer simply forgot. The invoice landed in their inbox, got buried, and nobody flagged it. That is why the first reminder should be low-friction and non-accusatory: you are assuming good faith, not chasing a bad payer.

Send it to the billing contact directly, not to a generic accounts payable address if you can help it. Keep it plain text. HTML emails from billing tools often trigger spam filters or get blocked entirely by corporate email policies. An email from “notifications@yourbillingtool.com” will almost certainly go straight to trash.

The tone should reflect the relationship and the situation. A first reminder on a 10-day overdue invoice from a long-standing customer reads very differently from a follow-up on a 45-day overdue invoice from someone you have never had trouble with before. Adapt accordingly, but keep it professional throughout.

One thing most finance teams skip: checking whether the email was actually delivered and opened. A reminder that bounced or landed in spam is worse than no reminder at all, because it gives you false confidence that the customer has been contacted. Tools like Mailtrack can help with this if you’re doing it manually. If you’re managing a higher volume of accounts, AR management software like Upflow tracks delivery and engagement automatically, so you always know which reminders landed and which need a follow-up through a different channel.

The goal of this first email is not just to request payment. It is also to surface any dispute that might be sitting quietly underneath. In many cases where payment is genuinely delayed rather than forgotten, there is an underlying issue: a disputed line item, a missing purchase order, a contact who has left the company. The sooner that surfaces, the sooner it can be resolved.

Here is a template you can use for a first friendly payment reminder:

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3. Set a tempo for your overdue payment reminders

Most overdue invoices do not get paid because the customer decided not to pay. They get paid late because the follow-up was inconsistent. A single reminder sent once and then forgotten is not a collections process.

The principle is simple: once you have sent a first reminder, keep going at a regular cadence until you get either a payment or a response. At least one action per week. That consistency signals to your customer that you are tracking the account closely and that silence will not make the invoice go away.

There are more reasons than you might expect for why a first reminder does not land: the email went to the wrong contact, your billing contact is on leave, the invoice is caught in an internal approval process, or the payment terms were not clear from the start. A structured follow-up tempo accounts for all of this by ensuring the invoice stays visible until it is resolved.

A typical collection workflow looks like this:

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4. How to Track Past Due Invoices at Scale

A collections process that works for 20 customers breaks down at 200. The bottleneck is rarely effort. The problem is visibility: without a clear, current picture of which invoices are past due, by how many days, and which customers have a pattern of paying late, follow-up ends up inconsistent and reactive.

Your AR aging report is where this starts. It segments outstanding invoices by how long they have been overdue: 0 to 30 days, 31 to 60, 61 to 90, and beyond 90. That breakdown tells you where attention is most urgent and what action is appropriate at each stage.

Most finance teams know what the right sequence looks like. The problem is executing it consistently across dozens or hundreds of accounts without things slipping. AR automation software like Upflow handles the tracking and follow-up automatically, flags accounts approaching the 90-day threshold, and logs every interaction, so your team can focus on the accounts that actually need human attention rather than manually monitoring the whole ledger.

5. Call your past-due accounts

Few finance teams do this consistently, but a phone call is often the fastest way to unblock a stuck invoice. An email can be ignored. A call is harder to avoid, and it gives you information that written communication rarely surfaces.

The right moment to pick up the phone is after two or three unanswered email reminders. By then you have a paper trail, which gives you something concrete to reference on the call rather than opening cold.

Come prepared. Have the invoice number, the outstanding balance, the original due date, and the list of reminders already sent in front of you before you dial. If your customer has questions about the invoice details, you want to be able to answer them immediately rather than saying you will follow up. That delay is how calls end without resolution.

Here is a call script you can adapt depending on the situation: