Although creating and submitting invoices to clients is simple enough, dealing with late payments can be a challenge. Your clients may have good reasons for being behind on payments, but regardless of the past-due payments and unpaid invoices can be a huge nuisance for your business.
What is an outstanding Invoice?
Outstanding invoices and past due invoices are frequently used interchangeably, although they mean two different things. An outstanding invoice is used when an invoice has been delivered and is awaiting payment, but the payment due date has not yet come.
It is risky to have outstanding invoices since they might ruin your business by destroying your finances. Your company’s credit limit could be lowered depending on the number of overdue invoices. This would further prevent you from getting orders from clients, and your company will eventually have permanent bad credit marks.
Outstanding invoices interfere with cash flow and quickly develop to disrupt the operations of a small business. When cash flow is disrupted, you may be unable to pay your suppliers and staff.
Unpaid invoices are a serious concern for business operations, so you as a business owner must have backup strategies for tracking them.
Set your terms and expectations at the start
- Set clear payment terms
As a small business owner or a self-employed freelancer, making sure that your payment terms are very clear, up to date, and include all the crucial information is very important. Payment terms should outline when, how and what methods your client or customer will use to provide payment for goods and services. Included in your payment terms should also be the penalties that will incur if a payment is missed. The best payment terms are those that benefit both parties. This will hopefully give businesses better control of their cash flow.
- Get a prepayment
A prepayment is not completely different from a deposit. However, a prepayment is under a more set period. Whereas a deposit will cover a percentage of the payment, a prepayment will usually cover the full payment. a business may also give its client or customer the option to pay in instalments.
Make payments easy
Most customers will give up halfway through making a payment if the process is not straightforward. The easier the payment process, the more likely customers will return.
- Flexible payment options
While it’s not necessary to provide every payment option, it is very important to make sure that you provide the one used most often by your customers and also your target audience.
- Automated invoice
With automated invoicing, you can:
- Schedule invoices in advance
- Get paid faster/on time
- Save time
- Send invoices immediately
Give your customers regular reminders
Communication is key when a business is dealing with a customer or client. This is why regular reminders are so important. To get through to your customer, it is best to adopt a firm but polite approach when dealing with outstanding payments. These reminders can be in the form of emails, texts as well as a phone calls. Re-sending your invoice marked as “overdue” or “past due might also help in getting a customer or client’s attention. This will be the first step to in reminding your client to pay the invoice. The words “overdue” or “Past due” should be written in large bold font.
Add a late payment fee
Adding a late payment fee is a choice, and might not always be the right way forward. Businesses may have a long-term trading relationship with their client and decide it’s better to maintain good relations for the future. if you don’t include a late payment fee, the perception may be that a client who doesn’t pay on time may repeat this behaviour. A late payment fee is one if not the most effective way to encourage customers and clients to pay on time. Be very clear about what the late payment fees will be and how they will be added.
Many sole traders and businesses include late payment fees in their contracts to encourage customers to pay on time. This is often a cumulative fee calculated for each day an invoice is overdue.
Send out reminders
There’s always the chance that your invoice gets lost in your client’s inbox. You can send them a personal message with the invoice attached again.
Set up email reminders when drafting the invoice if you anticipate an overdue payment from the start.
After chasing the client, send them email reminders and follow up with a phone call if you still haven’t received any money. Be tough, avoid excuses, and encourage your customer to a payment deadline.
Depending on how far the invoice is past due, the size of the invoice, and whether or not subsequent bills have been paid, you may want to consider pulling your services from the client. This will put them under pressure to settle the account as soon as possible. It’s essential to realize that late invoices can evolve into bad debts, and continuing to work for free might lead to serious financial troubles for your business.