How to Deal with Unpaid Invoices And Ensure On-Time Payments for your business?
Getting payments on time is crucial for the survival of any business. Delayed payments or unpaid invoices could have a domino effect on your entire business. It can disrupt your business’s cash flow, leading to financial problems. You don’t need us to tell you what can follow the financial difficulties.
Did you know that 1 in 5 insolvencies is due to late payments?
Not optimising your invoicing and payment process could potentially end your business organisation! One of our clients, a leading healthcare company in the US, was struggling with their customer communications, including invoices.
Working directly with PostGrid, they could set up a simple system that lets them personalise and send postal correspondence with high efficiency. It allowed the company to deliver personalised unpaid invoices, consent letters, postcards, and much more.
But we are getting a little ahead of ourselves. First, let us explain how to deal with unpaid invoices and how you can do the same for your business. In addition, we also provide you with some quick tips for ensuring timely invoice payment for your business through effective communication.
How to Deal with Unpaid Invoices
Legal action against an individual or organisation should always be your last resort when dealing with overdue invoices. The reason behind this is apparent. As a business organisation, your priority should always be to cut your losses.
You can take several steps before finally involving a debt collection agency for the unpaid invoices in your organisation. Following these steps help you minimise the chance of missed payments and recover your losses. So, here is what you need to do.
Discuss The Payment Terms Beforehand
The first thing you must do to avoid non-payment of invoices is to discuss your payment terms with the buyer beforehand. Ensure you communicate your organisation’s expectations to the customer or client.
Use the initial meeting to explain your standard payment plans or options. The last thing you want is a confused customer missing their payments because of a miscommunication. Ensure that the customer understands the time frame for payments.
And never forget to inform the customer beforehand if you require a deposit from them. Finally, you must explain your protocol on how to deal with unpaid invoices. You should also inform the customer about late payment charges if your business has one. However, your interaction remains friendly and polite.
Double-Check Your Invoices
Before you have to send an unpaid invoice letter to your customers, make sure that you double-check your invoices. It would be best if you double-check your invoice during every stage. That means you must double-check the invoices every time you send your invoice or letter for non-payments to the customer.
Make sure that every piece of information you have on the invoice is correct and up to date. Remember, the last thing you want is to send an unpaid invoice letter to your customers, especially your long-term customers. Furthermore, any inaccurate information in the invoice can make a claim questionable and lead to more difficulties.
Keep A Clear Paper Trail
Keeping a clear paper trail is crucial for businesses, especially B2B firms and companies offering credit payment options. Get in writing that your client/customer agreed that they would make the payment with the date you provided on the unpaid invoice.
There is an easy way for you to ensure a clear paper trail for your pending payments. You can use Managed Print Services like PostGrid to automatically send a customer an invoice, payment reminder, and unpaid invoice letter.
It allows you to send your customers hard copies of the invoices, payment reminders, and unpaid invoice letters and keep the digital copies. As a result, you get a clear paper trail for your customer communication.
Typically, you can call a business payment late if you do not receive it within 30 to 60 days, depending on your business. It is best for business organisations to keep a record of all interactions regarding invoice payments, such as unpaid invoice letters, collection letters, etc. PostGrid can help you with that.
Be Polite In Your Communication
All your communication with the customer/client should be polite and friendly. If a customer/client does not respond to your communications, such as a payment reminder or unpaid invoice letter, try contacting them by phone.
Discuss any issues with the payment over the phone and try to find the reason for non-payment. There is also the possibility that your customer never received the invoice in the first place. Most organisations use automated direct mail solutions and address verification to ensure the delivery of their vital documents.
The best action for your business is to try to figure out an amicable solution rather than spending money needlessly on litigation. You can also use the unpaid invoice letter to offer a compromise to the customer and discuss the best way to resolve the issue.
Ensure Careful and Persistent Follow-Up
A careful and persistent follow-up process can make a significant difference when it comes to unpaid invoices. Some companies prefer using emails and text messages for payment reminders and follow-ups. At the same time, others use multiple channels, including email and postal mail.
Sending a follow-up or unpaid invoice letter in an enveloped letter looks much more professional. Furthermore, it somewhat conveys the seriousness of the subject matter. And if you use an automated print and mail solution like PostGrid, the process becomes practically effortless.
Advanced systems like PostGrid allow you to schedule your letters. It means PostGrid will automatically send a follow-up and unpaid invoice to your customers at a pre-set time. All you need is a letter template, and PostGrid’s automated system does the rest of the work for you.
Halt The Work, Service, or Product Supply
A contract-based business model usually provides flexible payment options like credit payments. But, what if the customer/client fails to pay their overdue invoices despite your continuous attempts to contact them.
You can halt all work, service, or product supply to the customers until they make the payment. However, such an action can strain your relationship with the customer/client. Hence, it should be a final measure on how to deal with unpaid invoices.
Elaborate On The Consequences of Non-payment
At times, your business organisation will encounter situations where the customer/client shows no sign of making the payment. The customer may ignore your unpaid invoice letter, call, email, and every attempt to contact them.
Here, consider sending them an overdue payment letter elaborating on the consequences. It includes informing the customer/client about raising the issue with the proper authorities.
At this point, you should consider your legal options when seeking answers on how to deal with unpaid invoices and the steps you must take. You may also want to consult your legal advisor for individual cases. We say individual cases because the course of action may vary depending on the legal agreement you signed.
How To Recover Unpaid Invoices Through Legal Action
Now that you clearly understand how to deal with unpaid invoices without involving the court. Let us discuss the legal part. The first thing you need to know about pursuing legal action against non-paying customers is that it doesn’t have to involve a debt collection agency.
The initial stages of the legal action do not require the involvement of a debt collection agency. In other words, you have several options to pursue your customer into making their overdue payments. Remember that involving a debt collection agency must always be your last move.
The best options you can consider to collect overdue invoices for your business are as follows.
Alternative Dispute Resolution
Alternative Dispute Resolution, also called ADR, is a type of mediation. The ADR process tries to resolve your business dispute without ever setting foot inside a courtroom. It is one of the best ways to settle cases like the non-payment of invoices as it lets you discuss the issue with the customer.
Dispute resolution can help you tremendously if you struggle to bring yourself and the customer on the same page. The ADR process typically includes mediation, arbitration, and neutral evaluation.
It costs you significantly less to settle overdue invoices outside the court than inside it. Although the ADR process is confidential, it is much less stressful and formal than litigation involving a legal team.
Statutory Demand
A statutory demand is a written warning you can send to customers/clients who have not paid their overdue invoices. It informs or warns the customer that you will initiate a legal proceeding if they do not settle their debts within a specific date.
By “settle their debts”, we do not mean that you should give them an ultimatum where they have to pay the total amount. Settling could also mean you come to terms with another arrangement, such as payment installations.
Suppose the customer doesn’t settle their debt or reach an agreement with you 21 days after serving a statutory demand. In that case, you can initiate the legal proceeding to make the debtor bankrupt. It is worth noting that such litigation for non-payment of invoice valued over £5,000.
Money Claim Online (MCOL)
Mobey Claim Online or MCOL is an HM Courts and Tribunals Service system. It allows you to claim the money you are owed, including unpaid invoices, without going to court. The internet-based service is accessible for the claimants and defendants.
However, there are specific criteria for claiming your overdue invoices via Money Claim Online. The most significant of these criteria is that the sum value of the debt you claim should be below £10,000. This guide can provide a detailed breakdown of the MCOL rules and requirements.
If none of the dispute resolution efforts works out, you can seek legal assistance. Some companies may have their legal team to guide them through the process. But, if you don’t have one, finding one would be a good idea at this stage.
10 Tips On How to Deal with Unpaid Invoices
Sometimes it can be confusing to understand how to deal with unpaid invoices, and we don’t blame you. Because dealing with overdue payments for your business can be difficult, especially when you don’t want to jeopardise customer relationships.
However, we can help you with some tips that can help you. Below are some tips to ensure timely payments for your business.
Tip 1: Know Who You Are Sending The Invoice To
You would not believe how many overdue invoices go unaddressed because they did not reach the right person. The person who awarded you the project doesn’t need to be the same person in charge of bill payments.
Smaller companies may have a single person to commission work and pay the bills. On the other hand, more prominent companies are likely to have individual departments and complex payment/approval processes. Then there is also the chance that your unpaid invoice letter will not reach the address.
Business organisations can use PostGrid’s address verification tool to ensure the deliverability of crucial documents, such as unpaid invoices. The address verification tool compares your invoice address against Royal Mail’s official address database to ensure your invoice’s deliverability.
Tip 2: Fix a Clear Payment Date From The Customer
Another problem you may encounter with overdue invoices is arbitrary payment dates. We could go on and on about the different payment timelines followed by companies worldwide. Some firms make their invoice payments within 30 days after receiving the invoice.
On the other hand, some companies make their invoice payments 30 days after the end of the month. It is easy to get caught in different standard timeline situations. Hence, you must fix a precise date on which you can expect the customer to make their invoice payment.
Tip 3: Use a Simple Invoice Template
Sometimes, using an overly complicated invoice template can also lead to non-payment of the invoice. The customer may have difficulty undertaking the invoice and need multiple clarifications, one item after another. As you can imagine, even such a simple problem can lead to delayed payments.
A simple invoice template ensures the customer can assess their invoice and approve your payments without delay. Furthermore, it makes it easier for automated print and mail solutions to personalise invoices. However, you should still ensure that the unpaid invoice contains all the necessary details.
Tip 4: Avoid Any Delay In Obtaining Purchase Order Number
The purchase order number, as you know, is a code that establishes the purchase of your product or service. Generating a valid purchase order number signals the activation of your buyer’s agreement. You can see why obtaining the purchase order number is vital to avoid non-payment of the invoice.
The purchase order number is a reference point for you and your buyer. Hence, if there is any delay in obtaining the purchase number, it would imply that the invoice submitted was late. As a result, your payment gets delayed and sending an unpaid invoice letter may not help you.
Tip 5: Submit Your Invoice As Soon As Possible
Another way you may be delaying your company’s invoice payment is by not submitting the invoices on time. It would be best if you made it a point to present your company’s invoices as soon as possible. Of course, you also need to ensure that your invoice submission is in accordance with the contract you signed with your customers.
It may seem like a good idea to wait until the end of the month to file your invoices. But, you will likely end up short on cash while you wait for several payments to come through. There is a good chance of creating more unpaid invoices while you wait around doing nothing.
Tip 6: Ensure You Invoice Contain All Necessary Information
Using a simple template for your invoice and other important documents, such as an unpaid invoice letter, is always best. However, it shouldn’t miss any crucial information. The critical information that should be on your invoice includes the following
- Invoice date
- Invoice number
- Purchase order number (if you got one)
- Payment due date
- Bank account details
- Payment terms according to the contract you signed
Tip 7: Specify Your Tasks
Your invoice should establish the work you completed and its payment details. Furthermore, you should also mention the details of the sub-tasks that took significant time and effort to finish. Providing these details enables customers to understand the invoice better.
Tip 8: Match The Figure In Your Quotation And Invoice
Mismatch in your quotation and invoice figures can lead to unpaid invoices or delayed payments. Hence, you should ensure that both these figures fall within the expense limit you promised.
Tip 9: Specify All Available Payment Options
Suppose your business can comfortably accept payment through multiple payment methods. In that case, the invoice should indicate the alternative payment options to the customer. The more flexible your payment options, the easier it is for the customer to pay their invoices.
Tip 10: Build a Relationship With The Customer
It is always good to have a friendly relationship with your customers. But what we are talking about here is more specific. Ideally, it would be best if you try to form a personal bond with the person in charge of paying your unpaid invoices.
Forming a personal relationship with this individual could mean getting paid first so that your payments always get through on time. Once you establish a working relationship with them, all it takes is a phone call a week before your invoice due date. And just like that, you can minimise the non-payment of invoices.
Conclusion
It is brain-racking to understand how to deal with unpaid invoices for one’s business. There is no telling why or when a customer may not make their invoice payment. However, using the right strategies and the right set of tools can help you through the toughest of situations.
PostGrid is a print and mail automation software that helps businesses in the retail and eCommerce, real estate, healthcare, and financial sectors. Our system allows you to print and deliver personalised documents such as unpaid invoice letters to your customers.
You can also use PostGrid to run seamless direct mail campaigns with advanced bulk mail and address verification capabilities. Schedule a demo to see how PostGrid’s automated solution can fast-track your company’s invoice payment.
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