Having your invoices paid by the specified due date is vital for a healthy cash flow of the business. Late and delayed payments can create a chain reaction of insufficient cash and can negatively affect the business if left unresolved.
Wasted time
Chasing unpaid invoices takes up a lot of time and when time is money, this can really take its toll, especially in the trades industry. The more unpaid invoices you have, the more valuable time is spent on following up the payments.
Insufficient Cashflow
Unpaid invoices directly affect cash flow. Insufficient cash flow will result in problems paying contractors and suppliers and other business overhead expenses. If your gross margin is already tight, these cash gaps may result in additional stress and pressures. When we speak to clients, we often hear that this part of running a trade business is the part they don’t enjoy the most because let’s face it, they didn’t get into business to be chasing unpaid invoices.
Missing profits
According to a survey by Dun and Bradstreet, only 60% of construction workers were paid on time. Not receiving funds on time affects your business’s ability to create more profits. Also, the longer the unpaid invoice sits on your desk, the less likely it will get paid.
Tips for Recovering Overdue Invoices
1. Check Your Records
As frustrating as it is to have outstanding invoices on your books, it’s important to remember that people are busy and invoices can be easily forgotten/misplaced, and emails might have been sent to spam folders. Before contacting the client, make sure to check your records:
Has the invoice been sent? Were the payment terms stated clearly? What are the due dates? Was the invoice sent to the correct recipient?
2. Offer Early Payment Discounts & Impose Late Payment Fees
Giving discounts for early payments before a certain cut-off date gives your clients an incentive to pay ahead of the set due date.
If the payment is missed by the due date, then a small late fee could be applied. However, clear communications are very important here, so make sure this is clearly explained in the original invoice.
3. Friendly Reminders and Payment Options
If your invoices remain outstanding with the client, then follow up reminders every 7 to 14 days are advised. Accounting software usually has an automatic reminder function which can be setup or activated. Also, you could give your client different payment options such as:
- A payment plan that is automatically debited from their account (automatic payments have a higher success rate than manual bank deposits in these situations).
- Credit card payment
- Payments in installments
4. Pick Up the Phone
Sometimes the best and fastest way to resolve an issue is by calling or talking in person. Make a friendly phone call to confirm the customer received the invoice (it might have gone to spam) and establish if they have any questions about the payment options. This gives your client the option to make a payment over the phone.
5. Debt Collector
If you are still struggling to get the invoices paid, you can engage a debt collector. They are normally very efficient in getting your outstanding invoices paid; however, expect to pay a fee of around 25% of the funds collected. Please note that in most cases, once a debt collector has had to chase the client for the payments, the client relationship is not often sustained.
6. Lawyer
If a large invoice remains unpaid, you may want to engage lawyers to help you recover the funds. The lawyers will issue letters of demand and try to negotiate with the client before beginning court proceedings. Often, the complexity, time and cost involved in going to court is enough to persuade a debtor that it’s in their best interest to settle the matter and repay your debt before proceedings commence.
Debtor Control
Constant debtor balances review should be one of your internal business processes. Automated invoice reminders should be setup within your accounting software and the bookkeeping team should be facilitating the debtor review process.
Contact us here if you need help with the debtor review process or if you would like more information about our bookkeeping services.