Invoices being paid late or not at all can pose a serious threat to your business's financial health. Unpaid invoices have a significant impact upon your company's cash flow and ultimately ability to function. Having a solid system for chasing late invoice payments is crucial in a company's financial management. This is why we've compiled this short guide to chasing overdue invoice payments.
How to avoid client's invoices being paid late
In small businesses, chasing invoices can take up a lot of your team's time - even if you have an accounts department. This is why it's advisable to take steps to try and prevent late payments. When you are dealing with prospective customers, it might be useful to run a credit check on them to make sure you have reliable customers and your invoices get paid on time. Setting clear payment terms can also help eradicate any doubt about payment deadlines. You could also include late payment penalties in your terms, charging eg late payment interest. Another way of improving this could be an automated invoice and payment process through eh direct debit.
Chasing a late payment
It is advisable to always get in touch with the client whose payment you are waiting for as a first step. In many cases, this will solve the problem, because the client has just forgotten or is dealing with a backlog and can let you know when they can pay. This is best done through a friendly phone call or email.
It is important to get your wording right when contacting a client about a late invoice payment. Keep the conversation friendly and use respectful wording when requesting payment. Of course, if the payment is eg. 3 months late, you do need to amend your wording to communicate the urgency of the matter.
However you word this, it is helpful to attach a copy of the outstanding invoice to the email. It is easier for the client to access the invoice quickly and initiate prompt payment. Also, ensure the subject line includes everything your client needs to know (eg original due date, invoice number, etc).
You can save yourself and your small business time and cost by using invoice templates as well as an overdue invoice letter or email template.
We recommend sending an email to get in touch with a client about an unpaid invoice. See below for a short example of an overdue invoice letter (payment approx. 10 days late):
Subject line: Overdue invoice [Invoice Number Here] for [Product/Service Here] due [Due Date Here]
I hope you are well!
This is a friendly reminder that we haven’t received invoice payment [Invoice Number Here] for [Product/Service Here]. The payment was due on [Due Date Here].
We have attached the invoice again for your reference. Do let us know if the original invoice hasn't been received. Our invoice dates are [X]. Please do let us know when we can expect payment. If there are any questions, do not hesitate to get in touch with us.
Have a good week
Of course, if your invoice is due for a longer period, it is worth adapting the language to include eg "we would like to advise that this needs urgent attention", or "please ensure the invoice is paid within X number of days". If written correspondence is not solving the problem of a client's overdue invoices, you may need to take legal action.