Last Updated on September 7, 2023
You’ve been working hard for months, maybe even years, to build your business. You take care of your customers, and they love you for it. But a few of them are still not paying their invoices on time, and now you’re feeling the pressure to act professionally yet again. You may be wondering how to kindly remind customers of their unpaid invoices and collect payment.
It’s an unfortunate reality that some people don’t pay their bills when they should, but there are ways to deal with this situation professionally to keep doing what you do best: taking care of your customers.
Learn more about how to collect unpaid invoices by reading our in-depth guide for new business owners looking for ways to deal with outstanding invoices professionally.
Set Clear Contract Terms
Business owners need to take the first step when they’re struggling with customers who don’t pay their bills to set clear terms and prices before the work is started. Don’t let yourself be pressured into unrealistic pricing or a timeframe because your customer thinks it’s a good idea.
If you do this, you’ll have problems collecting payment and making a profit on your work, which will eventually damage your reputation as a whole. Instead, it’s much better if you lay out what you can offer and for how much so there are no misunderstandings later down the line.
Send Automated Reminders
The first couple of months after your customer gets their hands on your product or service should be a honeymoon period—a time where they’re happy to pay and continue doing business with you. But as the weeks go by, their interest might start to dwindle, and all of a sudden, they don’t remember what you’ve done for them over the past months.
This is why it’s essential to set up an automated payment reminder system to ensure your customers never forget about their outstanding invoices and allow you to take care of it before things get out of hand.
The simplest way to do this is by sending an email on a specific date each month that notifies them that their payment is due soon and that after X number of days, the invoice will be sent automatically. This way, you can continue focusing on finding new customers and taking care of them instead of worrying about getting paid on time.
Be Transparent About Your Invoices
Another great tip for collecting unpaid invoices is being as transparent as possible from the start. Customers want to do business with professionals who are entirely open and honest about their prices.
If they know what they’re spending money on upfront, they feel more comfortable doing it because they don’t have anything to hide from you or keep a secret for later down the line.
The same thing goes for late payments – if you tell your customers that you’ll send them an invoice a certain amount of days, weeks, or months after you provided the product or service, they might accidentally forget about it and then neglect to pay.
By being open and transparent about your invoice terms and processes, you’ll be able to reduce this kind of problem in the future.
Give Them Time to Fix the Problem
It can be frustrating when your customers don’t pay you on time, but it will do more damage by acting too quickly. This is why it’s best to give them several days or weeks to sort out any issues that may have come up with their payment before you take any action yourself.
This way, they’ll be able to discover what went wrong and fix it instead of getting stressed about an invoice that maybe they haven’t even seen yet. It’s best to not jump to conclusions when you might not know the whole story.
Offer Multiple Payment Methods
Nowadays, the most popular way to pay for products and services online is by using credit cards. It’s fast, efficient, and doesn’t require any paperwork or extra steps that might slow your process down.
However, another great way to ensure that customers don’t neglect to pay you is by allowing them to use other payment methods, such as direct bank transfers or even cash on delivery. The more payment methods you offer your customers, the less chance of them forgetting about your invoice and needing a reminder.
Add an Interest Charge if Necessary
Sometimes, your customers are pleased to pay you but forget about it at the last minute. If this occurs with enough customers, it can seriously impact your business and result in you not being able to pay yourself at the end of each month.
This is why it’s best to be proactive for these kinds of problems by adding an interest charge onto your invoices that are late by X days or weeks. That way, even if they don’t remember until later down the line, they’ll have another good reason to finally do something about their unpaid invoice. Adding an interest charge can incentivize even the most prolific late-payer to deliver payment on time. And if not, at least you’ll be compensated for the late delivery.
Call Your Customer
A phone call can definitely be difficult to make when you have a late-paying customer, but it can be a much more effective way to get them to pay their outstanding invoices. While it can be easy for a customer to ignore an email about a late invoice payment, it is much tougher for them to ignore you once you have them on the phone. The conversation may be a little awkward, but be sure to get the customer to let you know when you can expect payment prior to wrapping up the call.
Protect Yourself with Consequences
When all else fails, and your customers still neglect to pay their overdue invoices, you need to protect yourself as much as possible by following through on the consequences that you set up from the very beginning.
This might be canceling future orders and refusing to provide them with any more products or services. It also might mean blacklisting their business name so that none of your contacts will work with them or even taking legal action against them if they owe a lot of money and don’t seem like they’ll ever be able to pay it back.
Charge Late Fees
This might sound controversial, but some business owners charge late fees on invoices to customers who haven’t paid on time. Now, the reason why they do this is because it alerts customers of what’s happening and shows them that you’re serious about your work.
Not only that, but if you tell them what the late fee will be before they neglect to pay for an invoice, they’ll think twice about it, making sure your payment arrives on time. That being said, it’s advisable not to overdo the late fees because then customers will become afraid of spending money with you, no matter how good your product or service is.
Encourage Customers to Set Up Automatic Payments
If there’s one way to ensure that you always receive your payment on time every month, it is by encouraging customers to set up automatic payments. This means that they can automatically pay for an invoice instead of forgetting about it and neglecting the payment in the future.
Not only does this process help in reducing errors and misunderstandings, but it sets an excellent example for other customers who might be interested in doing business with you, too.
Hire a Debt Collector or Engage in Legal Proceedings if You Must
Now for some of the more extreme solutions on how to deal with unpaid invoices. If you’ve tried all of the above tips and tricks on how to get paid faster, but nothing has worked so far, it might be time to hire a debt collector or take legal proceedings against them.
Hiring a debt collector can be expensive because they have their commission fees, which means that your payment might not even cover their costs, although it’s worth it in some cases. In addition, you might have to hire a lawyer for this process, which will be even more expensive.
However, in some cases, it might be the only thing you can do to get your payment back, and then it becomes worth it because no matter how much time or money you spend on getting the unpaid invoice, at least you’ll receive what’s owed to you. If possible, though, try not to take this route unless it’s necessary because you’ll end up losing more money than if they paid on time.
Consider Invoice Factoring
Invoice factoring is a great way to collect all of your unpaid invoices at once. Essentially, invoice factoring means that you sell all of your outstanding invoices to another company who will then become responsible for collecting the money from them, which you can use as payment instead.
It’s sort of like giving someone the right to exploit an asset in exchange for immediate payment, and it is beneficial in some cases where customers refuse to pay their invoices.
Don’t allow unpaid invoices to drive a wedge between you and your customers. Instead, take care of them professionally by following these simple steps so that nothing is left up in the air from the start. Use our email templates to ask for payment professionally if you need somewhere to start.
By being open and transparent about your pricing, sending automated reminders around when payment is due, being as transparent as possible with your customers, and offering multiple ways for them to pay you, you’ll be ensuring that your customers are happy with your service even if they don’t pay on time.