Legal escalation sounds quite serious, but it's a tool in the Account Manager toolkit for when a customer refuses to pay. How does it work? If an invoice isn't paid after the set number of days, then a trigger can be set to escalate to your company's legal team.
This is still an internal process. When you escalate, you are basically asking the lawyers, "Is this a case where we need to take legal action?" The lawyers can then determine the proper next steps for handling the debt. The legal team will receive the entire summary of timeline for the customer against whom legal escalation is being sought.