Business Finance

7 Steps for Collecting Unpaid Invoices

Jan 21, 2022 • 10 min read
Small business owner collecting unpaid invoices
Table of Contents

      “It’s your money. Go get it.” When it came to collecting on unpaid invoices, that was my first mentor’s mantra. He was adamant that I internalize the reality that my talent for writing and editing had value, and that this value should be respected. 

      He also told me to take a homebuilder’s approach: Think about how much out-of-pocket cash a home builder puts out for supplies, labor, gas, permits, etc. If the customer doesn’t pay their bill, the home builder is in serious trouble.

      I’m not a home builder. I’m a small business owner. Still, each project I work on requires me to commit my time or my team’s time, so I treat overdue invoices as if I were a homebuilder, too. 

      Yes, I always have a contract in place with clients before I start work and I always ensure my clients know and agree with my payment terms. But sometimes even the best system doesn’t work out the way it should and an invoice becomes very past due. I’m not talking a week or two: I’m talking about invoices that are a month late or more. When that happens, I take the following steps to getting seriously past-due invoices paid.

      Step 1 — Identify Overdue Invoices

      Whether you call them past-due, overdue, or unpaid, they all mean the same thing: an overdue invoice is an invoice that hasn’t been paid by the due date you specified—usually 30 to 90 days after you send it. 

      If you’re like me, you’re too busy to keep daily track of who’s sent you money and who hasn’t, so I schedule time to deal with overdue invoices every month. It used to take a lot longer when I had to search my records manually, but bookkeeping software makes it easier by automatically (and clearly) marking invoices as overdue. No searching necessary.

      I review all the past-due invoices just to be sure I didn’t miss something and then move on to step 2.

      Step 2 — Send a Friendly Reminder Email

      30 days after invoice due date if still unpaid

      I like to give my clients the benefit of the doubt whenever there’s a past-due invoice. Maybe my invoice got misfiled or lost in the shuffle of a busy moment? We’re human. It happens. So I start with a cordial follow-up:

      Hi <Name>,

      I’m writing you about Invoice #XXXX from <your company>, issued on <date> and sent to you from <email address> on <date> at <time>.

      This invoice was due on <due date>, and we’ve not yet received payment. I’d appreciate it if you could clear this payment as soon as you can.

      You can find multiple methods of payment on our website at www.yoursite.com/payment.

      I appreciate your expediency.

      If you can generate reminder emails through your bookkeeping system, you’ll save yourself the hassle of remembering to do it. You’ll still want to review past-due invoices but the reminder-email step can be automated and do the sending for you.

      Step 3 — Reach Out via Text or Social Media

      5 business days after friendly reminder if still unpaid (~35 days past-due)

      Maybe my client’s email was down the day I sent my first reminder or maybe they were out of town. So, I either send them a quick text, if I have my client contact’s cell phone number, or I track them down on social media (ex: LinkedIn) and send them a direct message of essentially what I sent in the message above. 

      I like this technique because it gets another person involved—the one monitoring the social media. My guess is that they’re trained to bring all operational issues like unpaid invoices to someone in their department. Some smaller clients, however, may not have a social media account or someone monitoring their account, which is why I consider text a viable option, too. Either way, this direct system of messaging usually gets the client’s attention.

      BTW, what I NEVER do is remind someone of an unpaid invoice on public-facing social media. That would be like asking them to wear a sandwich board. Plus, you may still want to work with this client again or even want them as a referral. Always take the high road.

      Step 4 — Send a Final Reminder Email

      5 days after social reach-out if still unpaid (~40 days past-due)

      In this note, I force myself to sound like a disappointed kindergarten teacher who has to reprimand a student for misbehaving when they ought to have known to pay their bills. But I keep it classy:

      Hi <Name>,

      I last emailed you on <insert date> about the attached overdue invoice. Can you please pay this promptly? We’d like to close the file but cannot until the payment has been received. You can find multiple methods of payment on our website at www.yoursite.com/payment.

      I appreciate your expediency.

      I’m alway sure to include options in this email. Actually, I include payment options on all of my invoices.

      Step 5 — Place a Final Reminder Phone Call

      2 days after email if still unpaid (~42 days past-due)

      I use essentially the same content as the email, but on the phone. Because I want to speak to my client directly, I call when they just open so they don’t have time to get super busy and I ask for “Accounts Payable.” 

      If I can’t reach the Accounting team directly, I leave a detailed message in the general mailbox for “Accounts Payable” and mention the invoice number. 

      BTW, if you haven’t yet asked the client why they haven’t paid the invoice, be sure to do that now. I always remind them that I have multiple payment options, too.

      Step 6 — Force the Issue

      The Monday morning following the call if still unpaid (~45 days past-due)

      By this point, things aren’t looking good — I have to try something else because the passive approach is clearly not working. Other approaches I can take include:

      • Stop taking/doing on any more work until the invoice is paid. This only works if you have recurring essential business with your client, like if you were the exclusive provider of brake pads to a body shop. Unless they worked on a deal with a new supplier in the background, they couldn’t afford to jeopardize their relationship with you because negotiating a new supplier deal would take too long.
      • Charging a late fee. I don’t personally like this approach because I don’t think someone who hasn’t paid is going to suddenly pay what they owe and more. Yet, most of the entities you pay (utility companies, credit card companies, the IRS, etc.) charge interest on late fees so maybe It works. If you choose this route, be sure it’s crystal clear in the contract that you have your client sign before you start work. Also ensure that all of your invoices, whether past-due or not, indicate when the late-fee kicks in. BTW, most accounting software will let you automate the late-fee process.
      • Contacting a higher-up. This often works because the person you speak to will probably be senior enough to not want to put the company in a position where they could feel the backlash of a tainted work relationship or reputation over an unpaid invoice. Plus, there could be a breakdown in the client’s billing system that’s causing problems. Elevate the importance of the issue.
      • Preparing to send them to collections. This is my go-to because I’m too busy to chase people endlessly, and I’ve already given them more than ample warning with the emails, phone call, and social. A collections agency is a third-party service for businesses that takes on the job of settling unpaid debts with customers of those businesses. They’ll do everything they can (within the law) to get your money, and if they succeed, they take a percentage off the top—how much depends on the agency you use.

      Regardless of the path you take when forcing the issue, it’s always a good idea to let the client know what you’re doing (ceasing work, submitting the invoice to a collections agency, etc.). I suggest keeping communications short, straightforward, and hopeful, and to be prepared to follow through on whatever action you say you’ll take, whether it’s halting the work or submitting the invoice for collections.

      Step 7 — Drop the Hammer

      The Monday morning after forcing the issue if still unpaid (~52 days past due)

      At this point, I’m out of options: I contact my collections agency. Yes, I could accept defeat and write off the bad debt, but I’d rather try to get paid for the work I did.

      A Final Point About Collecting Unpaid Invoices

      I’ve learned over the years that payment options are often the key to success in collecting very past-due invoices. It’s sometimes easier to get a client to pay your invoice via their credit card or even Venmo than to get them to write a check. If you have a bookkeeping app with invoicing features, it’s pretty easy to set up payments by credit card or bank transfer. 

      One last thing: communicate. Throughout the process, I ensure there are no surprises. My messages are clear, I try to ensure they’re always delivered to the person who can take action, and I like to give my clients the option to contact me with any concerns or questions. 

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      Disclaimer: The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.
      About the author
      Gina Fusco

      Gina Fusco is a writer, editor, and business owner, who started Re:word Content Co. at her kitchen table in 2009.

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