How to Deal With Unpaid Invoices

how to deal with unpaid invoices

Estimated reading time: 4 minutes

Unpaid invoices can wreak havoc on your business’s income. When the money you are owed comes in 30 days, 60 days, or even 90 days late, your capital investment, technology refresh, and equipment acquisition plans are put on hold. In addition, a lack of cash means you might be unable to meet your important financial obligations, such as employee payroll, office rent, utility bills, or small business taxes. If any of this sounds familiar, you are not alone.

A recent article in Entrepreneur Magazine reports that 50% of small businesses in the United States do not get paid on time for the products and services they provide. Furthermore, small businesses have more than $900 million in unpaid invoices. Unpaid invoices can cause you to have stress, create worry among your workers and, ultimately, slow our nation’s economy. So, what can you do to get the infusion of cash your business desperately needs to stay afloat? This Balboa Capital blog post has the answers. It explains how to deal with unpaid invoices.

Get in touch with your slow-paying customers.

The first order of business is to have your accountant provide you with a list of customers that have not been paying their invoices on time. Write down when you sent them invoices and when the original due date was. Before reaching out to them, it is good to look at their payment histories and see how long they have been customers. It is not uncommon for a long-term customer to accidentally forget to make a payment.

Once your list is final, determine who will contact your customers via telephone or email to ask for payment in a friendly yet firm manner. Doing this can be uncomfortable, mainly when contacting customers with long-term relationships with your small business. You cannot let your invoices go unpaid indefinitely, as it will hurt you financially.

Do not escalate the situation unless it is necessary.

The conversations you have with your slow-paying customers and the explanations they send you via email will give you a good idea if their reasons for having late payments are genuine. Remember that every customer has a unique personality and financial situation, including a different payment schedule for their invoices. If a customer does not have a valid explanation for their unpaid invoice or a compromise cannot be achieved, your part will require more action.

Remind the customer in writing that the goal is to get the outstanding payments made and that you want to do everything possible to avoid contacting a collection agency. Business owners do not want anything to ding their credit scores, so the last thing they want is to have their delinquent invoices put into collections.

Send a past due reminder.

If your initial contact with the customer did not result in the late payment being sent, it is time to send them a follow-up notice, preferably via email and regular mail. As you know, email can wind up in a spam folder, and regular mail might get lost, so cover your bases and use both. When writing a past due letter, keep the tone friendly, professional, and to the point.

You do not want to upset your customer; you want to remind them that they owe you money, and you are simply writing to remind them. In your past-due letter, indicate how much money is owed, the number of days the invoice is past due, a “new” due date for payment, and your contact information. In addition, mention the day you previously contacted them to collect payment. Finally, end the letter with a nice “thank you” message and ask for a prompt response.

Send a final collection letter.

If you have done everything possible to rectify the situation with a late-paying customer who is still not taking care of their unpaid invoice, it might be time to draft a more severe follow-up letter. Like the previous letters you sent, the final note needs to have a professional tone, so choose your words wisely and avoid writing things that might offend or upset your customer.

Let the customer know that you have reached out to them on several occasions regarding an unpaid invoice and have been unable to work things out. Indicate that the matter is no longer in your hands, and the account will go into collections unless the payment is made on or before a specific date. In many cases, having an account go into collections forces late-paying customers to expedite payment quickly. Consider hiring a debt collections agency if your final collection letter gets you nowhere.

Unpaid invoices can impact your cash flow.

As this blog post mentioned, unpaid invoices can put a roadblock in your business’s cash flow. However, there are ways to boost your cash flow while dealing with unpaid invoices. One of the most popular options is a short-term business loan.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.