Customer refuses to fulfill contractual obligation. Now what?

@Brian Hartley , @Will Pagden  and I were bonding over the fact collections can be a painful part of the churn process in another thread (which I'll selfishly plug here). Fortunately, we don't see too much of this, but still is something we could be better at.

1. How do you handle collections?
2. What's your threshold to holding a customer to term vs letting them out?
3. Any tips and tricks to have a higher rate of collecting?