How to Best Approach Overdue Invoice Payments

Running a small to medium enterprise (SME) is never an easy task. While you would rather spend your time running your operations, planning future strategy and enjoying your successes, there is an endless number of unwanted issues and challenges that may disrupt your focus. One of these is the financial reality of getting paid by your debtors. It’s all fine and good to send off your invoice and wait for them to pay on time, as expected. The problem is that most of the time, this fantasy won’t eventuate. We’ve all been left with an unpaid invoice well past its due date.

Australia has a real problem with paying invoices on time. Of all major countries analysed by the ASBFEO, Australian businesses are paid much later than the rest. Other research indicated that Australian SMEs are receiving payments, on average, almost eleven days overdue. Additional data suggests that nearly one-third of SME owners spend eight hours per week, collecting late payments, on top of their existing responsibilities. This leads to substantial cash flow issues and takes up critical management time chasing invoices and payments that are not productive to the economy. 

If overdue invoice payments are impacting your SME, here’s how to best approach your client, systems and processes.

Optimise Your Systems

The best way to approach overdue invoices is to do your best to prevent it from occurring from the outset. Whenever you start working with a new client or accounts contact, it’s a great idea to clearly set your payment expectations, as well as understand their usual pay cycle. This allows you to be on the same page and negotiate mutually suitable terms.

If you haven’t already, implement an online accounting system, including e-invoicing. E-invoicing allows you to send invoices electronically, ensuring an accurate record is kept and the recipient has all the required information to make their payment – instantly. Email additional contacts if needed and configure automatic reminders to follow up on your behalf as soon as the invoice is due, or late for payment.

It’s also a great idea to keep a record of all communication, whether that’s through your CRM, email, call log or otherwise. This way, it’s always clear and visible what has occurred to seek invoice payment.

When is the Right Time to Start Chasing?

This may differ from client to client, however, you’re within your rights to chase payment as soon as the invoice falls due. Typically it’s a good idea to send a follow-up email or e-reminder a few days after the due date. This allows some leeway, taking into account delayed bank transfers, cheques and simple mistakes – such as forgetting to make the payment. A polite reminder email, including all the right information and addressed to the right person, makes it easy for the client to pay, removing most of the friction that might lead to further delays.

How to Follow Up Again

Most of the time, the first follow up will be enough to prompt the customer to pay. However, sometimes it’s not enough. Start by sending another email, clearly stating that you are requesting payment due (so there is a record in writing). The next step is to get on the phone. It’s easy to ignore an email, but a voice on the phone is far more constructive to having a positive discussion and driving a result. Explain your situation and work together with your debtor (client) to agree on a time for them to make payment.

If they refuse to comply or simply aren’t bothered to work with you, you might look at implementing a late payment fee or accumulating interest on the amount owed. Look at any applicable late payment laws and know your rights, this is a great resource. Your late fees must be reasonable to cover the loss your business has incurred by not being paid on time.

Most importantly, your clients need to know that you value your work, goods and services.  In the absolute worst-case scenario, refer to a debt collection agency. If the value of the payment is high enough, enlisting the help of a professional agency might just get the job done. Another option is to lodge a statement of claim. Such a step should be thought through carefully as a statement of claim is a court document that sets out how much you claim your debtor owes you. The statement of claim starts a court case.

Reduce the Impact of Late Payments with Debtor Finance

Dealing with late payments is a hassle and, while there is no single steadfast solution, there are alternatives to reduce the financial impact on your business. Whether you’re entertaining growth opportunities, or need cash flow to fulfil customer orders and pay staff, you need a reliable source of working capital to do so. Debtor finance providers will pay you up to 90% of your verified outstanding invoice value upfront, often within 24 hours. When your customer pays and the funds are received by your debtor finance provider, they’ll remit the remaining 10%, minus a small fee to compensate for early funding. 

An invoice finance facility acts as a revolving credit line backed by the invoices you issue to your customers. You can choose to draw down funds as often or as little as you like, only paying for what you use. Instead of waiting from between 30 and 90 days for a customer to pay, your business can access the cash almost immediately. Debtor finance is an inexpensive and scalable funding solution that grows as your business does.

OptiPay helps SMEs source the funds they need to support their current operations and invest in growth. Get the cash you need and make OptiPay your partner for flexible business financing today.

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