It happens to every business at some point – a customer misses a payment deadline, and you find yourself in the awkward situation of having to figure out how to ask for payment professionally. Not only are overdue invoices frustrating, but they can spell disaster for a business. Over 29% of businesses fail because they run out of cash. Without access to working capital, it can be challenging to make payroll, pay suppliers, or satisfy the many other obligations that go along with running a successful business. You may even find yourself in the situation where you have to take on debt and expensive late fees and penalties in order to fund your business. 

Part of running a successful business means maintaining good customer relationships. If a client has overdue unpaid invoices, you’ll want to carefully manage the collections process or you could risk losing a hard-won customer. A 2020 Atradius survey found that the number of companies that couldn’t pay their suppliers due to customers’ overdue payments on outstanding invoices increased to a whopping 32% from two years ago. And, depending on your industry, extended payment terms are becoming increasingly more common. So, just how do you ask for payment professionally? And how can you ensure that your business has access to the working capital necessary to grow and thrive, without the headache of late payments? 

Survey findings, success and lessons learned from Canadian small business owners are outlined below.

Effects of Overdue Invoices

The effects of overdue invoices cannot be understated. Overdue payments cause similar issues to the ones business owners face due to long invoice terms.

Slow business growth

A lack of access to cash makes it difficult for businesses to pay for upfront costs associated with taking on larger projects. This results in slowed (or non-existent!) business growth. In fact, some business owners may find they have to turn away additional customers because they simply can’t afford to buy materials or hire the staff they need in order to take on the extra work. Delayed payments equal delayed growth, preventing businesses from unlocking their potential. 

Less time for important work

Another reason late payments cause problems is because they take time and effort away from working on or in the business to having to chase down payments. More than half of business owners say they spend about 14 hours a week working on administrative tasks related to collections. That’s nearly two full days each and every week! Add that up over the course of a year and that’s a substantial amount of time – valuable time that could be better spent on serving customers or working to grow the business. While you should certainly check in on your accounts receivable on a regular basis (once a week is good) it shouldn’t be taking up the majority of your time.

Increased stress

Not only do overdue invoices have an impact on a business’ cash flow, they also impact business owners’ stress levels. It makes sense – if you don’t have the money to cover expenses like payroll, buy supplies, and are spending your days chasing down late payments, the uncertainty of it all is going to leave you feeling stressed. When you’re dealing with increased stress, you have less energy available to focus on the work that matters, further impacting growth. 

How to Collect: Start With a Polite Follow Up

When it comes to asking for payment professionally, the first step is to start with a polite follow up. Mistakes happen, and sometimes an invoice simply falls through the cracks. To help maintain your relationship with your customer, it’s best to give them the benefit of the doubt. If an invoice is past due (especially if it’s the first time that they haven’t paid on time) start by reaching out with a polite followup email or phone call. 

Simply touch base and remind them of the past due status of the outstanding invoice. Politely ask when they’ll be able to arrange for payment. This approach not only gives your customer the chance to explain any extenuating circumstances that may have led to the overdue invoice, but it gives them an opportunity to communicate a clear timeline for fixing things and getting payment to you. 

If your late-paying customer hasn’t made payment within the agreed upon timeline, go ahead and follow up with them again. You might find that a couple of late payment reminder emails or phone calls are all it takes to get the results you need. At this stage, any communication with your client should remain courteous, respectful, and tactful. Otherwise, you could damage your relationship and may never see the funds.

How Often Should You Follow Up?

Because your original email (and even your first followup email) may have ended up in your customer’s spam folder, you should always give your customer the benefit of the doubt. There is some research that shows sending even a single, professional followup email reminder can improve reply rates by 65.8%. A polite reminder may pay off in the short-term, by getting you paid, as well as in the long run, by maintaining your relationship. 

Some people like to send a payment reminder a week before an invoice is due, while others wait until the day of to send a late payment notification. If your customer hasn’t replied to your initial contact or made payment arrangements, you can safely follow up again a week after your initial phone call or email. Continue to keep the tone professional and courteous. If you still don’t hear from them, send another reminder in two weeks, then one month later. 

Each time you send a reminder about the overdue payment you should be clear about how late the invoice is, the original invoice number and outstanding amount, and ask them to reach out if they have any questions or concerns. At this point, the overdue invoice may have you running into cash flow problems, but don’t panic! You’re certainly not alone. In fact, reports show that 79% of SMBs (small- to medium-sized businesses) are forced to chase down invoices during regular business hours as a result of late payments. As a result of dealing with late payments, 48% of SMBs end up making late payments to suppliers themselves, and about one in 10 have to turn down new business.

How to Prevent Late Payments

The easiest way to avoid the hassle of late payments is to take steps to prevent them in the first place. As mentioned previously, you can start by sending out a preemptive reminder that payment is due a few days to a week in advance. 

Another way to help prevent late payments is to automate systems to get more cash coming into the business more easily. Investing in an integrated payment process system with automatic reminders is a low effort solution to help increase your payment recovery. Don’t forget to start the payment cycle without delay by invoicing for payment correctly and promptly. This can help you to avoid late charges, while ensuring that payments come in on time. On each invoice, make sure that payment deadlines, terms, and procedures are clearly stated. 

Make sure you’re sending the invoice to the right person – sometimes this will be your contact directly, other times it will be to the accounting department. Make sure you know who to send invoices to in order to avoid delayed payment.

Offering different payment options is another way to help ward off late payments. If you insist on only being paid by cheque, for example, you could be stuck waiting for the one or two days a month your customer cuts cheques (nevermind the time in transit). Some clients prefer paying by direct deposit, e-transfer, or credit card. The easier you make it for them to pay you, the more likely you are to see your funds on time. 

Have a late payment policy  

When it comes to payment terms, having a late payment policy can help ensure your invoices are paid on time. Often, the customer sets the terms in a B2B payments transaction, but there may be some room for you to negotiate terms which incentivize timely payments while discouraging late payments. Some options include: 

• Late payment fees
• Asking for upfront payment 
• Digital payment policy
• Payment schedules or payment plans
• Online payment option
• Prompt payment discount for early invoice payments

If you’ve exhausted all your other resources, a letter from a collection agency might be effective for very overdue payments. This should only be used as a last resort, as it’s likely to cause damage to your customer relationship, and could cost you future business. But if you’re ready to cut ties with your client and want the best chance of recovering your money, it’s certainly a reasonable option.

Maintain a positive customer relationship

Keeping the lines of communication open with your customer can help improve your chances of getting paid on time, or having late payments sent promptly. Those with a solid business relationship are more likely to have a positive payment experience, and reach an agreement should payments ever become an issue. Adding a line such as “We appreciate your timely payment” to your invoices helps to positively reinforce the relationship (as well as payment expectations) with your client. 

You might also choose to acknowledge your customers who consistently pay on time with a short thank you call or email, or even a small gift from time to time. This helps show them how much their business means to you, and that you value the relationship.

Don’t give up

Ultimately, late payments are just a fact of running your business, and chances are you’ll have to deal with them at some point in your business journey. Be persistent and consistent, and you’ll have greater success at collecting outstanding payments. If you’d rather skip the headaches of late payments altogether, there are options available that can provide reliable access to working capital to cover everyday expenses and growth projects. 

An Innovative Funding Solution to Avoid Late Payments

If you want to avoid the headache and hassle of chasing down late payments, invoice factoring offers an innovative solution to boosting your cash flow when you need it.

How invoice funding works is that an invoice factoring company gives business owners cash for their unpaid invoices in days – instead of the typical months it takes for a customer to pay. The customer then pays the outstanding invoice to the factoring company, according to the original invoice terms. (See a more detailed invoice funding definition here.) Invoice funding helps to eliminate the slow growth, wasted time, and unnecessary stress caused by late payments because:

• Businesses get quick access to cash for work they’ve already completed, which they can then use to fund growth initiatives. Since your available funding is based on outstanding invoice totals, the more you invoice, the more access to funding you have.
• You’re no longer spending time chasing down payments. The factoring company is responsible for collecting payment and works with your customer directly to ensure outstanding invoices are paid. This gives you back your time to focus on what’s most important to your business instead of spending your day dealing with overdue accounts.
• Knowing that you have access to the cash your business needs when you need it helps provide peace of mind. Not only can you ease any cash flow dips associated with seasonal strain, you can close your books with confidence knowing that you can cover everyday expenses. No more losing sleep worrying about when you’ll get paid. 

No matter how you choose to deal with late invoice payments – sending reminders, involving collections, or using invoice factoring – the most important thing is to take action. This helps ensure that you have access to the cash flow required to cover expenses, grow, and enjoy your business.

About FundThrough

FundThrough is a leading fintech company accelerating cash flow and enabling growth for small and medium businesses. Based in Toronto, FundThrough’s AI-powered invoice funding platform gives B2B businesses fast, customized funding offers to get their invoices paid in a few days - rather than a few months - and get quick access to cash that’s already theirs. For more information, go to http://www.fundthrough.com. To learn about FundThrough’s partnership with Intuit QuickBooks and how you can fund an invoice, click here. If you’re ready to create a free, QuickBooks integrated account, get started here.