Outstanding Invoices – What to Do and How to Collect Them?
If you’re a business owner, it is possible that you have encountered a customer who is late in making a payment for services you provided. Outstanding invoices and payments, unfortunately, can sometimes take months or even years to be finished.
You don’t receive payments – you don’t make any money. And we all want to avoid that. Because of this, it’s important that you follow up with your clients.
Having said that, what is the best way to do that? It can be uncomfortable for some people, so here’s what to do with outstanding invoices.
Do It Like an Accountant
Some people like accountants or debt collectors – make their living out of getting invoices paid. This may seem hard, but their methods aren’t rocket science. If you spend enough time on it, you should be able to do it by yourself.
If you have unpaid invoices, try their techniques. These invoices impact everything, which means if have an interrupted cash flow, you will essentially lose money that you left aside for your business operations.
This situation means you can’t pay your employees or vendors. Having that in mind, you should also know that as a result, you will get late fees that will damage your reputation and possibly your business.
Contact Them via Letter or Email
This should be your first move when someone is late paying an invoice, and if you are lucky, you won’t have to do anything else.
Start your email with a polite greeting, as usual, then quote the invoice number, and ask when you can expect the payment to be in your bank account. You don’t have to explain what the invoice was for. The necessary details should be on the invoice already. Try and keep the email short and simple, so there are no more mix-ups.
Also, keep an open mind that sometimes unpaid invoices just simply slip into the cracks.
The reason why it’s late maybe because a client is out-of-town or dealing with an emergency.
Before taking any other step, send a follow-up email to check in with them. You will find that very often just a quick follow-up can get your invoice paid. This way you will ensure that you have a good working relationship with the client in the future.
Give a Discount or Charge a Penalty
Always think one step ahead. If your business offers a discount for early payments, you will encourage clients to pay ahead of the set date. It is common to offer a percent discount on the total invoice amount if the invoice is paid in full within two weeks.
On the other hand, this will not motivate everyone. Don’t worry, because they may be more inspired to be on time if their invoice has penalty fees.
This will push clients to pay on time. Having said that, it will also help you pay the cost of any financing issues that your business may have.
You want to be able to pay your own bills that you got during that period of time in which your clients were late with their payments.
If you are starting to see the pattern here, follow-up emails don’t work, you may need to actually call your customer. A personal phone call usually accelerates the customer and you get your payment.
Customers can try to avoid your call, but once they answer, you need to be firm. You should know that they’re the ones that need to do the talking. After all, they own your money, not the other way around.
You can start by identifying what’s overdue, then proceed to ask them when your invoices will be paid. After that, you wait. Be on the line until they’ve told you when your payment will arrive.
If this is overwhelming for you, you might want to hire a bookkeeper or accountant to do this mundane task.
Employ Debt Collector to Get Your Outstanding Invoices
If nothing works, you can always rely on debt collectors. They have the skill of getting many overdue invoices paid. Keep in mind that you will have to pay them at least 25% or more of the money they collect.
With this in mind, this will most likely bring an end to your partnership with the customer, so you need to make sure you have no other options.
Don’t Worry, We Got You!
A professional and knowledgeable tax accountant can often help you to decide what to do with your unpaid invoices. Here at Your Part Time Accountant, we can also assist you in making sure your possible business losses are accurate on your tax forms.