When it comes to chasing invoice payments, how often is too often and how often is not enough?
This can be a difficult question to answer, as it depends on a variety of factors including the size of your business, the type of product or service you offer, and how long you're willing to wait before taking action over the overdue invoice.
Chasing customers for payment can be awkward, but the reality is that if you don't do it, you may never get paid. The key is to strike a balance between being assertive and being polite in your payment follow-ups and establishing a clear process in place so that everyone knows what to expect.
This blog post will provide some guidance on how frequently you should chase an overview invoice from your customers and offer advice on chasing payments.
Firstly, you must build a strong payment reminder email template
As a small business owner, chasing payments for overdue invoices can be a stressful situation. After all, late payers put a significant strain on cash flow while the process of sending payment reminders and contacting clients may harm productivity. As such, you may be tempted to take an aggressive approach and start legal proceedings right away. In reality, it's better to focus on strong communication that will encourage people to pay. Effective email templates are your greatest asset.
Using effective email templates can help the business in many ways. The chief benefits are;
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Prevent late payments,
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Ensure that overdue invoices are paid ASAP,
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Prevent the need to open court proceedings,
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Save time when requesting payment,
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Remove human errors when filing the invoice.
Effective email templates provide clients with clear details about the payment terms while also making it convenient for them to pay. Email reminders additionally include key details including the company name, date of the invoice, payment due date, invoice number, and payment information.
Crucially, with the right choice of wording, small business owners can be confident that they will receive payment in a timely manner without damaging their reputation or putting a strain on client relations. In short, you must stop chasing payments until you have created an unambiguous and professional template that can be sent to every account that has an overdue payment.
The right email template can be used at several stages of the chasing late payments process and provides a solid foundation to build upon. For the best results, though, small businesses need a solid strategy too.
Start chasing payments by sending your first reminder when the invoice is issued
Sending out your first reminder when the invoice is issued might seem pushy, but the opposite is actually true. So, while many businesses ignore this stage, it is often the most effective way to avoid late payments.
A gentle reminder as soon as the invoice is issued lets your customer know that you're on top of things and expect to be paid on time. It also prevents them from suffering from 'bill shock' when they see how much they owe you in one go.
Be sure to thank your customer for their order, attach the relevant documentation and confirm all details such as due date and invoice details. Attach an invoice copy and your payment terms. Do this right, and you may avoid the need for follow ups altogether.
Having all this information on hand will make it much easier for your customer to make payment and sending it early will help avoid any potential confusion or delays.
Lastly, ensuring you are invoicing clients correctly, and including the right information on your invoices (from business name to invoice date and late payment penalties) means you can reduce your chances of receiving invoice queries and disputes that can delay payment.
Remind them 7 days before the invoice is due
When it comes to late payments, prevention is often better, and cheaper than the cure.
Your payable department can avoid having to chase payments by sending a reminder to the client before their invoice is even due. Doing this in writing (by email or letter) will inform them that time is running out and encourage them to pay before they start to incur interest on their debt to the company.
This gives them a gentle nudge to make sure they have the money set aside to pay you and also shows that you are organized and on top of things.
It's often helpful to include the original invoice with the reminder. This way, your customer has all the information they need to make payment without having to search for it. In many cases, they will decide to pay immediately.
When you need to remind customers ahead of an invoice due date, you can use this before due invoice reminder template - created by accounts receivables experts. As well as increasing the hopes of having money paid on time, it removes the stressful processes of taking legal action.
Remind them on the invoice due date
When an early payment isn't made, the next goal is to prevent late payment by getting paid on time.
On the day that the invoice is due, send a reminder to your customer that payment is required today. This can be done in the form of an email, or, if you have their telephone number, as a text message payment reminder as well.
As their money isn't yet late, you must maintain a friendly tone. Still, reminding them that interest will start to incur from tomorrow encourages them to pay now.
While emails are easy to overlook, a text message is often hard to ignore SMS payment reminders have an open rate of 98%. So, this will help you reach your customer on the go and give your company the best chance of receiving payment on the due date.
Follow up on overdue invoices 3 days after the invoice due date
Once the invoice is overdue, you should follow up with your customer as soon as possible. This can be in the form of an email, phone call, or text message.
If you're going to send an email, we recommend attaching all relevant details and attaching an invoice copy to your email communications.
If you'd prefer to speak to your customer via a friendly phone call, have all the relevant information in front of you so that you can quickly answer any questions they may have regarding their due invoices.
It's also important to be polite and professional when communicating with customers about overdue payments. This will help build and maintain a good relationship with your customers. While it's important to receive your money, showing that you understand their situation is advised.
If attaching invoices to your payment reminders is time-consuming, or sometimes gets forgotten, consider utilizing a payment portal where customers can view all upcoming and previous payments, download invoices, and make payments via their chosen method. This self-serve approach to account management also helps clients stay in control and contact the business themselves to discuss.
Continue to chase payments with a follow up email a week after the invoice is due
Once a week has passed since the invoice was due, it's time to follow up with your customer via email and increase the sense of urgency in the wording of your payment chasing while simultaneously informing them of the repercussions that will follow if they fail to settle the debt.
You could say something like: “I hope you have been able to arrange payment of your invoice from last week? Please let me know if there is anything preventing you from making payment so that we can assist”.
As with all other chasing emails, remember to include a copy of the original invoice and any other helpful information, such as payment terms and conditions. Putting the details in writing may be useful too, as it can make the client aware that you will take the matter seriously.
If you are having a consistent issue with a customer not paying their invoices on time, you may want to consider implementing late payment fees to discourage customers from paying late in the future. Alternatively, if the issue persists, you may request that they pay in advance from now on.
Follow up an overdue invoice via phone and email 2 weeks after the invoice is overdue
If the invoice is two or more weeks overdue, it's time to start making phone calls as well as sending emails. Again, be polite and professional, but firm in your request for payment. It may be helpful to mention any late payment fees that have been or will be incurred.
Being well-prepared for accounts receivables phone calls, or even utilizing a pre-planned script is highly recommended. This ensures you are ready for any reasons or excuses and know how best to respond when faced with your client's answer.
It's important to keep track of all correspondence with clients regarding outstanding payments. This will not only help you stay organized but will also be helpful if you need to escalate the situation by taking legal action.
Offer a payment plan via phone and email 3 weeks after the invoice is overdue
If there has been no contact from the customer or payment within 3 weeks of the invoice being overdue, it's time to give them another telephone call. During this call, you should:
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Politely remind them of the outstanding payment and how long it has been overdue,
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Inquire about when they anticipate being able to make the payment,
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Attempt to come to an agreement on a reasonable timeframe for making the payment.
If this customer has communicated they are having trouble affording the payment, are experiencing cash flow issues, or need to delay paying the full amount, consider discussing a payment instalment plan with them over the phone.
This will break down their invoice into smaller easier to manage payments. You can then confirm the agreed payment plan in writing via email. Even if it takes them several months to clear the debt, it's a far better outcome than writing it off or encountering lengthy court proceedings.
Send a follow-up email with a proposed payment plan
In business, just as in life, you will find that some people are unnecessarily difficult and try every trick to get out of paying. Follow ups show that you will not accept this.
So, if you were unable to come to an agreement during your phone call, the next step is to send a follow-up email that includes:
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A summary of your previous conversation
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Your proposed payment plan and a reminder of your payment information
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The consequences for not adhering to the payment plan (i.e. late fees, legal action, etc.)
Once you have sent this email, give the client a few days to respond. If you don't hear back from them, or they do not adhere to the payment plan, then you can move on to the next step: sending a formal demand letter.
Send a debt collections notice when the invoice is 30 days overdue
If you are still left chasing payment 30 days after the due date, the next payment reminder to send is a debt collections notice email or letter.
This is a more formal way of reminding your client that they have an outstanding invoice and need to make a late payment and repay any interest that has been incurred.
It's important to note that before you send this kind of notice, you should check with your lawyer or accountant to ensure it's appropriate and compliant in your state or country.
When sending a collections notice, it is recommended that you:
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Include the amount outstanding
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Mention how many days the invoice is overdue
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State what action will be taken next if payment isn't received (e.g. referring the matter to a debt collection agency)
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Provide a date by which payment must be made
If you are struggling with how to phrase your debt collections notice, you can use this debt collection letter template. It enables you to continue chasing payment in a professional yet increasingly forceful manner.
Sending a collections notice is often the last resort for businesses when trying to recoup overdue monies from clients so be sure you do your research on debt recovery and understand the process and implications.
With the right debt collections provider with a polite but persistent approach to debt recovery, you can recover your late payments whilst maintaining good customer relationships. It additionally reduces the threat of the same client delaying payment on future purchases and makes life easier for your team. Better still, the outcomes will improve the company's financial health.
The right frequency to chase an invoice payment
Sending reminder emails through automated channels does make life easier, but it's still important to track the process. Otherwise, writing off bad debt could become a reality while chasing payment will become a more costly procedure too.
The frequency you choose to request payment should be based on how overdue the payment is and how important that particular client is to your business.
For example, if you are chasing a large corporate customer who has been slow in paying invoices in the past, you may want to chase sooner than you would for a smaller customer who has always paid on time.
The schedule listed above can be used as a best practice template, but feel free to tailor it to your own business needs and your customers' payment behaviours.
With Chaser, you can utilize automated, customizable payment reminder schedules for each of your different customer groups and chase invoices at the intervals you choose with accounts receivables automation software.
Try accounts receivables automation for free, for 14 days to save time and get your invoices paid faster.
