You work hard to generate sales and expect to be paid in a timely manner. But what if that doesn’t happen, and you end up with unpaid invoices?
If your invoices don’t get paid, your business’ cash flow falters, and stagnant cash flow is a direct path to business failure. This makes it a necessity to be proactive in pursuing payments from delinquent clients.
After all, outstanding accounts receivable (unpaid invoices) are not like fine wine: They don’t get better with age. If you’re in a service business and use the cash method of accounting, you can’t deduct the unpaid amount, and all your labor is wasted.
When creating your service agreement, set your company’s policy on what constitutes “lateness” (e.g. 30 days beyond the expected payment date).
Your decision about lateness may be influenced by how much you value the customer and their history of paying prior invoices; for example, a customer may pay late habitually, but if they always pay in full eventually; then you may not need to worry.
As soon as this late period has passed, follow up with a second (“past due”) invoice or a telephone call. A client that is experiencing cash flow problems may need some understanding on your part.
For example, the client may agree to pay monthly installments, enabling you to collect the full amount at some point while preserving the business relationship.
Some businesses may put a clause in their invoices to impose interest charges on late payments. While this is perfectly legal if done correctly, it can be very tough to enforce. Here are some of your options when it comes to tracking down clients with past-due invoices.