How to Manage Overdue Invoices

Getting paid is a crucial part of the success of all businesses. Freelancers and small businesses might feel the strain of an overdue or missing payment much worse than a larger business. Yet, it’s unfortunately not an uncommon occurrence. 

With overdue invoices, however, there are a few things that you can do to get paid faster and avoid escalating matters and taking legal action. This article takes a look at a few steps you can take to help get your invoices paid.

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First: include payment terms on invoices

Although payment terms aren’t a mandatory part of invoices, they can be beneficial to include in order to make it clear to the customer when and how to make a quick payment on your invoices.

Payment terms might also include additional information such as whether any discount has been provided, or anything relevant to that particular sale, for example. 

You can add payment terms anywhere on the invoice, however, it’s more common to put them at the end below the total amount. No matter where you add this information, the most important thing is that it’s clearly visible to your customer.

Add due dates on your invoices

It might seem like an obvious thing for some, but a due date can help make it very clear when you expect to have payment. Most invoicing software will automatically include this field for every invoice you create.

While not a requirement for issuing an invoice, a due date not only gives your customer a deadline but also makes it clearer in your own records.

Offer several payment options

Making it as easy as possible for your customers to pay your invoices is arguably the best way to ensure you avoid overdue invoices in the first place. Providing clear options, such as online payment, can mean the difference between on-time and late payments.

Online payment solutions, such as SumUp, allow you to easily offer customers a secure online payment link directly from your invoices. 

For some businesses (for example, those with a recurring fee), another option might involve automated payments such as direct debits or standing orders. This ensures that you receive payment but also minimizes the time required from your customer.

The final option is to request upfront payment. This can be a useful option if you’re working with a customer who has a history of late payments, allowing you to continue your business relationship while also providing a bit more security for your income.

Next: follow up with a payment reminder

We’re all human. Sometimes, an invoice can get lost in a busy inbox or end up in a spam folder. Or perhaps a customer is a bit distracted and neglects to add that payment to their to-do list. 

In many cases, there are plenty of innocent reasons that a customer might be late in making a payment. That’s why the first step should always be a friendly reminder that their payment is still outstanding.

A reminder can be clear and assertive while still being friendly. For example: 

“We’d like to inform you that payment for the invoice below has not yet been received. We would be grateful if you make the payment as soon as possible. Thank you very much”.

However, if it becomes a regular occurrence with a particular customer or the delay becomes significantly longer than is tolerable, you might have to take things to the next step or reconsider how to handle future business with that person.

In this instance, a reminder that is a bit more stern should be considered, such as:

“Payment for the invoice below has still not been received. Please remit payment immediately or we will be required to take further action”.

Consider an early payment incentive or a late fee

The first part of this option falls before you send the invoice to your customer. A fairly common way to encourage on-time payment of invoices is to offer a discount on quick payment - for example, offering a 10% discount on the total if the customer pays within two days of receiving the invoice. This is called a ‘cash discount’ or ‘prompt payment discount’.

On the other side of the payment spectrum, once payment is clearly past due, adding a fee for late payment is regularly used as a way to give an added push to get customers to finally make a payment. Often, even the mention of a late fee can motivate a customer to pay their invoice. Late fees not only provide an incentive for customers to pay, but they also help you cover any additional costs encountered during the wait.

You can even include late payment fees in your up-front discussions or in any contract you have with a customer. For example, you could charge 2-5% of the total for each month of late payment.

Canceling an unpaid invoice

If you've pursued all reasonable options for getting payment from your customer and have not or do not believe you’ll see that income, you might need to cancel the invoice in your records.

Typically, an invoice is canceled by issuing a credit memo. This document effectively shows that the balance on the invoice will not be paid and allows you to balance your books and clarify that there are no outstanding debts.

Keeping track of invoices with invoice software

Staying on top of unpaid and overdue invoices can quickly become complicated if you’re dealing with Word or Excel invoice templates, for example. Marking invoices as paid, partially paid, unpaid, and overdue and keeping them sorted and updated can make it harder to follow up on any that have late payments.

Today, software such as SumUp Invoices allows you to create, manage, and even receive payments for your invoices all in one place. Online invoicing software makes it easier and faster to stay organized and get paid. Access and issue your invoices from any device and offer secure, instant online payment options to your customers.

SumUp Invoices also gives you the tools to include any necessary payment terms or to resend an invoice as a follow-up, as well as issue credit memos in the event that you’ll need to cancel an invoice.

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