Managing overdue invoices is a crucial aspect of running a business. Late payments can cause cash flow problems and may impact the ability to pay your own bills.
1. Set clear payment terms
Make sure that your payment terms are clear and easy to understand. An invoice should include the due date, late fees, invoice number and any information about late payments.
Ensure that you communicate to your customers what you expect from them.
2. Make it easy to pay
Payment preferences vary from customer to customer. Some prefer to pay by direct debit, while others want to make payment manually. Consider options like online credit card payments, PayPal, or cheque.
Offering a variety of payment options increases your chances of getting paid on time.
3. Offer incentives to pay early
Offering early payment discounts is an effective way to encourage customers to pay on time. A small incentive of 1-2% of the total invoice amount can motivate customers to pay early, and result in more reliable and efficient payments. This will improve cash flow and reduce overdue payments, and boost your business’s bottom line.
4. Send accurate and timely invoices
Ensure the invoices you are sending are accurate and sent on time. Invoice should include sure to necessary contact information, invoice number, description of the product or service. You should also include total amount due, and the payment due date. Accuracy is crucial for receiving your payment on. It also helps to avoid any misunderstandings or disputes.
5. Send them a friendly reminder email
Customers often forget or overlook messages in their inboxes. Send them a reminder when they are past the due date.. If you need help setting up your email reminders, use our friendly template.
Friendly reminder letter
Another reason to send a reminder? The further you get past the due date, the less likely they are to pay. In a study by Due.com, 18% of customers who haven’t paid an invoice within 90 days will never pay it.
Is is possible to automate the invoice reminder process too using invoicing software.
Consider a read receipt to ensure invoices are delivered to valid email addresses and opened by the recipient. Read receipts can be requested in Gmail if you are using Google Workspace or Outlook.
6. Make a phone call to follow up
If invoices are overdue and your customer is not responding, these should be follows up directly. Calling your customer gives them the chance to clarify and ask questions.
If the customer isn’t able to pay the entire amount right away, this is the chance to discuss a payment plan too.
7. Charge late fees
Customers can be motivated by late payment fees. Invoices with late payments usually incur penalties of 1% to 1.5%.
Check your state’s laws before implementing late payment fees. It’s important to research whether or not late fees is prohibited by specific regulations. Invoices and contracts should also disclose these charges.
8. Issue a final warning letter
We must ensure that our customers comprehend that if we do not receive payment soon, we may need to take the next step.
Sending a final notice letter is the best way to ensure your customers understand that they may face consequences if they fail to pay.
It serves as a final warning to customers who fail to repay money owed.
Sending an overdue invoice letter has a few key benefits:
- Seriousness about getting paid is demonstrated
- One last opportunity for the customer to pay the invoice is provided.
- It may motivate the customer to take action and avoid further conflict or tension or penalties.
If you need help writing a final warning letter, use our final notice template below.
Final notice letter
9. Cut off customers until they pay overdue invoices
When a customer hasn’t paid a late invoice, you shouldn’t do any more work or sell more products.
You are essentially giving those customers free products or services. This may impact your bottom line and make it harder to obtain payment in the future since you are setting a precedent for accepting the situation in the future.
In addition, continuing to work with delinquent customers can lead to tension and conflict with customers who pay on time. You may find that a customer who routinely pays on time does not take your collections seriously if they discover that you are working with other customers whose past-due invoices have not been paid.
As a final point, there is always the possibility that these customers will never pay their outstanding invoices. By cutting them off until they do, you protect yourself from future losses.
10. Consider a debt collection agency
As a final step to recover unpaid debts, you may want to consider using the services of a debt collection agency. Such agencies specialise in recovering debts by communicating directly with the debtor and conveying the seriousness of the consequences of not paying the outstanding debt.
Before engaging a debt collection agency, it is important to bear in mind that both you and the agency must comply with the laws that prohibit prohibited debt collection practices. Failure to do so may result in criminal penalties. Therefore, it is essential to conduct thorough research before selecting a debt collection agency to ensure that they operate ethically and legally.
To learn more about fair debt collection practices, visit the Treating Customers Fairly: Debt Collection page on the ACCC website. By following these guidelines and remaining vigilant, you can maximize your chances of recovering the debts owed to you while maintaining ethical and legal business practices.
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