How to get a past due invoice paid (finally)

What is a past due invoice and how to handle overdue invoices

A past due invoice, also known as an unpaid bill, occurs when a customer has not fulfilled their payment obligation by the agreed upon due date. When a business extends credit to its customers, it is important to keep track of past due invoices as they can have a significant impact on cash flow. Failure to collect on past due invoices can cause financial strain on the business and it is essential to take action in order to rectify the situation.

When a business extends credit to its customers, it is likely to experience situations where it must collect a past due invoice. Not receiving payments on time can cause major cash flow problems and that’s why it’s essential to take action. There are various methods available for collecting overdue invoices, as noted below.

Step 1. Negotiate Payment Plans for the Past Due Invoice

Consider setting up a payment plan with the customer to ensure they’re able to pay off their past due invoice in a timely manner. This can include breaking the amount due into smaller payments, or extending the due date.

Step 2. Communicate with the Customer

It’s important to communicate with the customer and find out the reason for the delay in payment. This can include finding out if there are any issues with the past due invoice, or if the customer is experiencing financial difficulties.

Step 3. Send Past Due Invoice Reminders

Sending reminders, such as a friendly email or phone call, can remind customers of their outstanding balance and the due date.

Step 4. Utilize Automated Payment Systems

Implementing automated payment systems, such as direct debit, can ensure that payments are made on time and can reduce the risk of late payments.

Step 5. Monitor Invoicing and Shipping

Ensure that invoicing and shipping processes are error-free to prevent disputes and delays in payment.

Step 6. Review Credit Policies for Customers with Past Due Invoices

It’s important to review your credit policies to ensure that they are effective in preventing past due invoices. This can include conducting credit reviews, implementing stricter payment terms, or only extending credit to customers with a good credit history.

Step 7. Set Up a Payment Schedule

If the customer simply cannot pay at this time, then set up a payment schedule for a series of future payments, preferably backed by a personal guarantee by the owner of the customer.

Step 8. Utilize Credit Insurance

Credit insurance can protect your business against the risk of non-payment and can provide financial support in the event of a past due invoice.

Step 9. Implement Credit Holds

Implementing credit holds can prevent further shipments to customers who have past due invoices.

Step 10. Consult with an Attorney

Consulting with an attorney can provide guidance on legal options and can assist with the collection process.

Step 11. Take Legal Action for a (Substantial) Past Due Invoice

If all other methods have failed, taking legal action may be necessary. This can include filing a lawsuit or using a collection agency.

Work with your accountant

Collecting past due invoices is an important aspect of managing a business’s cash flow. Utilizing a combination of methods, such as negotiating payment plans, communicating with customers, and taking legal action, can help ensure that past due invoices are collected in a timely manner. Additionally, it’s important to review credit policies, monitor invoicing and shipping processes, and consider the use of credit insurance or credit holds.