Invoicing is a critical aspect of running any business. However, it is not uncommon for businesses to experience the pain of unpaid invoices. This can result in finance teams getting stuck in the (what feels like) a never ending loop of invoice chasing. In this article, we will discuss what you as a business can do if you have unpaid invoices from your customers.
Firstly, it is important to understand why customers fail to pay invoices. Some reasons include disputes over the quality of goods or services rendered, customers experiencing financial difficulties, or administrative errors in the invoicing process. Whatever the reason, unpaid invoices can have a significant impact on a business’s cash flow and overall financial health. This is especially true for small businesses that rely on timely payments to stay afloat and manage cash flow.
To avoid the negative impact of unpaid invoices, businesses can take the following steps:
- Communicate clearly with customers
Clear communication is essential when it comes to invoicing. Businesses should clearly communicate their payment terms to customers, including payment due dates and any penalties for late payment. This can be done through email, phone calls, video calls or in-person meetings.
- Set up a system for tracking invoices
Businesses should have a system in place to track their invoices. This will help them identify any unpaid invoices and take action quickly. A system could include an Excel spreadsheet or an invoicing software. Invoicing software will also allow you to automate the process of chasing invoices when they fall overdue.
- Follow up on invoices promptly
It is important for businesses to follow up on invoices promptly. This could involve sending reminders to customers before the payment due date, or contacting them immediately after the due date has passed. This will help to ensure that customers are aware of their payment obligations and are more likely to pay on time. Again, if you are using invoice software then you may be able to automate this process.
- Be polite but firm
When following up on unpaid invoices, businesses should be polite but firm. It is important to maintain a good relationship with customers, but at the same time, businesses should be clear about their expectations and the consequences of non-payment. This could involve sending a polite reminder email or making a phone call to the customer.
- Remove barriers to collecting payment
Ensure it’s as easy as possible for your customers to make payment. Limiting the channels and time windows that customers can make payment can have an impact on your rate of collection. Consider providing your customers with an online card payment facility so that they can log on and make payment in their own time.
- Consider offering payment plans
In some cases, customers may be experiencing financial difficulties and may be unable to pay the full amount owed. In such cases, businesses could consider offering payment plans. This would involve agreeing on a payment schedule that works for both parties, allowing the customer to pay the debt over a longer period of time.
- Consider enlisting the services of a debt collection agency
If all other attempts to collect unpaid invoices have failed, businesses may consider enlisting the services of a debt collection agency. These agencies specialize in recovering unpaid debts and can help businesses recover the money owed to them. However, it is important to note that debt collection agencies charge a fee for their services, which can be significant.
By taking the above steps, you can increase your chances of receiving payment for goods or services rendered and ensure your financial stability.