How to Deal With Unpaid Invoices

how to deal with unpaid invoices

Late-paying customers and vendors can wreak havoc on your company’s income. When the money you are owed is coming 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-on-hand means you might not be able to meet your important financial obligations, such as employee payroll, office rent, utility bills, or business taxes. If any of this sounds familiar, you are definitely 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 close to $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 that your business so desperately needs to stay afloat? This Balboa Capital blog post has the answers you are looking for. 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 a good idea 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 be contacting your customers via telephone or email to ask for payment in a nice, yet firm manner. This can be uncomfortable, particularly when contacting customers who have long-term relationships with your company. That said, 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 in the explanations they send you via email, will give you a good idea if their reasons for having late payments are genuine. Keep in mind that every customer has a unique personality and financial situation, not to mention a different payment schedule for his or her invoices. If a customer does not have a valid explanation for his or her unpaid invoice, or if a compromise cannot be achieved, more action will be required on your part.

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 invoice 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 he or she owes 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 company’s contact information. In addition, mention the day that you previously contacted them to collect payment. 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, and he or she is still not taking care of their unpaid invoice, it might be time to draft a more serious follow-up letter. Similar to the previous letters you sent, the final letter 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 you 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, the prospect of having an account go into collections forces late-paying customers to expedite payment quickly. If your final collection letter gets you nowhere, consider hiring a debt collections agency.

What about your cash flow?

As mentioned in the beginning of this blog post, unpaid invoices can put a roadblock in your company’s cash flow. However, there are ways to stay on top of your finances and boost your cash flow while you are dealing with unpaid invoices. One of the most popular options is an unsecured business loan.

The information in this blog post has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, investing or accounting advice. You should consult with your accountant, lawyer or tax advisor before making any business decisions or moving forward with business funding.