How to Effectively Follow Up on Past Due Invoices

Sometimes the simplest tactics are the ones that get you paid!

Nearly all small business owners have experienced the stress of a past due invoice. According to research, more than a quarter of small firms report payment delays of more than 30 days, and more than half of small business owners attribute their current cash flow issues to late payments from clients in the form of a past due invoice.

What is a Past Due Invoice?

A past-due invoice is one that hasn’t been paid by the due date specified in the terms and conditions governing invoice payment.

Your business is at risk from late payments since you are dependent on your customers to pay their invoices. Even if you have to work a little harder to collect, it’s crucial to maintain your composure when dealing with past-due payments. However, dealing with client debt is something that makes a lot of small business owners uncomfortable.

Here are some simple steps to take to get those past due invoices paid while remaining on cordial terms with your clients.

1. Agree to a preferred invoice payment method up-front

For faster payments, hold the invoice conversation right at the start, before you do the work. If it’s too late for that, don’t beat yourself up. There’s always next time.

But it can be easier to get payments on time if you’ve determined these two specific logistics of what your client wants and needs in an invoice:

Who should get the invoice: Sometimes it’s the client themselves, sometimes it’s the accounting department, or both. Make sure you know the procedure to expedite smoother, faster payment.

How they like to pay: Offering your customers more payment options, such as credit card, eCheck, or direct bank transfer, ensures that there’s no holdup for an easily avoidable reason.

It happens all the time: a customer gets used to paying for practically everything in one way, only to grow frustrated when that payment method isn’t offered.

For example, if they only use their credit card for purchases, and you need a check, they might never have the time to retrieve their checkbook, get a stamp, and mail the check.

If your client hasn’t paid you on time, all it may take is to ask, “Would you prefer to pay another way?,” to ensure that they do so in the future.

Make it clear on the invoice what your customer is paying for

Clients are more likely to pay on time when the invoice makes what they’re paying for crystal clear. That’s why you want to make sure you’ve included all the information a client needs.

This could include:

• Consultation time
• Hours spent on specific tasks
• Research time
• Distinct project numbers for pre-defined deliverables
• Cost of materials

If you haven’t yet cataloged your products or services, it’s a worthwhile exercise that can make everything from marketing your business to sending invoices more efficient in the future.

You should also check that your payment terms and due date are featured in a prominent place on your invoice design. Without clear payment terms, it’s your word against theirs when an invoice is actually “late.”

You may be tempted to put “immediate payment,” but that can be confusing to some clients. Adding a date gives them a concrete target to meet. The most common payment term is “Net 30,” which means the recipient must pay their invoice within 30 days of the invoice date.

Be proactive and remind customers of their outstanding payments. Sending a reminder that their payment is due next week gives them a heads up, and may get the money you’re owed in your hands more quickly.

3. Establish a process for following up on past due invoices

Having “the conversation” about past due payments is a huge source of anxiety, especially when paying your own bills on time depends on the cash flow this late invoice represents.

However, like everything else we’ve discussed, having a system for following up on late payments can help you keep calm, and move on to your other work.

The easiest way to create such a system is to get into the habit of sending polite reminders when an invoice is past due.

When writing a past-due invoice letter, include the following details:

• The invoice number
• The date the invoice was issued
• The invoice due date
• The transaction payment terms
• The amount owed, including any late fees
• Instructions for payment
• Your phone number and contact information

This will help ensure your customer has all the information needed to pay the overdue invoice at their fingertips, and they won’t need to look anything up to make a quick payment. Getting so busy that they simply forget to pay an invoice is something probably every small business owner has done, and this will help prevent that.

Although no business owner likes to deal with unpaid debts, the majority eventually run into late payments. You will be able to concentrate more on completing the work and expanding your business by proactively setting up procedures and practices that provide clarity around your accounts receivable and keep you protected.

Ready to elevate your business’s financial health and unlock new opportunities for growth? Don’t leave your financial success to chance. Partner with the experienced team at K.K. Chartered Professional Accountant. Since 2008, we’ve been empowering businesses in Hamilton, Ancaster, Kitchener-Waterloo, and the GTA to achieve their full potential. Schedule a consultation today and discover how we can transform your financial outlook.