How to Deal With Overdue Invoices and Get Your Money Faster
Payment reminder emails can be awkward. You’ve done the work, emailed your client the invoice along with the terms – and now the payment is overdue. It’s common, aggravating, but most importantly it’s distracting you from the more critical aspects of your business.
Healthy cash flow is paramount to any company, especially when it comes to small businesses. Therefore, knowing how to tackle overdue invoices is an important skill for company’s success and survival. When it comes to chasing late payment, slow and steady never wins the race.
Here are 10 of our top tips for getting those payments sorted in time while keeping your client relationships strong.
1. Check your facts
Are you aware who should get the invoice? Sometimes the person who placed the order may not be the right person to contact for payments. What information should be on the invoice? Do you need a purchase order number, contract number or address, or anything else to be paid? These kinds of mistakes and confusions can drag the invoicing process very long.
Customer relationship management (CRM) software is an excellent resource for keeping up with your client information. Keep track of customer data like balance, pending invoices, email communication – and always stay on top of your customer relationship.
2. Agree on terms ?
Make sure that everyone involved knows exactly what the payment terms and expectations are.
Clear invoices are the first line of defense when it comes to getting paid on time. Lay out beforehand when invoices will be sent, when they’re due, how should the payment be made, what your late payment penalties are, etc.
P.S. Be aware that bigger companies sometimes have their own accounts payables procedures in place. They pay in the time frame their internal policies dictate, not yours. That time frame could be 45 to 60 days or even more.
3. Automate the process
Automated invoicing software lets you monitor your invoice statuses in real time at any time – regardless of whether you are in the office or on the road.
Set up automated recurring billing, invoice overdue reminders, send beautiful customized invoices – and track every step of the way with notifications when your invoices have been viewed, paid, and deposited. Deploying an automated invoicing solution can significantly reduce the time, cost, risk, and complexity of capturing, routing and approving invoices.
These small steps in efficiency on your side make it easier for the customer to make the payments when it’s time.
Read on: 19 Best Invoicing Software That Get You Paid On Time
4. Make it easy to pay you ?
Let your customers choose their preferred payment method, set up a system where they can pay you instantly if they want to, and send them payment reminders before payment is due.
Offering more ways to pay leaves the client with very little excuses not to pay on time. Thanks to today’s more flexible banking and payment technology platforms you can accept credit card payments, online bill payment systems, direct deposit, and more. It might be that a client has not been paid themselves and only has a credit card to use, so if you accept this payment type, you may find that you get paid on time.
By showing you are flexible and want to make it as easy as possible, you increase the likelihood that your clients will pay on time.
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5. Invoice more often ?
Don’t let a large amount of outstanding billables accrue. If you need to bill a client every two weeks, do it.
“If you invoice monthly, send your invoices out on the same date each month. If you sell products, send out the invoices as the products go out, and follow up with an end-of-month statement,” says the director of AKA Group Accountants, Anna Kyriacou.
6. Ask for upfront payments ?
This trust-building tactic is typically for new clients, where you may be completing a one-time project or large project. Once a relationship has been established, you might not need to use this method.
Business mentor Jen Dalitz suggests getting an upfront payment before the work starts, in order to not end up chasing invoices.
Dalitz says: “My clients buy packages of mentoring hours in advance on a basis of the more, the cheaper the hourly rate. It’s surprising how many clients have been able to do the same in their own business. It just takes thinking and planning.”
7. Watch for the red flags ?
Difficult clients – they always give themselves away, even if you decide to overlook the signs in the effort to get a new client signed. They’re overly focused on price, poorly organized, or worse, they have a generally unpleasant attitude that’s going to make working with them difficult.
These are the kinds of clients with a high likelihood of not paying on time. Your best strategy is to avoid them if possible. Weigh how well this potential client fits into your agency’s goals against their potential maintenance costs, including late payments.
If you decide their potential outweighs the risks, you can use many of the other strategies discussed here to mitigate the challenge.
Read on: Review Your Agency’s Workflow in 6 Steps
8. Hold work hostage ️
While the idea of not delivering work sounds like an escalation to instant conflict, it does not have to be. Some clients might be testing the waters to see what they can get away with, and holding a completed project hostage until payment starts arriving on time sends the message that you won’t be taken advantage of. Don’t be afraid to resort to this tactic.
Remember, a business relationship goes both ways – you have a set agreement that the work will be completed for payment.
9. Quote some Latin
The client may query your invoice, claiming the work was never used. Sadly, this is all too common when it comes to creative services where clients pay for the time spent.
Reply saying that the work was done ‘quantum meruit’. This means you’re entitled to be paid for what you believe to be the reasonable value of your services.
P.S. Make sure this is in correspondence with the terms that the client has agreed upon.
Read on: 10 Easy Steps to Improve Your Billing Process Right Now
10. “Everything else has failed, help!” ?
Don’t be afraid to chase up your invoice. There’s often a good reason for the delay, such as someone forgetting to pass it on to accounts. But don’t accept anyone being away on holiday as an excuse – every company has a duty to make sure suppliers get paid.
If you feel you’re being fobbed off and too much time is passing, whir into action. You have a variety of legal options to choose from.
Resorting to legal routes should be the final step you take to get clients to pay on time. That’s because these types of measures often create a high level of animosity that can damage business relationships and burn a bridge.
However, the longer you wait, the less likely you are to recoup the debt. So wait no longer than three months before getting heavy.
B2B business is all about the relationship
In the same way that retailers go through a lengthy process to choose you as their wholesaler, make sure you vet your customers. While it may be tempting to accept each and every order that comes along, if there’s not a good relationship with the retailer, some orders can end up doing more harm than good.
Getting to know your client and establishing a good relationship goes a long way in terms of getting paid on time. The client gets to know you and how you work, while you learn more about how they operate. This mutual understanding builds respect and trust while also making it easier to pick up the phone and ask about your payment.
Ensure all your communications are nothing but professional. One late payment incident shouldn’t be the reason you harangue the customer for eternity.
With on-time payments from your clients, you can use all that extra, worry-free time to get more work done for your existing client base or even prospect for additional clients and projects.