How to Reduce Overdue in a Business

Tackling overdue invoices and getting your clients to pay on time is paramount for your business' sustainability. If customers don't pay their invoices, your companies' cash flow takes a hit, stopping the business from taking on new projects, investing in new resources, and meeting its operational expenses. Yet, overdue or unpaid invoices have to be handled with care, ensuring that you do not jeopardize your client relationships when collecting what you are owed. Sending payment reminder emails and an abundance of follow-up calls or texts will not only aggravate your clients but distract you from other critical business tasks.

Proactive measures to manage overdue invoices

Chasing overdue invoices is a wearisome process, but that doesn’t mean there are no ways to reduce the likelihood of late payments. Take a proactive approach when it comes to preventing overdue invoices. Here are some common measures you can put in place to prevent overdue invoices.

Know your customers

The sustainability of a business relies on the customers’ ability to pay on time. Consider running a credit check on customers. If you find any history of bounced checks or late payments, starting with shorter invoice terms may be more beneficial. Ask trade references to get a sense of their past payment behavior. Keep a constant watch for signs like skipping payments or unsigned checks with your existing customers. If they default on their payments, you will be more prepared to take prompt steps like sending polite payment reminders and establishing direct communication to receive late payments without jeopardizing your long-term relationship with them.

Agree on clear payment terms and policies

Prompt payment collection starts with setting clear payment terms and policies right from the beginning. Make sure your customers understand your payment timelines, penalties for late payments, accrued interest on unpaid invoices, and associated policies. Leaving no room for misinterpretation. The agreement between your company and your customers should include comprehensive information on:

• Payment terms

• Credit policy

• Late payment policy

• Early payment discounts

• Delayed payment

• Payment plans

• Split payment options

Communicate all payment terms and policies in writing and ask your customers to sign it to decrease confusion. This written agreement acts as proof to show customers if they don’t follow through with the payment and will help if the case gets to the stage of legal action.

Collect advance payments

Request that customers pay a certain percentage of the cost upfront before starting the project or shipping the product. Collecting payments in advance gives you a head start but also saves the trouble of dealing with delayed payments. Businesses prefer to be paid fully in advance. However a few others ask a deposit when the order is placed and then a percentage of the payment at different agreed-upon milestones of the project.

Send invoices promptly

Getting your payments on time requires sending invoices promptly on completion of the service or delivery of the product. There is a higher chance for you to get paid on time while the order is still fresh in customer's mind. Double-check to make sure that the invoices are sent to the right recipient with the right details. Check for inconsistencies in payment due dates, purchase order numbers, postal or email addresses. Consider investing in fully automated online invoicing tool can help you send accurate invoices promptly and speed up the payment process.

Be flexible with your payment options

The easier customers find it to pay you, the quicker you get the money. Customer have more ways to pay than ever and most of them prefer a particular method to make their purchases. By offering many payment options, the more likelihood that your business will support their preferred payment method, making it easier for them to quickly make the payment.

Go beyond accepting payment by cash, check or credit cards. Consider allowing payments through direct bank deposits, mobile payments, and even allow them to set up automatic bill payments to ease recurring transactions.

Offer early payment discounts

An early payment discount is when businesses grant their customers a small discount if they pay ahead of the due date. Such discounts might encourage customers to pay promptly and build loyalty in the long run.

Measures to manage overdue invoices

How can you smartly deal with outstanding payments and keep your cash flow consistent without burning bridges? Here are some of the best, time-tested measures to handle overdue invoices effectively.

Start with payment reminders

When invoices become overdue, you can start dealing with them by sending payment reminders. This is especially effective when customers don’t realize their invoice is due and forget to pay.

Send a polite email reminding them that their payment is due, highlighting the total amount to be paid, the payment terms, and your late payment policy (if you have one). Be sure to attach a copy of the original invoice for reference, and include the list of accepted payment options and payment links to hasten the process. If the payment is severely delayed, you can send multiple reminders at periodic intervals to convey the sense of urgency.

Follow up with a phone call

If you receive no response to your payment reminders, consider calling the client to find and discuss any issues that are preventing them from paying and offer them a solution. It’s crucial to remain polite and professional at this stage. Approaching the client with accusations when they could have a fair reason for delayed payment will only serve to alienate them further.

Consider extending credit

Your customer may be going through a difficult patch financially. Judge if this is habitual or circumstantial, and consider offering an extended deadline or allowing customers to pay in installments. A customer who can’t pay a lump sum, may be able to pay smaller increments over several months. If your cash flow can’t afford the hit this choice would cause, partial payment is another option.

Charge late fees

A late fee is an extra amount of money imposed on a customer for a delayed payment. You cannot charge your customer a late payment fee unless you’ve communicated your late fee policy to them upfront, and they’ve signed an agreement regarding it. When charging customers a late fee, their invoice also should capture the late fee details clearly under the payment terms section. Some businesses do charge a flat fee for late payments, but most charge a percentage of the total invoiced amount.

Take legal action

If you have exhausted all the above ways to collect the money owed, you can resort to a couple of other options. You can simply sever ties with the defaulting client and write off the invoice as bad debt, which is what most businesses do when the amount is nominal, or pursue a legal remedy when it is a larger amount owed. Before proceeding, make sure you have all records related to the amount owed and seek legal counsel from a professional. It increases the likelihood of collecting the amount but also sets a precedent and shows your business takes non-payments seriously

In Conclusion

Overdue invoices can cripple a business’s cash flow and wreck customer relationships. Handling overdue invoices becomes easier if you have a streamlined mechanism in place. The key is to be armed with accurate information and use the right strategy at the right time.