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Collections Procedure

Document Type: Procedure
Version: 1.0
Last Updated: February 2026
Distribute To: AR Team, Project Managers, Executives

Purpose​

Establish a systematic approach to collecting past-due receivables while maintaining professional relationships and preserving lien rights.

Collections Timeline​

Days Past DueActionResponsible
0 (Due Date)Verify payment receivedAR
1-5Courtesy reminder call/emailAR
6-15Formal past-due noticeAR
16-30PM escalation and follow-upPM
31-45Management escalationAR Manager
46-60Demand letterAR Manager
61-90Executive involvement, legal reviewExecutive
90+Legal action / lien filingLegal

CRITICAL: California mechanics lien must be filed within 90 days of completion. Monitor lien deadlines throughout collections process.

Stage 1: Courtesy Reminder (Days 1-5)​

Day 1: Payment Verification​

  1. Check all payment channels:

    • Mailroom for checks
    • Bank for ACH/wire
    • Online payment portal

  2. If not received, verify with owner:

    • Was payment sent?
    • Mailing address correct?
    • Any processing issues?

Days 3-5: Courtesy Call/Email​

Sample Email:

Subject: Payment Status Inquiry - [Project Name] - Pay App #[X]

Hello [Name],

I hope this message finds you well. I'm reaching out regarding 
Pay Application #[X] for [Project Name] in the amount of $[Amount], 
which was due on [Date].

Could you please confirm the payment status? If payment has been 
sent, please disregard this message.

If you have any questions about the invoice, please let me know 
and I'll be happy to assist.

Thank you,
[Your Name]
[Company]
[Phone]

Stage 2: Formal Past-Due Notice (Days 6-15)​

Day 7: First Formal Notice​

Sample Letter:

[Date]

[Owner/Company Name]
[Address]

RE: Past Due Payment Notice
    Project: [Project Name]
    Pay Application #: [Number]
    Amount Due: $[Amount]
    Due Date: [Date]
    Days Past Due: [X]

Dear [Name],

Our records indicate that the above-referenced payment is now 
[X] days past due. The current past-due balance is $[Amount].

Please remit payment immediately or contact us to discuss 
payment arrangements.

If payment has already been sent, please disregard this notice 
and accept our thanks.

Sincerely,
[Name]
[Title]
[Company]

Day 14: Second Notice​

Escalate tone, mention potential work impact:

  • Reference contract payment terms
  • Note potential impact to project progress
  • Request immediate response

Stage 3: PM Escalation (Days 16-30)​

PM Actions Required​

  1. Direct Contact with Owner Rep

    • Schedule call or meeting
    • Understand reason for delay
    • Document conversation

  2. Assess Potential Issues

    • Disputed work?
    • Missing documentation?
    • Owner cash flow issues?
    • Dissatisfaction with work?

  3. Negotiate Resolution

    • Partial payment?
    • Payment plan?
    • Work resolution?

  4. Document Everything

    • Email confirmation of discussions
    • Agreed actions and timelines
    • Escalation if not resolved

Work Impact Assessment​

Consider:

  • Suspending work per contract terms
  • Stopping procurement
  • Notifying subs of payment issues
  • Protecting lien rights

Stage 4: Management Escalation (Days 31-45)​

AR Manager Actions​

  1. Review Account

    • Full payment history
    • All correspondence
    • Contract terms
    • Lien deadline status

  2. Management Call

    • Schedule call with owner's decision-maker
    • AR Manager + PM + Executive (if needed)
    • Discuss resolution options

  3. Written Demand

    • Formal demand for payment
    • Reference contract terms
    • Note potential consequences

Sample Demand Letter Elements:

  • Account history and amounts due
  • Contract payment terms violated
  • Interest accruing (if applicable)
  • Consequences of continued non-payment
  • Deadline for response

Stage 5: Formal Demand (Days 46-60)​

Demand Letter Requirements​

Send via:

  • Certified mail, return receipt requested
  • Email with read receipt
  • Hand delivery with signature

Include:

  • Total amount due with breakdown
  • Payment terms from contract
  • Interest calculation (if contractual)
  • Notice of potential lien
  • Deadline for payment (typically 10-14 days)
  • Consequences of non-payment

Simultaneously:​

  1. Review Lien Rights

    • Verify preliminary notice was sent
    • Calculate lien deadline
    • Prepare lien documents (do not file yet)

  2. Assess Relationship

    • Ongoing project work?
    • Future work at risk?
    • Other projects with this owner?

  3. Legal Review

    • Send file to legal counsel
    • Review contract dispute provisions
    • Assess likelihood of collection

Stage 6: Executive & Legal (Days 61-90)​

Executive Involvement​

  1. Final Demand Call

    • Principal to principal communication
    • Final offer for resolution
    • Clear deadline

  2. Decision Point

    • Continue work or stop?
    • Legal action or write-off?
    • Impact on company
ActionDescriptionTimeline
Mechanics LienFile lien on propertyWithin 90 days of completion
Stop NoticeClaim against construction fundsPer state law
Payment Bond ClaimClaim against surety (public work)Per bond terms
Breach of ContractLawsuit for paymentVaries by jurisdiction
Mediation/ArbitrationPer contract termsVaries

Protecting Lien Rights​

Critical Deadlines (California)​

ActionDeadline
Preliminary NoticeWithin 20 days of first work
Mechanics Lien90 days after completion
Lawsuit to Enforce Lien90 days after lien recording

WARNING: Missing lien deadlines forfeits lien rights permanently.

Lien Decision Factors​

Consider filing lien when:

  • Payment significantly overdue (60+ days)
  • Owner non-responsive
  • No reasonable payment plan
  • Project near completion
  • Large amount at stake

Consider NOT filing when:

  • Payment promised and likely
  • Relationship worth preserving
  • Amount small relative to legal costs
  • Work ongoing, lien could cause termination

Documentation Requirements​

Throughout collections, maintain:

  • All payment applications and proof of submission
  • Proof of receipt of goods/services
  • All correspondence (emails, letters, notes)
  • Phone call logs with dates and summaries
  • Preliminary notice (proof of service)
  • Contract and payment terms
  • Change orders and approvals
  • Lien waivers exchanged
  • Demand letters (proof of delivery)

Collections Call Script​

"Hello, this is [Name] from [Company] calling about your account 
for the [Project Name] project.

I'm calling because we have an outstanding balance of $[Amount] 
that was due on [Date], which is now [X] days past due.

Is there anything preventing payment at this time?

[Listen to response]

[If dispute]: I understand. Let me connect you with our Project 
Manager to resolve this issue. In the meantime, are there any 
undisputed amounts that can be paid?

[If cash flow]: I understand cash flow can be challenging. Would 
a payment plan help? We could discuss breaking this into [X] 
installments.

[If payment coming]: Thank you. When can we expect payment? I'll 
make a note and follow up if we don't receive it by [Date].

Thank you for your time. Please don't hesitate to call if you 
have any questions."

Payment Plan Guidelines​

If negotiating payment plan:

  1. Get it in Writing

    • Payment amounts and dates
    • Interest on past-due (if applicable)
    • Consequences of missed payment
    • Signed by authorized person

  2. Monitor Closely

    • Track each payment due date
    • Follow up immediately if missed
    • One missed payment = escalate

  3. Continue Protecting Rights

    • Monitor lien deadlines
    • File lien if plan fails

Reporting​

Weekly AR Aging Report​

Include:

  • Current (0-30 days)
  • 31-60 days past due
  • 61-90 days past due
  • Over 90 days past due
  • Total past due
  • Collection actions in progress

Monthly Management Report​

Include:

  • AR aging summary
  • Collection activities by account
  • Lien status updates
  • Write-off recommendations
  • Cash flow projections
  • Preliminary Notice Procedure
  • Mechanics Lien Filing Guide
  • Payment Bond Claim Procedure
  • Collection Letter Templates
  • Payment Plan Agreement Template

Template provided by support.construction. Customize for your company and jurisdiction.