Getting paid on time is crucial to running a healthy business. Maintaining, planning, and growing your business is in jeopardy without consistent cash flow.
Late payments hurt, but overdue invoices and non-payment can kill.
So, what can you do to prevent overdue invoices, and what can you do to get paid for an already overdue invoice?
This article will cover 8 practical tactics for handling overdue invoices:
Although overdue and outstanding are often used synonymously, they have different meanings. And it's important to understand the differences between these two terms.
An excellent way to discourage overdue invoices is to establish a late payment fee.
Before invoicing, this late fee policy must be clearly stated in your payment terms. Having your client review and sign your payment terms before starting work is crucial. Additionally, include your late fee penalties in an easy-to-spot area on your invoices.
There are lots of options to structure your late payment fee. For example, you can charge a one-time, flat fee or percentage, an escalating percentage, or even a monthly percentage. Here are some examples:
A one-time 10% fee:
A three-month escalating 10% fee:
A Monthly 5% fee:
An early payment incentive is a carrot to our late fee penalty, the stick. Again, any payment incentive should be in your payment terms before beginning work.
A common incentive might be a 1-10% discount if the invoice is paid within seven days of receipt.
Invoice reminders are an easy way to prevent invoices from becoming overdue. Often, clients simply forget to pay invoices or are busy and miss the due dates.
If you're wondering what a good reminder schedule looks like, you can use the following:
You've done a great job communicating at this point, and your client has seen your invoice four times. Therefore, they should be aware of the invoice and know the payment is due.
Resending the invoice might seem trivial, especially if you have already sent invoice reminders, but resending after the due date has passed is a critical step.
Simply mark the invoice boldly as "overdue" and state it in the subject line as "OVERDUE: Invoice #00001" and resend it.
Often this simple step triggers clients to address the invoice quickly.
In today's day and age, we shy away from making phone calls. But, picking up the phone can be one of the best ways to collect an overdue invoice.
Once you have your client on the line, it's hard for them to ignore you. And don't worry, you don't need to say much. Here is a typical script:
Hi there, I'm calling from Acme Inc. about an overdue invoice. We have invoice #00001, which was due on June 1st and is now 30 days past due. The amount owed is $1,250. I was wondering when we can expect payment?
Once you've asked when to expect a payment, wait and get an answer with a specific date. Then, leave a note on the customers' account in your invoicing system and thank them.
It might be challenging to cut off service for a client, but you can't continue to do business for free—that is unsustainable. So if your client stops paying, you should seriously consider stopping service.
Inform your client that service will continue once invoices have been paid. Be specific about which invoices need to be paid for service to restart.
This tactic is considered aggressive but can be effective.
If you've hit a brick wall, it might be time to get more serious. You can escalate recovery by issuing a formal letter demanding payment for the overdue invoice.
Here is our step-by-step guide on how to write a demand letter, or you can use our free Demand Letter Generator.
A demand letter is an excellent way to increase the pressure and explain that there will be consequences for inaction or non-payment.
After a certain amount of time chasing an overdue invoice, you may be ready to give up. Don't. Instead, consider using a third party to recover the invoice.
Be cautious when using a traditional debt collection service. Classic debt collectors often use the most aggressive tactics and will likely bring an end to your relationship with the customer. They usually have no upfront cost but can charge 25%-50% of the collected invoice. In the end, you may get the invoice paid, but you'll lose a large portion of the invoice and potentially the customer relationship.
Alternatively, you can use a friendly automated debt collection service like InvoiceRecover.
InvoiceRecover is fully automated and will continue chasing your invoice until it is paid. Email, SMS, and phone calls are used to contact your customer across multiple channels. All the messages maintain a friendly tone to preserve your client relationship—all for a cost of $9 per invoice.
If you have an overdue invoice you are trying to collect, give InvoiceRecover a try today. Get Started.