fbpx
Ultimate magazine theme for WordPress.

8 Tips For Collecting Outstanding And Overdue Invoices

The collection of outstanding and overdue invoices can be a major pain point for many Small Business Owners. It is a necessary challenge that small businesses grapple with from time to time. Beyond consuming resources, it shifts focus and time from the core competencies of improving the business and delivering better service to customers who settle their invoices as and when due. But, because the business needs money to continue trading, the Small Business Owner must do whatever needs to be done to keep the cash flowing, especially those tied to slow-paying customers.

Here are some proactive tips to improve management of the accounts receivable of the business and keep its operations running while it strives to cash in its unpaid invoices:

  • State Terms Of The Contract: The accounts receivable management process begins with the contract of sales. All sales transactions must clearly state when payments fall due, whether cash on delivery, on receipt of invoice, 30 or 90 days credit or whatever. The agreed term and due date must feature prominently on the contracts of sales and the invoice that originate from them, so that customers’ accounts payable departments and the sellers’ accounts receivable departments know exactly when invoices are due for settlement.
  • Charge A Late Payment Fee: Add a Late Payment Fee in every contract of sale. This can motivate customers to pay outstanding invoices on time or risk bearing additional charges for failing to do so. Each invoice should be clear on what the late fee is, when it will kick in and how it will start counting. It is important to include these information in the contract of sales, which must be reflected on invoices and reminder notices.
  • Send A Gentle Request For Payment: In the daily rush of work, it is easy for a customer to forget that an invoice has passed its payment date. In such a case, it is helpful to send a gentle reminder to the customer, by letter, text, email or similar means. It is important that the message reminds the customer of the outstanding payment in a friendly tone and restates details of the unfinished business. This process can begin with setting an alert on a calendar at the time of sending out the first invoice. This will prompt the due date of the invoice, and a check will determine whether to send out a reminder. The business should invest in an accounting system or invoicing software to automate this schedule of procedures for staying on top of overdue invoices.
  • Follow-Up With A Phone Call: When the friendly reminder does not yield the desired result, a personal touch should follow. Follow-up with a phone call to nudge the customer into paying the invoice. The phone conversation should stress how the non-payment is negatively affecting the business. It should attempt to discover why the customer is failing to pay, and aim to move the parties towards working out a solution that resolves the problem.
  • Negotiate Payment In Instalments: Where it is evident that a customer is willing but unable to pay, possibly because of cash flow challenges, it can be agreed for the customer to pay small amounts over time. Negotiating with, and allowing, the customer to make payments in instalments could be a win-win alternative to not paying at all. This will ease financial pressure on the business as it receives money due to it, albeit over an agreed and extended period. The customer also gets the respite of delaying the payment while parties remain in good standing to do more business in the future.

Advertisement

  • Send A Letter By Courier: If the gentle efforts to collect an unpaid invoice are proving ineffective, it may be time to step up more stringent efforts, like engaging a debt collector or initiating legal action. As a first step, send a second reminder, this time, by courier. By signing to receive the letter, the customer is providing proof of the attempts to get paid, and a subtle hint that parties may be heading for a tangle.
  • Handover To A Debt Collector: Handing an unpaid invoice to a debt collector could be the next option. A debt collection agency specialises in debt recovery and will relentlessly pursue an assigned debt until it receives payment. The debt collector will get a percentage of what it collects as its success fee and/or charge a fee, depending on the terms of engagement.
  • Initiate Legal Action: If the debt collector fails, and the amount being owed makes it worthwhile, initiating legal action against the customer might be the last card. While suing the customer might prompt the customer to pay the invoice, remember that a lawyer will charge legal fees and litigation can be expensive.

Unpaid and overdue invoices can damage customer relationships and endanger the financial future of a business. A business will begin missing its own payments once its customers are missing theirs. An effective invoice collection system boosts the cash flow of a business, and helps it to survive and thrive.

Contact Us if your business needs help in collecting its outstanding and overdue invoices.

WP to LinkedIn Auto Publish Powered By : XYZScripts.com