It’s annoying when clients don’t pay invoices on time. When you’ve done work they’re satisfied with and sent through an invoice, you expect payment to take care of itself.
Unfortunately, sometimes it just doesn’t happen. This is just one of those realities that everyone has to face. Clients may have missed the invoice, lost it or forgotten it.
Different people have different ways of chasing outstanding invoices. One of the toughest things about it is, how do you do it in a way that preserves your relationship with the client? You don’t want to be too aggressive, but you also want to be assertive enough so they know they need to pay the invoice now.
This article is everything you need to know about chasing outstanding invoices so you can get paid quickly.
Unpaid invoices have a huge impact on business cash flow. Business costs don’t wait around for invoices to be paid, and if you don’t have money coming in then you have to rely on cash reserves to pay things like bills and wages, or purchase goods.
Cash flow is extremely important in any business. Businesses have a range of costs, but invoices are the main income stream. Time spent chasing outstanding invoices is also a sunk cost, taking you away from your core business.
When clients don’t pay invoices, it may be a sign of financial distress. This can mean invoices never get paid, which is the worst case scenario. However, there are signs to look out for that can signal this in advance.
Warning signs include:
In these instances, it may be worth considering your options. Ensure you have good terms and conditions in place. If you’re supplying goods to that client, you might want to refrain from actually handing over those goods until you’ve been paid.
If you’re concerned that the client may be heading towards the point of not being able to pay an invoice, you might also consider refusing to work with them.
Navigating late invoices is about communicating well with your debtors. The primary goal is to get them paid in full, on time. Failing that, chasing outstanding invoices is all about getting them paid as soon as possible.
This is a process you can follow to increase your likelihood of getting invoices paid on time.
It all starts from before you even send the invoice. First and foremost, a good invoicing system is about clarity. It should be easy for the recipient to see who you are, how much they owe you, when it’s due and how to make payment.
It helps to have clear expectations around prices with clients. If they haven’t paid an outstanding invoice, it may be because they’re questioning the amount you’re charging.
If you anticipate charging interest on outstanding invoices, the client should know that too. Regardless of who’s at fault, they’re not likely to be pleased to be charged a surprise interest fee.
Similarly, you’ll want to set realistic payment terms that clients can satisfy. Most notably, this means allowing them a reasonable amount of time to pay the invoice.
Things can get a little awkward once due dates have been and gone. It’s standard to allow a grace period of a couple of days, but if it still hasn’t been paid then you can follow up with a gentle reminder.
Hi Imogen, hope you’re well.
I’m just following up the invoice for last month, which was due two days ago. Just making sure you’ve received it and everything is in order.
I’ve re-attached the invoice for reference. Let me know if there is anything I can do to help.
If you still have outstanding invoices to be paid after another few days, it helps to try and call them. Emails can easily be missed, or flagged emails can get forgotten about.
Following up with a phone call can also help the client to let you know if there’s anything else going on that you should know.
If that doesn’t work and you STILL haven’t been paid, don’t give up unless you’re prepared to forgo the invoice. Going quiet will almost definitely result in it not being paid.
There are other things you can do to ease the pain of chasing invoices. These deal with the frustration, time and money that it costs you to follow up with people who owe you money.
If you have one customer that has a number of missed invoices, you can summarise them in a statement of accounts. This shows all of their outstanding invoices in one place.
It can be extremely frustrating to have someone that owes multiple payments pay only one of the outstanding invoices. A statement of accounts increases the chances of them paying all of their debts at once.
Late fees are perfectly acceptable, and can provide added impetus for the client to pay before incurring any more charges.
As mentioned previously, it’s important to make your policy around charging them clear from the beginning. In New Zealand, companies can only charge a late payment fee if they tell clients about it before they enter into an agreement. This is one reason why having an agreed set of payment terms is beneficial.
How much should you charge, and when? In the UK, government legislation allows small businesses to charge up to 8% interest, and this may be a helpful guide.
When should you charge a late fee? Strictly speaking, a payment is late as soon as the due date has been and gone. Again, it helps to be clear in your payment terms about when a late fee will be charged. Going back to the UK, if there are no prior terms, a payment is considered late if it hasn’t been paid 30 days after the invoice was delivered.
One of the challenges with chasing outstanding invoices is that it takes you away from your core work. Most accounting software comes with the option to automate reminders for outstanding invoices.
Reminders will go out at set times after an outstanding invoice was due to be paid, allowing you to focus on other things. This is particularly useful in small to medium-sized businesses where staff have more pressing tasks.
Debt collectors can be extremely effective at getting invoices paid, however they often take at least 25% of the invoice in fees. On top of that, it’s likely to bring an end to your relationship with the client, so it should be a last resort.
If even the debt collector didn’t work – or you chose not to go down that path – then you can take the client to court. Hiring a lawyer is expensive, which may ultimately end up wiping out the value of the invoice. And, even if you think you have a strong case, there’s no guarantee you will win.
However, if the outstanding invoice is for a significant amount and you think it’s worth the time and energy that legal proceedings require, then going to court is an option.
The exact nature of the court action will depend on a few different factors, such as the size and nature of the client’s business. It’s worth engaging a specialist lawyer who can expertly navigate the nuances of your particular case.
No one likes chasing outstanding invoices, but sometimes it’s necessary to get paid. However, there is another option altogether.
FundTap increases business’ short term cash flow by immediately paying your invoices when they’re sent out. When your client pays the invoice, you repay FundTap by direct debit. No more chasing customers to get late invoices paid, and no more having to worry about cash flow.
FundTap links directly into your accounting system to make it easy. Applications to have invoices paid are processed within one hour, and there are no added establishment, admin or system fees. The only fee is for the funding you receive, and it starts as low as 4% of the value of the invoice.
If you don’t want to use FundTap on an invoice, that’s fine. You can select only the invoices you want paid, without any penalty.
Check out how FundTap can prevent you from having to chase outstanding invoices today.