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Dealing with late invoice payments is never fun. Thankfully, there are several proactive measures you can take today to navigate these difficult situations and come out on top.
Today is also an opportunity to create new policies that will help prevent late payments in the future. In this discussion, we share a few proactive steps you can take to avoid the hassle of late invoice payments and expedite the payment process, too.
- Send digital invoices
- Enable online invoice payments
- Let customers make deposits
- Make your payment terms clear
- Impose late payment fees
Paper invoices are prone to getting lost in the shuffle. Moreover, sending invoices through snail mail prolongs the entire payment process. Customers are more likely to pay if you send invoices early, when purchases are still fresh in their minds. Wait too long and invoices may become lost in the noise.
- Email invoices so customers receive prompt notification. Even if a customer accidentally deletes the message containing the digital invoice, you always have a copy on file that can be sent off (with a kind reminder) at a moment’s notice.
- To send a digital invoice, ensure you have the customer’s email on file, assign the customer to an invoice, click “Save and Send” and you’re done!
Enable online invoice payments
Set up invoices so customers can pay online via credit card or bank transfer. Allowing multiple payment methods keeps customers happy – and it makes it even easier for them to pay on time.
- When you are creating an invoice template in the Custom Form Styles Module, click on the “Payments” Tab to select the payment methods you want available to your customers.
- Note: Whether you want to “pay as you go” or “pay monthly” (QuickBooks Desktop feature only) will depend on the volume of transactions you handle on a monthly basis. Do some research and see what works best for your business.
When customers put down a deposit, they’ve got even more skin in the game. Plus, you give customers more payment flexibility, a move that will ultimately strengthen your business relationship. Check out our guide for how to set up deposits in QuickBooks Online.
- First, set up a new liability account in your Chart of Accounts. Go to your Chart of Accounts and create a new account. Select “Other Current Liabilities” for both the Category Type and Detail Type. Name the account something functional and transparent, like “Customer Deposits/Retainers Account.”
- Now you have a liability account to accept deposits into. Go to your Products and Services list and create a new service item called “Customer Deposit” (or something similar that you can remember). You can leave the price rate field blank since the value will be variable. Be sure to uncheck the “Is taxable” box. For the Income Account, select your new “Customer Deposits/Retainers Account” from the Income Account dropdown menu.
- You're ready to collect the deposit. Create a new invoice for the customer, add your new “Customer Deposit” item as the sole line item and enter the agreed deposit amount in the rate column. Take one final check to see if the "Balance due" matches and you’re ready to send.
- Time to actually get the deposit. Once you receive the payment, go to “Receive Payment” by clicking the (+) Action Button. Record the date you received payment, select the matching invoice and choose the Payment method – if you received a check or cash, deposit the money into your Checking Account. If you have online payments enabled, follow the process to receive electronic payments.
- When it’s time to send the final invoice, add all the goods and services you’re providing – the items should add up to the total amount of the bill (not the remaining balance).
- Here’s where you apply the deposit. Once again, add the “Customer Deposit” as a line item, write “deposit applied” in the description, but instead of recording a positive (+) value to the rate column, add the deposit amount as negative (-) value. The final "Balance due" on the invoice should include the applied deposit.
- Send the invoice and you're done! You've successfully accepted the deposit payment into a liability account and then applied funds from that account to the customer's final invoice.
- Note: While there is an option to turn on a "Deposit" data field on invoices from the settings menu, deposits entered into the "Deposit" field are paid as credits directly from your Accounts Receivable (A/R) account. You cannot change or reassign the account type to a liability account (like the one above). Thank you @vpcontroller for your tip!
Make your payment terms clear
Ensure your payment terms are easy to find and appear on every invoice. We don't recommend applying new payment terms retroactively. If you commit to "Net 60” payment terms, customers have 60 days to pay you. Even if they pay at 11:59pm on day 59, it’s still considered “on time.”
- Make sure your payment terms on your invoices by going to the Custom Form Styles Module to see if the “Terms” and “Due Date” boxes are checked.
- You can set Net payment terms when you first create an invoice. If you want to change your default payment terms, click the Gear Icon (
), select “Accounts and Settings,” choose the “Sales” Tab and then click the pencil icon (
) in the “Sales form content” section. Select new terms from the “preferred invoice terms” dropdown.
- Later on, if you decide to change your payment terms from “Net 30” to “Due on Receipt,” send a courtesy email to update your customers. Go to the Sales Module, select the “Customers” Tab and check the boxes next to the customers you want to contact. Then, click “Batch Action” and select “Email” – this will take you to your preferred email client with the addresses pre-populated in the message. Make sure you mention the change somewhere in the subject line!
Work with your customers so there’s never a reason to miss a payment. There may be a good justification for why they are chronically late. In some cases, however, customers might need a little extra incentive.
If you didn’t establish a late payment policy from the beginning, it’s best not to impose surprise late fees. The red tape would only prolong the payment process. Plus, it’s just bad business.
- While QuickBooks Online currently does not have a native late payments feature, there are a few simple implementations that yield the desired results.
- Create a new invoice. For the first (and only) line item, select “+ Add New” from the “Product/Service” dropdown. Create a new service item with “Late Payment Fee” somewhere in the title. Fill in the details and add a detailed description. Once you send the invoice, the late fee will be logged as a billable Product/Service item for future use.
- There are also purpose-designed apps like Late Fee Manager that integrate seamlessly with QuickBooks Online.
- What do you think is a fair late payment fee? Share your insight with the community!
Now it’s your turn
There is no “one size fits all” when it comes to invoice payment terms. If you’re up for an experiment, send invoices with Net 15, Net 30 and Net 60 deadlines to different sets of clients.
Which payment terms help you get paid most consistently? Share your results on the QuickBooks Community!
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