A complaint common from many small-business owners is the never-ending chasing of overdue invoices. Research shows nearly one-third of Australian business owners spend eight hours a week collecting late payments.
So, how do you best approach overdue invoices?
1. Optimise your systems
The best way to avoid overdue invoices is to prevent them from happening in the first place. From the beginning make sure you’re clear about your payment expectations and understand your client’s usual pay cycle. This is the opportunity to negotiate mutually suitable terms that work for both sides.
Consider implementing an online accounting system which includes e-invoicing. Electronic invoices ensure an accurate record is kept and that the recipient has all the required information to make their payment instantly. It also gives you the ability to configure automatic reminders as soon as the invoice is due or late for payment.
2. Invoice chasing
While you are well within your rights to chase an invoice as soon as it falls due, consider sending a follow-up email or a reminder a few days after the due date. A polite reminder email is the best place to start including all the right information and addressed to the right person. Most cloud based accounting platforms provide automated invoice reminders which allows the user to tailor the messaging at each touch point.
3. The follow-up
Start by sending another email for outstanding invoices, clearly stating that you are requesting payment due (this makes sure there’s a written record of the request). The next step is to get on the phone.. Explain your situation and work together with your debtor to agree on a time for them to make payment.
If they refuse the request or fail to respond now might be the time to implement a late payment fee or accumulate interest on the amount owed. There are requirements and restrictions surrounding this process so make sure you’re across applicable late payment laws and know your rights.
The final recourse is to refer to a debt collection agency. Another option is to start a court case by lodging a statement of claim. This is a legal document that sets out how much you claim your debtor owes you and is lodged with the Courts. This will force the debtor to respond as failure to do so will result in the Court awarding your claim.
4. Reduce the impact of late payments
If you find yourself often dealing with late payments it might be worth looking at alternatives to reduce the financial impact and strain those delays are putting on your business. Invoice financing allows you to have up to 90 per cent of your verified outstanding invoice amounts paid up front, often within 24 hours. When your customer pays and the funds are received by your debtor finance provider, they’ll remit the remaining 10 per cent minus a small fee to compensate for early funding. Instead of waiting between 30 and 90 days for a customer to pay, your business can access the cash immediately giving you peace of mind and the cashflow to continue business operations.
Chasing invoices, whilst a chore, is important because your clients need to know that you value your work, goods and services. Managing them effectively and taking the stress out of late invoices is vital as it will leave you more time to run your business, plan future strategy and enjoy your success.
