What Should My Internal Collections Process Look Like?

Editor’s Note: This is the eighth and final installment in an eight-part series of posts by Bill Gschwind, business and construction attorney and founder of Minnesota Construction Law Services. Bill brings years of experience helping contractors get paid without wasting time, leverage, or sanity.

If you’ve made it this far in the series, you’ve heard a lot about mechanics’ liens, contracts, unpaid invoices, and collection strategies. So, let’s bring it home: what does an actual internal collections process look like for a contractor?

The answer isn’t complex – but it has to be consistent.

At Minnesota Construction Law Services, we work with owner-operators to put a system in place that helps you act before the problems become uncollectable. Here’s how we recommend building your own internal collections process.

Step 1: Set Clear Expectations in the Contract

It starts before the first invoice goes out. Your contract should spell out:

• When payments are due
• How payments are to be made
• What happens if payments are late
• What costs the customer will be responsible for if the invoice goes unpaid

If we drafted your agreement, it includes a collections cost recovery clause. That’s leverage. And it’s the beginning of a process you’ll be able to enforce later.

Step 2: Invoice Immediately and Track Due Dates

Invoice as soon as possible. Delay is the enemy of collections.

Once that invoice goes out, track the due date. Use your accounting software or a spreadsheet – but track it.

At 30 days past due, send a reminder. At 45 days, follow up again. At 60, escalate the tone and prepare for action. At 75 days, hand it off. That’s the maximum threshold we recommend.

Why 75? Because collection success rates plummet after that point, and Minnesota’s lien deadlines are ticking in the background. Don’t let the timeline expire while you’re still being “nice.”

Step 3: Be Honest About What’s Collectible

Not every invoice is worth fighting for – but every invoice should be evaluated early.

Too often, contractors hold onto bad debt out of emotion or denial. But that overdue $12,000 isn’t just a number. If your profit margin is 15%, you’ll need to book $80,000–$100,000 in new work to make that loss back.

Don’t let uncollected A/R sit on your books and distort your decision-making. If it’s bad, clear it off. If it’s collectible, escalate it.

Talk to your accountant. And if you’re unsure, talk to us.

Step 4: Automate What You Can

You’re not a collections agency – you’re a contractor. So don’t try to chase every late payment personally.

Automated invoice reminders, scheduled follow-ups, and templated emails can help you stay consistent without spending hours every week chasing down stragglers.

You’re not being rude. You’re being professional.

Step 5: Know When to Hand It Off

This might be the most important part of your process: knowing when to let go.

Once you’ve sent two or three reminders with no response, the odds of recovery start to drop fast. Customers who intend to pay will usually respond by then. The rest are waiting to see how serious you are.

By Day 75, it’s time to move it out of internal A/R and over to legal collections. That doesn’t mean you’re going nuclear – it means you’re enforcing your rights.

When MNCLS takes over, we assess lien rights, review the contract, and send a demand that shows the customer you’re serious – and that you’ve got legal support behind you.

Step 6: Learn From Every Case

Every collection is a chance to improve your system. Did you:

• Skip the deposit?
• Fail to send a signed change order?
• Miss your own reminder deadline?

Track where things broke down and fix them. Over time, your need for collections will drop, and your margins will rise.

Final Word

Collections isn’t about being aggressive. It’s about being prepared.

With the right internal process, you’ll know who owes you money, when it’s due, and what to do when it’s late. You’ll protect your lien rights. You’ll protect your cash flow. And you’ll spend more time running your business—and less time chasing checks.

Let’s put that system in place.

Missed a post? Here’s the full series:

• Blog 1: How Much Is Bad Debt Actually Costing You?
• Blog 2: Five Signs It’s Time to Hand Over the Debt
• Blog 3: How Long Should I Wait Before Escalating?
• Blog 4: Will Filing a Mechanics’ Lien Help Me Get Paid?
• Blog 5: Does It Really Matter What My Contract Says?
• Blog 6: The Insurance Company Is Holding Up the Job. Now What?
• Blog 7: Should I Write Off This Debt?
• Blog 8: What Should My Internal Collections Process Look Like?

Questions about collections? Let’s talk. This is what we do.