2016-12-15 00:00:00 Invoicing English Review some of the steps you should take if you have to deal with a bounced or insufficient funds cheque. https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/03/business-owner-reviews-paid-and-unpaid-invoices.jpg https://quickbooks.intuit.com/ca/resources/invoicing/how-to-handle-a-customers-bounced-check/ What to Do When Payment Is Overdue

What to Do When Payment Is Overdue

13 min read

When you send an invoice, you expect it to be paid on time. But you learn quickly as a business owner that this isn’t always the case. You may eventually run into clients who pay late or try to avoid paying altogether. You may even have to deal with the occasional bounced cheque. How do you handle those slow-paying customers, delinquent accounts and bounced cheques? Setting up standard policies and procedures can help encourage customers to pay faster to keep your business cash flow moving. It comes down to staying on top of your invoices, following up with customers and having customer-friendly policies in place to make sure you get your money without alienating your customers.

Maintain Customer Relationships

No matter where you are in the process with your delinquent accounts, it can pay to focus on your customer relationships. Strong relationships can encourage customers to pay their bills on time or satisfy past-due accounts quickly. Communicate your payment terms clearly, including payment due dates and acceptable payment methods. Ensure your customers know how to get in touch with you and ask questions. Every document you transmit to the client should include your contact information. Be empathetic, and deliver quality customer service. A client who is satisfied with the work you perform is more likely to pay your current invoice on time and return for additional services in the future.

Get a Signed Contract

When you run a retail business with customers paying when they buy something, you don’t have to worry about late payments. But invoicing clients after you deliver a product or services opens you up to people forgetting or intentionally not paying. When you get a new client for your invoice-based business, it’s a good idea to draw up a contract that lays out the terms and conditions of the arrangement. That includes the terms of payment, such as when the invoice has to be paid and what happens if it’s not paid on time. A 30-day payment term is common. That means your customers should agree to pay within 30 days of being invoiced. Have each new client sign the contract, and make sure they’re clear on those expectations. A contract doesn’t guarantee payment, but it’s a formal record, which could help you if clients fail to pay and you seek legal help.

Adding a late payment policy to the terms encourages timely payments from your clients. Use this policy to outline the fee for overdue invoices. Or you can try a positive reinforcement approach to encourage customers to pay early by offering a discount if they pay by a certain date. You might offer a small discount if the customer pays within a week, for example. Another option is to take a down payment for project work so you’re not out the entire bill if the client doesn’t pay. You might ask for a deposit of 25% to 50% before the project begins with the balance to be paid upon completion.

Automate Your Invoicing

Automating your invoices and sending online invoices can help cut down on the chances of late payments. You’re able to send out invoices quickly to encourage customers to pay right away. When you invoice a customer right after the product or service gets delivered, it’s fresh on your customer’s mind, and that can speed up payment. QuickBooks Online lets you issue invoices on the go and set up automated email alerts to remind clients when their account is overdue. The system also stores your invoices in one place, so you can have a clear picture of those that have not been paid. The software integrates with your bank account, and being cloud-based makes the data accessible from any device anywhere.

Streamline Payment Options

Some clients let payments go beyond the due date because the payment options aren’t convenient. Expanding on the payment methods you accept can help remedy some of the delinquent accounts for your business. Look at the payment options you give your clients now. Do you offer several different options or only one? Consider opening it up to other payment methods if the options are limited. This includes cash, cheques, credit cards, electronic funds transfers, wire transfers or payment remittance through third-party systems.

Flexibility in how you receive your clients’ payment information can also help. Some customers find it easier to provide credit card information over the phone or physically deliver a cheque to a location other than your main storefront, for example. When you send invoices electronically through QuickBooks, you can offer online payment options that add convenience for some customers.

Tracking Unpaid Invoices

Once you have the foundations of your accounts receivable in place, it’s time to monitor the situation. If you have lots of customers, you run the risk of eventually facing late payments and uncollected accounts. Some businesses ignore these delinquencies or don’t prioritize them, and others focus on them on a regular basis. You can’t collect on unpaid invoices if you don’t know you have them. That’s where tracking comes into play. Getting into the habit of tracking invoices and following up on late ones keeps the cash flowing into your business account and ultimately increases your net profits. Even if you can’t collect 100% of your overdue accounts, doing something is better than doing nothing.

Tracking unpaid invoices become less time-consuming when you use accounting software such as QuickBooks. You can generate reports and set up notifications in the system to let you know when invoices are overdue or when they are paid. Choosing a set interval, such as weekly, monthly or quarterly, for checking up on delinquent accounts helps you stay on top of the situation. Then, you can decide how to contact customers with past-due accounts to remind them gently that their payments are due.

Send Email Reminders

Prompt payment from your clients safeguards your business’s cash flow, but if your clients lose their invoices or get distracted by other matters, they may forget to pay. To reduce late payments and tighten the payment term, send out email reminders, which offer a softer, less-direct approach to collections. These reminders go out instantly, unlike mailed reminders which add postage costs and take time for delivery. Plus, it’s a non-invasive way to get your customer’s attention without making an uncomfortable phone call. You can send polite reminders to clients in case they simply forgot to pay. Sometimes all a client needs is that gentle nudge to make the payment. Consider including a copy of the overdue invoice with the email to help remind the customer of the bill and give them the information they need to pay it.

Online invoicing services often let you set up automatic email reminders if the invoice isn’t paid in a certain amount of time. This option means you don’t have to spend a lot of time tracking down late payments and sending the email reminders manually. Your software handles the work for you, giving customers the reminders they need to get moving on their payments.

Careful wording in your email reminders can make them more effective. For example, you may want the first message to serve as a gentle reminder to pay the invoice, so your language should be friendly and casual. You might say, “Hello! We just wanted to reach out to let you know your outstanding balance is a little late. We understand that life gets busy and you probably just forgot about the bill. Thanks for making your payment as soon as possible!”

If the customer ignores your initial email reminder, it may be time to step it up and use stronger yet still polite and professional language. You should still keep the correspondence professional because it reflects on your business. But it may be time to let the client know you’re expecting your payment immediately and you plan to take action if the account doesn’t get settled. Let the customer know what you plan to do next. For example, you might say, “If we do not receive payment by October 15, we will send your past-due account to collections.” That can be enough to encourage the customer to pay up so they don’t face any additional collections activity.

Pick Up the Phone

If you receive no response after sending email reminders, consider giving the client a call. Phone calls are harder to ignore than automated email messages. Having a verbal conversation is sometimes all that’s needed to get the invoice paid. If you feel uncomfortable doing this personally and want to add more authority, hire a personal assistant to make the call and do the chasing for you. When calling customers, make sure you keep your composure and have a friendly, professional attitude toward the customer. If you’re rude or overly aggressive, it can affect your company’s image, and getting angry may mean losing the customer and other potential customers forever. Being polite when contacting customers by phone is always a better approach. Have all the details of the past due account handy when you make the call so you can let the customer know the amount, when it was due and any other relevant information. Be prepared to accept a payment over the phone or let the customer know how they can pay you.

Negotiate New Payment Terms

Sometimes personal situations may impact your customer’s ability to pay. Maybe the customer has an unexpected expenses this month that keeps them from paying. Or perhaps they have a serious situation to handle that made them forget about the invoice. Showing empathy for the situation and being willing to negotiate on the payment terms makes it easier for the customer to manage and increases the chances of you getting paid. You might accept partial payments, installation payments or periodic remittances to pay down the balance of larger invoices, for example. Or you might just extend the due date by a few weeks to fit the customer’s needs. Consider accepting payment in an alternative payment method, such as a product the customer sells. When you propose multiple options to help resolve the issue, you’re more likely to find one that fits the customer’s situation. Your end goal is to get as much that is owed to you as possible. Bankruptcy proceedings and legal recourse don’t always get you your entire receivable, so look for options to maximize the amount you collect, even if it results in a future write-off.

Escalate Your Collection Efforts

There comes a time where you’ve done all you can and you just can’t collect payment. You have some options before you give up on seeing any money from a non-paying client. If the invoice is at least 90 days overdue, you should consider sending a legal letter or handing the matter over to a debt collector. Collections agencies typically handle payments that are late by 90 days or more. They often charge a percentage of the recovery, which can be 15%, 25% or more. Even though you don’t get the full amount that you’re owed because of the fee, you still recover a portion of it. And you don’t have to handle the legwork, which saves you time. Letting a collection agency handle your severely past-due accounts can actually be a more cost-effective option because of that time savings. There’s usually no charge if they fail to recover the money, so you’re not out anything if the agency isn’t successful.

The next step is often to hire a lawyer to write a formal demand letter and send it to the client to let him know you’re serious about collecting the payment. When all else fails, you have the option to take the client to small claims court. While it varies by province in Canada, the small claims court usually deals with outstanding amounts of up to $25,000. This can mean more time and money on your part, so make sure the account is worth those efforts before you consider this option. It usually only makes sense to take legal recourse when the invoice is severely past due and is large enough to justify the time and expense. When you escalate to legal proceedings, you’ve likely lost the client forever, so you have to make sure that you can afford the risk.

It’s important to document every aspect of the receivable throughout the collection process when undertaking legal recourse. The documentation relating to the steps you have taken to resolve the issue without legal intervention shows that you’ve taken appropriate action. It’s a good idea to include all communications, contract agreements, purchase orders, invoices and banking documentation to show any partial payments made.

Handling Bounced Cheques

You’ve got your plan in place for clients who miss payment due dates, but what about customers who pay with bad cheques? Even though it’s not often intentional, sometimes customers bounce cheques because they don’t have enough money in their bank account. While you can be sympathetic to that situation, you also want to get paid for your product or services. Having a process in place to handle those situations can help you recoup your money. Here are some tips:

  • Contact the writer of the cheque. The customer may be able to fix the issue immediately and get you your money.
  • Consider requesting bank fees as well as the amount of the cheque from the issuer. This keeps you from paying extra money for your customer’s mistake.
  • Report the cheque writer to TeleCheck, a national database of writers of bad cheques.
  • Contact an attorney about pursuing legal action to get your money if the customer doesn’t correct the problem. Reaching out to the client before taking legal action gives them one last chance to get you the money.

Budgeting for Delayed Payments

When customers don’t pay on time, it affects your business cash flow. You know how to handle collecting that amount, but it’s also important to know how to handle the financial aspect of the late payment. If a customer doesn’t pay the full amount of the invoice within the specified window, you have a delayed payment. Delayed payments make it difficult to plan. When you have no expected date for actually receiving the cash, it’s difficult to make business spending decisions. Leaving room in your budget for delayed payments can help you avoid cash flow problems.

When you plan for future periods, create two yearly budgets: an operating budget and a cash flow budget. An operating budget outlines what you earn and the related expenses. Your annual operating budget may show $100,000 of revenue, $75,000 of expenses and $25,000 of net income. A cash flow budget looks at the timing of when your operating plans happen. You may earn $10,000 in January for services rendered but don’t expect your customer to pay until March. You may record a $4,000 expense in February but aren’t obligated to pay the bill until March. In this example, your cash flow budget shows $6,000 even though no revenue or expenses are recorded in this month.

When you spot a cash shortage in upcoming months, you have options. Building a cash reserve gives you flexibility during months of lower cash inflow. Establishing a line of credit gives you flexibility and security as well. Negotiate payment terms with vendors; you may temporarily extend a 2% payment discount if your customer can pay an invoice within a week. By being prepared with an operating budget, cash flow budget and alternative sources of cash, you overcome the challenges that arise when your customers pay late.

Knowing how to plan for and handle late payments helps you keep your business finances on track. QuickBooks Online helps you create and send invoices online that help you get paid 2x faster. Try it free today.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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