Financially, 2020 has been a tough year for most freelancers and businesses. In the wake of the pandemic, something that’s always been a big concern has become an even greater problem—unpaid invoices.
With business being tight, a few overdue invoices can massively impact your cash flow and ability to operate. In some cases, they may be the difference between staying open and shutting your doors for good.
The question is, how do you ask for payment when times are tough, and those who owe you money may be struggling to make ends meet too?
Always remember that it’s not rude to follow up on unpaid invoices, you’re not at fault, and you have every right to be paid for the service or products you have provided. Chasing payments is not enjoyable, and it’s time consuming, but unfortunately, it’s necessary if you want to keep your business ticking over.
If you’re owed money, follow these tips for the best chance of a good result.
- Put Proper Terms And Conditions In Place
The first step is to make sure you’ve covered your payment policy in detail with your customers. This needs to be in writing on your invoices or other documentation you provide to clients before they make payment.
You should include when the payment is due, how payment can or should be made, and any other relevant information. You may also want to consider creating an internal policy document for how to deal with non-payment so that everyone in the company is on the same page.
Something else you can consider for your terms and conditions are incentives and penalties. Offering a discount for early settlement of the bill is a smart way to get customers to pay quickly. A common business practice is to offer a small percentage (up to five) off the total amount if the invoice is settled in full within 10 working days.
On the penalties side, note on the invoice that you charge a late fee once the client goes past the final due date. The penalty can be a set amount, or you can charge a percentage of interest for every week or month that passes.
- Double Check Before You Follow Up
It’s easy to get frustrated when clients don’t pay their invoices on time. However, it’s essential you take a moment to double check you followed the correct procedure and put in the correct information before you accuse someone of non-payment. Human error happens on both sides, and it’s best to know for a fact that it wasn’t on your side first.
Start with making sure the invoice got sent and your email isn’t sitting in your drafts folder, or left your outbox without the attachment. Then, check that the invoice clearly stated the payment terms and your correct banking details. Finally, look at who you sent the invoice to, and that it went to the correct email address.
Once you know it wasn’t your mistake, you can follow up, confident that the error isn’t on your side.
- Try The Personal Approach
Remember, an unpaid invoice doesn’t always come with malicious intent. It may just be a genuine mistake and it got missed by the person making payments, or the person responsible was dealing with an emergency that had nothing to do with your business. Start with a friendly reminder when you first follow up with a customer.
A simple message to say that you’re checking in to see if they received the invoice is usually enough to spark a response and a quick payment. If you get no response for several days, you can turn on the professional attitude and point out that the invoice is past due and in need of urgent payment.
- Contact Your Arbitration Board
If you’re still having no luck with getting a response or a payment after a month or more of emails and phone calls, then it’s time to take things to the next level.
A business arbitration board can help you settle these kinds of disputes in a way that at least gives you some kind of positive outcome. It might not be a perfect result, but it will lead to a resolution.
You’ll need to file a complaint with the board and then go through their required process. It can take time, and you may need to enter a mediation process with the customer. Remember, you may also end up getting less than the invoice is worth, or being paid in instalments over several months.
It’s up to you to weigh up how much of your time is worth giving up in order to chase an unpaid invoice.
- Sell Off Your Unpaid Invoices
As a last resort, you can always sell off your unpaid invoices to a debt collector. This practice is called factoring, and it does come with several caveats, so it may not always be the most straightforward option.
Aside from the legal technicalities, you won’t get what the invoice is worth as the collector will need to make a profit too. However, this option allows you to at least recoup some of your costs and stop wasting time chasing a client who hasn’t paid.
Tips For Avoiding Unpaid Invoices
Unfortunately, you’ll never fully avoid this issue, especially in a turbulent time like the global pandemic. However, you can go a long way towards mitigating the overdue invoice issue with these tips:
- Make your payment process as convenient as possible.
- Offer various banking methods for settlement.
- Stay on top of your accounting.
- Research clients before you extend them credit or offer payment terms.
- Ensure payment terms and contracts are watertight.
Non-paying clients can ruin your business, so it’s essential that you manage them to the best of your ability. With the right systems in place, you can put an end to overdue invoices, at least for the most part.