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Best Practice: Handling Overdue Invoices

Sometimes customers default on payments – for example, they may not pay their invoices promptly or completely. In such cases, businesses usually communicate with the customers in order to claim the receivables.

JustOn Billing & Invoice Management provides several tools that support managing outstanding payments.

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You enable and combine the AR collection tools you need – depending on the nature of your business, your company's or your customers' home, and, of course, the relevant jurisdiction.

Available Tools

This listing includes tools for collecting overdue receivables. To actively trigger timely payments, by contrast, you can use JustOn's automatic payment collection or SEPA export.

Account statements
Account statements are reports that show the billings and payments of a given account for a specific time period. Businesses can use them to remind customers of sales that have not yet been paid, without expressly stating an overdue receivable and without starting a dunning process.
JustOn implements account statements using specific statements that summarize the account's balances.
Dunning statements
Dunning statements officially notify customers of overdue payments. According to the overdue status, these notifications can progress from friendly reminders to firm warning letters.
JustOn implements dunning process support based on configurable dunning statements.
Using multiple dunning levels, you can build your individual dunning escalation scenario:
Invoice payment due
Failure to payment: First reminder
      Failure to first reminder: Second reminder
           Failure to second reminder: Final reminder
Debt collection
If the dunning communication remains unfruitful, businesses may turn customers over to debt collection agencies, who usually proceed to take other collection options.
To support this option, you can specify the name of a debt collection agency when configuring your dunning levels. When set, JustOn copies the name to the invoice, where it is then available for further custom processing – for example, as a trigger to start individual value adjustments.
Individual value adjustment
Individual value adjustment (or IVA) is an accounting procedure for devaluing receivables, for example, outstanding payment requests for invoices.
JustOn implements IVA for invoices using specific bookkeeping data.
Write-off
Write-off is an accounting procedure for reducing or completely removing the value of an asset or receivable – for example, an uncollectible payment for an invoice.
JustOn supports writing off invoices using specific balances that count against the invoice balance.

Scenario Overview

To illustrate the options in the context of invoicing, think of the following scenario:

(1) A customer defaults on paying an invoice. You notify them of the overdue payment using account statements or (multi-level) dunning reminders.

(2) As the dunning levels escalate, you may involve a debt collection agency to handle the collection on your behalf.

(3) If the invoice remains unpaid and becomes more overdue, you may consider applying individual value adjustments in parallel in order to devalue the corresponding receivable.

(4) Eventually you realize that the customer is definitely not going to pay – the receivable becomes uncollectible. In this case, you must account for the loss, writing off the open amount.

collection_escalation
Example AR collection scenario

Example Dunning Process Setup

Since dunning statements are a common tool for claiming outstanding payments in most countries, this article describes an example use case and outlines the corresponding configuration.

Assume the following dunning escalation scenario:

Invoice payment due
Failure to payment: First reminder
      Failure to first reminder: Second reminder
           Failure to second reminder: Final reminder

(1) You set up invoices due to be paid within 14 days after their date of issue.

(2) If your customer has failed to pay within the payment due period, you issue the first reminder (a friendly reminder about the outstanding payment), setting a dunning due of 14 days.

(3) If the customer has failed to pay within the dunning due period, you issue the second reminder (a firm reminder of the overdue amount 28 days after the original invoice due), setting another dunning due of 14 days.

(4) If the customer has failed again to pay within the (new) dunning due period, you issue the final reminder (a last request to pay 42 days after the original invoice due), adding a late payment charge of 5%.

(5) You want the defined escalation and the corresponding period before issuing a higher-level reminder be respected. So even if a payment is due for more than 42 days, you want the first reminder first, then, after 14 days, the second reminder, and only after another 14 days the final reminder – and not all reminders at once.

(6) Optionally, you can allow for excluding individual accounts or individual invoices from being subject to the dunning process.

To implement this scenario, you need

  • A custom formula field on the invoice to count the days after the last dunning,
  • Three Dunning Levels settings.

Calculating Days Since Last Dunning

For your escalation scenario and the defined periods to be respected, you include a condition that evaluates the days since the last dunning for a particular invoice has occurred. To calculate this period, you add a custom formula field, like, for example, DaysSinceDunning, on the Invoice object:

  1. Navigate to the fields list of the Invoice object.
  2. Create the following new field.

    API Name Data Type Value
    DaysSinceDunning Formula (Number) TODAY() - ONB2__LastDunningDate__c

Dunning Levels Information

Following the outlined example, the required Dunning Levels settings specify the following information:

Field Level 1 Value Level 2 Value Level 3 Value
Name First Reminder Second Reminder Final Reminder
Dunning Level 1 2 3
Grace Period 14 28 42
Dunning Due 14 14 14
Late Fee Rate 5%
Condition DaysOverdue__c >= :gracePeriod AND DunningLevel__c = 1 AND DaysSinceDunning__c >= 14 DaysOverdue__c >= :gracePeriod AND DunningLevel__c = 2 AND DaysSinceDunning__c >= 14

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The values of Dunning Level determine the sequence in which JustOn applies the dunning levels. Use 0 or 1 for the first dunning level to apply. Increase the value accordingly for the consecutive dunning levels.

Optionally: Excluding accounts or invoices from the dunning run

Certain circumstances may require to postpone the payment due date for invoices. This suspends applicable dunning procedures for the specified time.

As an alternative to the due date deferral, you may consider excluding specific accounts or specific invoices from being subject to the dunning process – using a so-called dunning block.

This involves the following steps:

(1) Create a custom checkbox, like, for example, PreventDunning, on the Account or Invoice object that defines whether to exclude (if true) a given record from the dunning run. Depending on your requirements, you can have this checkbox selected manually by a user, or automatically via a formula, for example, that can check a record for certain criteria and consequently select (or not select) this checkbox.

(2) In each dunning level configuration that you intend to apply, add a condition that evaluates this checkbox and consequently determines whether to exclude the current record:

PreventDunning__c = false

Following the example, JustOn excludes an invoice from the dunning run if the checkbox is selected (true) and the condition therefore yields false.

Creating Dunning Levels Settings

You create an individual Dunning Levels record for each level of your dunning escalation scenario.

  1. In Setup, open Custom Settings.

    In Salesforce Lightning, navigate to Custom Code > Custom Settings.

    In Salesforce Classic, navigate to Develop > Custom Settings.

  2. Click Manage in the row of Dunning Levels.

  3. Click New.
  4. Specify the details as necessary.

    The mandatory information include Name and Dunning Level.

    For more details, see Dunning Levels Information.

  5. Click Save.

    This creates the dunning level configuration, making it immediately available for dunning runs or individual dunning reminders.

Related information:

Customizing Dunning Reminders
Managing Dunning Reminders
How to work with draft dunning reminders?

Additional Collection Features

Depending on your requirements, your use cases may involve