Any business which deals in charging invoices will experience the pain of having customers not follow through with timely payments. Not having these funds available can restrict your business’ cashflow, which is avoidable. Find out more about the ways to obtain invoices with Savvy in our helpful guide.
How do I collect unpaid and overdue invoices from customers?
There are a number of methods you can use when it comes to chasing up customers to pay your outstanding invoices. Firstly, it’s important to go through the initial steps of contacting your clients. These may involve:
Send an email reminder
Many businesses begin with a polite email reminding their customer that they’re yet to pay their invoice/s. You may find that this works for your business, but emails aren’t the most effective way to get your clients to pay.
Call them directly
Business operators who contact their customers by telephone to remind them to pay their invoices usually see better results compared to those who email. This approach is much more personal and direct, which is likely to be beneficial in prompting your customer to submit their payment.
Send an overdue notice
Resending your original invoice marked as overdue may also help your clients make their payments. This can create a greater sense of urgency if their original agreed payment date has passed, thus spurring them on to make good on the agreement and advance the funds to you.
It might be worth repeating these three steps several times more if your client still hasn’t paid. If these initial steps are unsuccessful and you’re finding it difficult to make contact or extract the funds from them, though, you’ll need to ramp up your approach to ensure what is owed to you is paid. Some of the next steps you can take as an operator in this situation include:
Enforce late fees on top of the invoiced amount
You’ll need to give sufficient and clear warning of this occurring before you charge your client any late fees, as well as laying this out clearly in your original agreement. You should warn them if they’re approaching the deadline for late fees, but should they not pay after notice has been given, you can resend an invoice with this charge included.
Seek out the help of a debt collector
If you’ve exhausted other options, you may then turn to a debt collection agency to recoup the funds which are owed to you. These agencies are generally effective when it comes to obtaining the funds required for your business, but it’s important to bear in mind they’re likely to cost a significant portion of the invoice value for their services.
Pursue legal action
Should your debt collector fail in their pursuit of the funds, you can turn to legal action as a last resort. This process may be costly and complicated but comes with a high likelihood of success if your business has done the right thing and chased up the client repeatedly to no avail.
While some (or all) of these may work for your business, what they may not cover is the short-term hit to your cashflow which outstanding invoices can cause. Fortunately, there are other alternative methods of financing which you can pursue to help your business cover its losses whilst its invoices remain outstanding. These include:
This type of finance is designed specifically for businesses which are looking to obtain funding for their invoices immediately, rather than waiting for their clients to pay them. It boosts their cashflow in the short-term, giving them the revenue they need to continue to support their business. There are two types of invoice financing to consider:
- Invoice factoring: your business sells its invoices to a third-party, who pays up to 95% of its value upfront and seeks out payment from your client. Once obtained, they advance the remaining amount to you, minus service fees.
- Invoice discounting: your business takes out a line of credit secured by the value of its outstanding invoices and receives up to 90% of their value upfront. You’ll pay interest on the amount outstanding and are given the responsibility of pursuing the invoices yourself, often making it a cheaper process in terms of fees.
Unsecured business loans
Failing this, though, you might simply decide to take out an unsecured business loan to cover the deficit while you’re waiting for your client to pay. These are a more accessible option for small businesses who may not have the infrastructure in place to be approved for invoice financing, as it usually requires businesses to have relatively robust accounting systems to qualify.
These loans can be taken out over as few as three months (up to a five-year maximum) and span borrowing ranges from $5,000 to $500,000 without the need for asset collateral. Additionally, the funds you’re approved for can be used across any facet of your business and distributed how you like. As such, you may consider an unsecured business loan to be a viable and suitable alternative to invoice financing.