5 Things Not To Do In Your Overdue Notices To Customers

Navigating overdue invoices is one of those annoying tasks that just about every business owner has to do. You’re probably a little bit annoyed that your customer hasn’t paid on time, and you want to encourage them to pay ASAP without damaging the relationship you have.

It’s a fine balance, and there are a few common traps that you want to avoid.

TL; DR

When chasing a late invoice payment, DONT:
– Set unrealistic payment terms
– Forget to include the original invoice
– Follow up at the wrong time
– Use the same language for subsequent notices
– Forget to offer a payment plan

And, if you want to relieve the financial pressure of overdue invoices, consider invoice financing to get you through. 

Impact of overdue invoices on your business

The impact of unpaid invoices on business can be extremely serious. The biggest issue of long overdue invoices is on cash flow – without that money coming in, businesses have to be able to cover overheads and other costs from their own pocket. 

Many small businesses operate on fine margins, and may not be able to cover these costs for long. In the worst case scenario, it can be enough to send businesses under.

In fact, poor cash flow contributes to more than 80% of business failures. 

What causes overdue invoices?

Ultimately, your goal is to encourage and enable all of your customers to pay all their invoices on time, all the time. With that in mind, the starting point is understanding the causes of overdue invoices so you can address these specific points.

• The customer didn’t receive the invoice
• They didn’t realise the due date
• They had a query about the invoice
• They forgot about it, or didn’t process it properly
• They’re in financial difficulty

Often, there’s no reason why a customer didn’t pay the invoice on time. Unfortunately, it’s just one of those things that can happen, and there’s not a lot you can do about it.

However, you CAN do something about many of the other reasons for an unpaid invoice. The trick is going about it the right way, and avoiding the common invoicing mistakes.

5 things not to do in your overdue notices to customers

When an invoice is overdue for payment, the first thing you’ll look to do is to contact your customer to remind them payment is outstanding. 

The wording for overdue invoice reminders is important. The trick is to strike the right balance between being polite and stressing the importance of having the invoice paid as soon as possible. 

As we’ve mentioned, it may be a simple case of the customer having forgotten about it, or making a mistake in processing the invoice.

Read more: How to create tactful late invoice reminders

Here’s what you should avoid:

Not setting realistic payment terms

Your payment terms outline how often you’ll invoice and when invoices will be due. While your goal is to be paid as soon as possible, it’s simply unrealistic to send an invoice and expect it to be paid the next day.

To set realistic invoice payment terms, spend time understanding what’s normal for your industry. Stick to these norms as much as possible – it’ll be what your customers are used to.

Not including all invoice and overdue payment details

Attach the invoice to the reminder notice. This saves your customer having to go looking for it – remember, they may not have received it in the first place. 

This makes it easier for the customer to take action. Make the important details obvious – your name, the amount owing, how to pay and your contact details for any issues.

Not following up at the right time

When is the right time? If a customer still doesn’t pay, you may have to contact them more than once. 

Read more: Tips for successfully chasing late invoice payments

You can schedule automated emails using your invoicing or accounting software. This means you don’t have to spend time crafting carefully worded emails all the time – once you’ve written one, you can use it again and again. 

Here’s a good cadence to follow:

• The day an invoice is due
• A week after the due date
• 30, 60 and 90 days after the due date

If you have a customer who regularly pays late, you might want to email them before the due date to remind them it’s coming up. 

It also helps to avoid periods of busy email traffic. Tuesdays are considered a good day to email, especially just before or after lunch. 

Not adjusting the collection letter language based on days past due

The longer a customer doesn’t pay an invoice, the more you can adjust the wording of your overdue notice. 

• Less than two weeks overdue: Be friendly and polite. Gently remind your customer they owe the balance of the invoice.
• 30-60 days overdue. Start to get a little firmer. You can ask them to pay as soon as possible – the invoice is very late by this point, and you can point this out to them. You can remind them if you have late fees that will apply, or outline the next steps you will take if they continue to refuse to pay.
• 90+ days overdue. If a customer doesn’t pay an invoice for 90 days past the due date, your relationship with them is likely over. Your language can switch to being about recovering what’s owed rather than preserving the relationship for future business. 

This may include appointing a collection agency to pursue the debt. Tell the customer that’s what you’ll do next and give them a firm date when you’ll do it if they still haven’t paid.

Not offering a payment plan

If a customer can’t afford to pay a whole invoice in one payment, they may be waiting for a cash injection of their own before they pay you. A payment plan offers them a way out, and gives you the cash flow of at least a portion of the invoice.

You can offer a payment plan at any time – if it’s a large invoice, you may offer it when you first send it. Otherwise, if the invoice is overdue and you suspect it’s because it’s a large invoice for the customer to pay, then it can help to get some money coming in. 

A payment plan is a good option because it helps to preserve your relationship with the customer while also providing another option to get the invoice paid (at least in part).

Friendly payment reminder letter templates

OK, let’s make chasing overdue invoices easy. Use these templates in your accounting or invoicing system to automate payment reminders and give yourself the best chance of successfully navigating late invoices.

1-15 Days Past Due

Hi [Client Name],

Just a quick reminder that Invoice [NUMBER] is overdue. According to our records, $XX is now [NUMBER OF DAYS] overdue.

Here’s a summary of your account:

Invoice Number:
Amount Due:
Due Date:

The invoice is attached here for reference, with payment options.

Let me know if you have any questions or if there’s anything more you need from me.

Best,

[YOUR NAME]

30-60 Days Past Due

Dear [Client Name],

I’m just following up invoice [NUMBER], which remains overdue. The balance of $XX was due on [DATE], and our records show it is still outstanding. 

This matter requires your urgent attention. Please send payment as soon as possible. Invoice late payment fees also apply, and if the account remains unsettled we may be forced to take further action.

Invoice [NUMBER] is attached for your reference. A summary of the account is as follows:

Invoice Number:
Amount Due:
Due Date:

Our payment terms are 30 days from the date of issue, as established in our contract. Your account now has an additional late fee of [LATE FEE RATE].

Please contact me immediately about when we can expect the payment. 

Sincerely,

[YOUR NAME]

90+ Days Past Due

Dear [Client Name],

We require your urgent attention to settle invoice [NUMBER], which is now 90 days overdue. We’ve contacted you twice about this matter already, and $XX is still outstanding. 

Late fees of $XX apply, as per our terms. We request that you make payment within 10 business days. If not, we will refer your account to a collection agency. 

Invoice [NUMBER] is attached for your reference. A summary of the account is as follows:

Invoice Number:
Amount Due:
Due Date:

Please let us know immediately when you plan to send payment. 

Sincerely,

[YOUR NAME]

Enforce late penalties on overdue invoices

When it comes to adding interest to overdue invoices, there are two things you need to know:

1. To charge late fees, you need to communicate them with your customer in advance. This is a legal requirement – you can’t charge interest on overdue payments without advance warning that it’s a possibility.
2. If you say you’re going to charge a late fee, you have to be prepared to follow through. The whole point of a late fee is to encourage customers to pay their invoice on time. If you waive your late fee, they may not be worried about letting their account become overdue in the future.

Take home message

The biggest issue with late invoice payments is it puts financial pressure on your business. This is where invoice financing can help while you chase late invoice payment.

Invoice financing works by essentially getting a loan against the value of your invoice. An invoice finance company like FundTap pays you the value of the invoice almost immediately, and the balance is repaid once the customer pays the invoice. 

While you still have to chase the customer for invoice payment, you’ll at least be able to cover your overheads in the meantime. 

FundTap is designed with small businesses in mind. It’s fast, easy and an effective way for businesses to fund their growth without using traditional lending.

Find out more about how FundTap works, or check out a free demo today.