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Your business might be getting a lot of new customers and having great success with your sales. However, when the payment date passes with no response from your clients, you realize that these statements are not true. As a result, your cash flow deteriorates and your firm is unable to pay employees its operational costs.
According to a report conducted by US Bank, insufficient cash flow management causes 82% of many small businesses and enterprises to fail.
Many businesses require the ability to manage past-due accounts and persuading customers to make timely payments is critical to your company’s success. When dealing with unpaid and past due invoices, exercising caution is critical to prevent late payments and jeopardizing your company relationships while seeking payment for what is owed.
So, how can you manage outstanding payments without causing a rift with your clients and keeping cash flow steady?
In this article, we will walk you through what an outstanding invoice is and how can you settle them on time with time-tested measures:
What is an Outstanding Invoice?
An outstanding invoice is an unpaid invoice that is sent to a client and has not been paid yet.
It is past due the moment you send the invoice to the client. The payment conditions determine how long an invoice is past due.
Payment conditions specify when the client must pay the company. Your invoice should include the amount due, the due date, the acceptable payment methods , and the invoice number. While the client needs all of this information, the payment deadline is crucial to be added to an invoice. You refer to an invoice as an outstanding invoice from the time it is sent to the client until payment has been received as it is simply outstanding for payment.
What is a Past Due Invoice?
After establishing an outstanding invoice, the concept of a past-due invoice has now been established. The hint is the client name.
There is a payment deadline listed on your invoice. The unpaid invoice is regarded as past-due if the deadline has passed and the client hasn’t sent the payment.
This might be problematic for any business as it affects cash flow. After past due, the client must be pursued to have the unpaid invoice paid. You pay twice as much each time you have to seek a consumer.
Difference Between Outstanding Invoices Vs Past Due Invoices
Even if the two phrases- outstanding and unpaid invoices are linked, it is critical to note that an unpaid invoice and one that is past due are not always the same thing.
|Past Due Invoices
|Outstanding invoices are those that you sent to a client but have yet to receive payment for, even if the due date hasn’t passed.
|Past-due invoices are simply invoices that have crossed their payment due date.
|A client with an outstanding invoice has received an invoice but there is time to do so as the due date has not yet arrived.
|In contrast, a past-due invoice is still owing money long after the due date has passed.
Because of this distinction, it is critical to track invoices and bills.
How to Get Paid on Time for Outstanding Invoices?
Payment delays can happen for a variety of reasons, from a customer simply forgetting the payment due date to insufficient cash in the client’s account. However, you may take proactive steps to reduce the chance and, to some extent, prevent such payment delays.
Continue reading to see how you may improve your chances of receiving money owed on time!
1. Invoice Promptly
The first step in getting paid on time is to deliver an invoice on time. It’s critical to realize that an invoice is nothing more than a payment request. You should deliver the invoice to your clients as soon as you have completed the delivery of your items or rendered your services. Your clients may not notice a late invoice because they no longer appreciate your services.
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2. Make Your Payment Terms Clear
The easiest and most proactive way to avoid missing or lengthy late payments is to be open and transparent about your needs right away. Each invoice must have a due date written in the box at the top. If you find that some of your customers frequently pay their invoices after the due date, you might want to consider adding remarks describing the terms of payment to the invoice.
3. Provide a Range of Payment Options
The more payment other options you can provide your clients, the more likely they will pay you back on time. While some clients choose to pay by direct bank deposit, others prefer to pay in cash, by check, or online. Always plan ahead of time. In the long run, integrating credit card payments will be less expensive than hiring an attorney or bringing overdue debts to court.
4. Consider Advance Payment Requests
Are you worried about a payment delay? As a backup plan, consider demanding a portion of the payment.
Now, keep in mind that you should only use this strategy if the transaction’s cost makes sense. When working on a lengthy project or selling a costly item, for example, asking for a portion payment up before may lessen your chance of not being paid back. You shouldn’t be concerned about offending your customers because charging an advance payment charge for these types of transactions is a typical business practice.
5. Discounts for Early Payment
Offer incentives to consumers who pay you back quickly to encourage prompt payment. There are a lot of payment options such as 2% before Net 30, 2% before net 60, etc that can deliver such payment terms to your clients.
6. Increase Late Payment Penalties
It is reasonable to charge a late payment fee because otherwise, you are simply providing free credit to your customers. To encourage prompt payment of invoices, demand compensation for late payments.
Explain your late payment penalties and how they will apply right away. This clause should be included in any written agreement you create, such as contracts and invoices.
On the invoice, make a clear and visible statement about the late fee penalty.
7. Send a Friendly Reminder via Email
It is possible that your client simply forgot to make restitution; after all, life gets hectic at times.
Send them friendly invoice email reminders about a week before their invoice is due, reminding them that you expect payment. This will assist you in staying on top of things, especially as a small business.
8. Contact the Client by Phone
If the client does not respond to your reminder email, you can always call them to have a quick conversation and find out what’s up. As stated in the reminder email, inquire with them about any potential issues and when they intend to repay you.
9. Disconnect Services Till the Bill is Paid
Your firm will cease to exist if you continue to provide goods and services for which you are not compensated or if you neglect overdue invoices paid. As a result, if an individual customer stops paying, stop fulfilling their orders and inform them of the debts they must clear before you can start supplying them. Although some consumers may find this aggressive strategy annoying, it may be highly effective.
10. Work with a Debt Collector to Follow Up on any Unpaid Bills
If you still have unpaid invoices, debt collectors can help you. It costs nothing to include a collection agency or the right lawyer in the lawsuit at first, but they will keep some percentage of the money collected from the overdue invoice. Make sure you’ve exhausted all other possibilities first because your choice will almost certainly result in the termination of your connection with the consumers.
Tips for Avoiding Late Payments
The bad news for you as a small business owner is that some customers will always be paid late no matter what. However, there are things you might do to lessen your odds of receiving these delayed payments and encourage timely manner payments.
Even while late bills and overdue invoices cannot be completely avoided, these tips can help you avoid late payments of past due invoices that negatively affect your business significantly:
1. Maintain Records of Payment Terms and Conditions
Before sending an invoice to your clients, be open and upfront about your terms and conditions, payment schedules, interest rates, late payment penalties, and any debt collection strategies you may use in the event of an awaiting payment delay. Obtain the client’s signature and record it safely. This step may now be completed more swiftly and easily online thanks to digital signatures. If they do not pay, you can use this proof of taking legal action you take for all the outstanding invoices.
2. Double-Check Before you Make a Sale
Check a consumer’s credit record before granting credit to them to learn more about their financial situation. If you have any doubts regarding the dependability of your commodities, hold off on exporting them until payment is received. You may reduce the chance of nonpayment by reviewing your payment terms. This will offer you a good idea of which clients consistently miss your payment dates, allowing you to decide if you want to continue doing business with them.
3. Communicate Well
Inquiring with the customer about whether they received an invoice with the correct information may help you rule out any errors on your end and make it clear that the following step is the client’s duty. There’s always the possibility that you overlooked anything on your original invoice. If a significant portion of your customers pays late, you may need to contact them more regularly.
4. Make Payments Easier and Encourage Advance Payments
If at all possible, bill your customer in advance so that the customer pays immediately. Customers will be able to pay outstanding invoices more quickly if you offer a range of payment options, such as debit and credit cards, online payment gateways, and offline payment methods. Allowing an installment-based payment plan may be advantageous if your customer cannot afford to pay you the complete amount at once. During the initial discussions, set a price they can afford and a payment schedule.
5. Automated Payment Reminders
Setting up automated payment reminders and email reminders will save you time since you will no longer have to manually remind your clients when their payments are due. You may set them up with a customized timetable in your online accounting system, which can include anything from a payment reminder one week before the invoices and past due date to a notification of the payment is due on the due date.
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How to Track Outstanding Invoices with Invoicing Software?
Using invoicing software like Moon Invoice makes producing professional invoices and keeping track of your unpaid account straightforward.
The software can completely automate the invoice generation and payment process for large firms and small business owners alike. When you’re through designing, use the sidebar on the right to add the necessary components to the invoice. You may then go to the Moon Invoice website to handle all of your outstanding bills after making your invoice there.
Moon Invoice allows you to check a list of all of your outstanding invoices and never miss due dates because it provides monthly and annual reports automatically.
The best part: by downloading Moon Invoice to your computer, tablet, or phone, you can use it from anywhere at any time. Using this tool can help you lower the likelihood of overdue payments and protect the cash flow of your business.
Having a payment plan in place to handle and avoid chasing late payments can enhance your company’s long-term profitability. You may recover those invoice overdue payments and unpaid bills more efficiently and on time using some of these effective tips.
Keeping track invoices and payment terms, monitoring your customers’ credit histories, getting in touch with them during the transaction, and promoting early payments, can be done by employing invoicing processes, such as Moon Invoice.