How to Deal with Overdue Invoices and Reduce Cash Flow Risk

As a small business owner, it’s crucial that you get paid on time for services rendered and avoid long overdue invoices from clients. Even if your business is doing well, not receiving payments on time could negatively impact your balance sheet. You have bills to pay, and if you’re late, you could be charged unnecessary fees. Keeping yourself organized with tools like payment reminders can help you stay on track.

What is an overdue invoice?

An overdue invoice is when a company or individual doesn’t pay you before the due date. Most businesses will give their clients grace time, usually between 7-30 business days. When the invoice isn’t paid within this time frame, it’s considered an overdue invoice.

Why should you care about overdue payments as a business owner?

Your cash flow may not allow you to pay for your financial obligations when you have consistent overdue invoice issues. You may not be able to take on new projects because of the money it will cost. You can’t purchase much-needed items for your business that allow it to grow or meet operational expenses.

8 Strategies to Deal with Overdue Invoices

Add a late payment fee to your contract

Many small businesses will add a late payment fee, so the customer knows they’ll be penalized for late payments. You have to tell them from the beginning that there is a late-fee policy for an overdue invoice. When you charge late fees, the invoice must clearly show the late fee details under the payment terms section.

The late fee is often a percentage of the total owed. You can choose a flat fee or a portion of the due amount. You can also show how much the client will be charged if they’re a week, two weeks, or a month late. With this strategy, you want to add pressure on the customer, so the later they are, the more they’re charged.

Split the payment into smaller buckets

As a small business, you likely rely on good customer service as the foundation of your success. That’s why it might be an idea to split payments so that it’s manageable for your business to handle your issued invoices.

In case you have a due invoice from your clients, you can pause your expected service or product delivery until you get paid. That way, you will minimize the risk of potential overdue invoices, ensuring they will not jeopardize your business cash flow.

Set up an online systematic communication channel with your clients

An excellent way to keep clients involved in every aspect of your business with them is through a well-organized communication channel. This will allow clients to check the project status and their payment obligations to your company.

If you’re an Elorus user, you can use our client portal to set up constant communication with your clients. Through the Elorus portal, your clients can monitor the progress of their projects, pay their invoices, and share their feedback. Of course, all sensitive data you share with your clients are fully protected by the industry-standard SSL and our very own ISO 27001 certification.

Set up recurring invoices

Use helpful tools to automate recurring invoices so you don’t need to think about it. These tools will save you from having to make an invoice every month. You can easily choose when the invoice is sent through an automatic invoice system. Having the invoice sent right on the day it should let your clients know that you’re paying attention, and they’re more likely to take it seriously.

Set up automated reminders before and after the due date

You can use a payment reminder just before the invoice becomes overdue and after the due date is passed. This will help you stay on track and remember what clients owe you money and when. As soon as you’ve sent someone an invoice, it would help if you created the reminder as part of the accounting process.

Write an effective email reminder

An effective way of connecting with clients about an overdue invoice is an email payment reminder. You must be very polite when sending a past-due invoice email. Make sure to highlight the due amount, payment terms, and an overdue invoice late fee. Attach the original invoice for their reference and let them know what payment methods you accept. It’s even better if you add payment links. You should keep the email short and sweet to avoid complications.

Also, you can check out our email samples for overdue invoices to help you set up your communication with clients. You can copy and paste or edit them to become closer to your brand voice.

Phone call your clients directly

If you’ve tried all the various methods of getting a client to pay an overdue invoice, you may need to call the client to discuss the issue openly. This close contact will often result in immediate payment if the client has the money. If not, you can discuss payment options.

Get advice from your legal team

If there’s a situation of multiple overdue invoices and the client isn’t responding to you, it’s common for a business to get legal advice from a lawyer. A lawyer can often write a letter illustrating what could happen if the client doesn’t pay. As it’s coming from a law office, it’s not your voice, but you’re well-represented.

Pre-define a small portion of your budget for overdue payments

It’s essential always to have a good amount of cash flow even if your clients consistently pay on time. In your budget, have some extra money for when things don’t go according to plan; this includes overdue invoice issues and other incidentals that may arise.

Small business owners usually don’t have much capital to wait for long overdue invoices. It cuts into cash flow, which can prevent your business from growing. This is why keeping organized with when payments are due and having an exemplary process for obtaining payments are critical. Be clear in all your communication regarding invoicing and any penalties that may arise when invoices are overdue.