Effective Outstanding Invoice Settling for Small Business Owners

By Ashutosh Jha → Last Updated on Friday, August 10, 2018
While creating and sending invoices might a tedious and time-consuming task, your invoices are the very lifeblood of your business. Without proper invoicing, your clients won’t know when (or what) to pay you, and you won’t have any history of payments or jobs.

Unfortunately, even if you are meticulous with your invoicing, there are times when you will watch an invoices deadline creep closer and closer until it flies past without so much as a peep from your customer.

Invoices Overdue Collection Tips
[Image Source: Due.com]
Unpaid invoices can threaten you business on a fundamental level since they affect the one thing that all businesses keep to stay afloat: cash flow. Without solid cash flow, your business runs the risk of not being able to pay its own bills, which is going to open you up for a world of trouble. You won’t be able to pay your employees, your suppliers, or your vendors, and you’ll get hit with late fees or with people leaving, which won’t reflect well on the company you worked so hard to create.

6 Invoices Overdue Collection Tips Those Works

So to say the least, unpaid invoices are a very big deal. If you have unpaid invoices piling up, you know you have to deal with them, but that doesn’t mean you want to necessarily lose the client. So how do you go about addressing the issue in am assertive, but not rude way?

Here are our tips for collecting on overdue invoices.

1. Have a procedure, follow it, and then contact them

Listen, even if you’re upset, the last thing you want to do is start firing off nasty emails the moment an invoice is late. This is a huge no-no. Not only is it unprofessional, it doesn’t give you time to follow your own procedure. Before you start typing or pick up the phone, take a moment to remember your own procedure for getting paid.

First, check your records to make sure you actually sent the invoice. While this may sound laughable, there are plenty of times this can be forgotten, especially in smaller businesses without huge accounting departments. Next, were the payment terms clearly laid out to the customer, showing exactly what was expected of them, when they were to pay, how they were to pay it and what the consequences would be if they didn’t?

Then, check the invoice to confirm the amount due was clear, if you sent it to the right person, and even that your address was correct.

You don’t want to get angry with a client only to realize the mistake was on your end!

Once you’ve confirmed that all was clear on your end, keep in mind that life happens and your client may be out of town, sick, or dealing with an emergency. Because of this, you should be sure to follow up with a polite email checking in with your client.

This is not a demand letter and you should avoid using phrases like past due, but instead a gentle encouragement that should be phrased more like a wellness check than a payment demand. Often times, this is enough to get you paid and will make sure that you continue to have a good working relationship with that client.

2. Offer incentives and charge penalties

You catch a lot more flies with honey, as the saying goes, so consider offering incentives for customer that settle their debts before the due date on their invoice. Early payment discounts of 1 to 2% on invoices paid in full within 10 days are not uncommon, and can incentivize your customers to get their accounts settled early.

Be sure to mention this to clients the moment they buy with you and print it clearly on all invoices. Since it’s an incentive, you should make sure your clients know about it right away.

Unfortunately, not all your clients will see this as an incentive, but they may see losing money as an incentive. To do this, add penalty fees to late invoices. You will need to make this clear on the invoice when you submit it to the client to make sure that you can legally collect.

Collecting late fees isn’t just about punishing late paying clients or forcing them to pony up the cash (though that’s important as well), it’s also about covering any financing issues you may face due to their late payments. Your bills need to be paid too, after all.

3. Speak to them like people

If you’ve gotten no response after you’ve sent your initial email, you’re going to have to send a firmer follow-up. However, you’ll want to skip the stiff, business-y approach. The simple fact is, people are people and we respond more to a human approach. Andy Clarke of Stuff & Nonsense suggests taking this approach to collect on debt: write to the person like they are a friend who has disappointed you and not a client who owes you money.

Address the late payment and your past working relationship with the client. Make it clear that their lack of payment is affecting your business’ stability, and that you’d like to continue working with them, but can’t do it unless they pay you on time.

You would be surprised with how effective this approach is over the stern, legal toned business letter. Keep in mind, this method will really hurt the working relationship, so be prepared for that as well.

4. Collections, mediation, and court

Once an invoice is 90 days past due, it’s time to consider that your client may have no plans of paying you at all. At this point, you can consider things like collections, arbitration, mediation, and even court.

Collection agencies may have more luck than you with wrangling your delinquent, however, even if they do manage to make them pay you’ll only get a minute percentage of the original invoice. Collection agencies charge a percentage of the collected invoice, which can go as high as 50%.

However, before you involve a collection agency, consider these tactics:
  • Try contacting someone else at the office of the customer you’re looking for money from. Call their accounting manager, or someone above them and see what they have to say. Of course, only do this when you’ve made several fruitless attempts to reach your original contact.
  • Review your contract carefully before going to an arbitration board, because we can guarantee they’ll be doing it as well.
  • If your client is local to you, you can use a business mediation service as well. This works a lot like civil mediation and involves a trained mediator that will work with both of you to solve the issue.
  • You can also offer to settle for less than owed. Granted, some clients will have been angling for this all along, but it can be better than getting nothing.

5. Report them to a Business Reporting Bureau

This may not work for all types of clients, but if your client runs a company that relies heavily on their reputation, threatening to report them to a business reporting bureau and making your complaint public may spur them into action. That being said, be aware that lambasting your client online is not what we’re suggesting here.

In fact, it’s been found in some countries that people leaving negative reviews online were found liable in court for those reviews—even if they were honest.

For this reason, we recommend sticking with a reputable business reporting bureau, whose ratings can even affect whether or not a person can get credit.

6. Invoice factor the client

As a final tactic, you can sell the outstanding invoices that are less than 90 days old to a factored. Invoice factoring allows you to sell your invoices as assets to a third party. This will allow your business to get paid up to 80% of the value of the invoices immediately, allowing you to get cash flow back into your business and letting you keep running your company. If you visit InvoiceFinancingAustralia.com.au, you can learn more about this concept.

You will have to make sure your company qualifies for invoice factoring first, and also that your unpaying clients can actually have invoice factoring used against them. If your clients are registered businesses or associations, and not simply people, then invoice factoring can be used. Otherwise, invoice factoring may not be permitted.

Of course, like anything in life, invoice factoring isn’t free. Administration fees are charged on the amount of the invoice so that the factoring company can pay their own bills. This fee can vary from client to client and depends on how much capital is needed and what your businesses’ payment terms are.

Luckily, if you do opt for invoice factoring, you don’t need to secure the invoices like you would a loan (even though they are considered a loan).

Avoid Unpaid Invoices

Finally, if you want to avoid the hassle of dealing with unpaid invoices in the first place, you should take a couple steps with new clients before doing business with them. For one, make sure to research new clients to confirm that there are no complaints against them, and make sure you get a signed business contract with them when you do start doing business.

If they have no track record, make sure you keep detailed records and you can even ask for a percentage of or full payment up front until you’ve established a working relationship.

Also, make sure you’re easy to pay. Set up recurring invoices, work on strong relationships, and make sure you know when an invoice is worth chasing.

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Ashutosh Jha

Ashutosh Jha is a professional blogger, Blog and IT Consultant. He writes about Blogging, SEO, Making Money, Internet Marketing and Web Design.
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