Last editedMar 20232 min read
A few days here, a few weeks there. One or two overdue invoices are easy enough to manage, but multiple late payments can really mess up your cash flow. What is the toll that late invoice payments take on a business, and how can you put a stop to them? We’ll look at some ways to ensure timely payment in this guide.
How do late invoice payments impact a business?
When your business isn’t paid on time, it has a direct impact on your cash flow which in turn limits growth. With limited cash flow, it’s difficult to invest in new projects or equipment because you don’t want to overextend your finances.
A reduction in cash flow also makes it difficult to meet everyday operational expenses. You might have to put off paying your own suppliers and vendors, which can lead to late fees and other penalties. It also damages relationships with your suppliers who expect you to pay your invoices on time.
Falling short on operational expenses makes it difficult to keep the business up and running, and many will turn to loans to cover the shortfall. This creates more liabilities on the balance sheet, making investors hesitant to get involved. Furthermore, if you pay your bills late, it impacts your business credit rating and could make it difficult to obtain future financing at all. In the worst-case scenario, your company would need to shut down due to lack of payment and severe cash flow restrictions.
How to deal with late invoice payments
Overdue payments can take a serious toll on any business, so how can you prevent this from happening? Here are a few tips for how to deal with late invoice payments.
1. Send a late payment invoice email as soon as payment is overdue. Don’t wait around for your customer to remember to pay; the invoice might have gotten lost or forgotten. A simple, polite reminder will often do the trick while maintaining a positive relationship.
2. Find the right contact person when sending an email. If you have contracts with larger organisations or corporations, your invoices and emails can get lost in a sea of different departments. Ask who you should direct invoice queries too before you start billing the company for services rendered. This also creates a personal touch which is more likely to inspire swift payment.
3. Automate your invoicing process. Rather than submitting and chasing up on invoices manually, let the system do the work for you. Automated accounting and invoicing software can issue invoices, submit them, and follow up with reminders for more efficient payment tracking.
How to prevent late invoice payments
Of course, prevention is even better than chasing late invoices. In addition to using automated invoicing software, you should agree upon payment terms in advance. Position your payment terms in bold at the top of each invoice you send so there is no confusion regarding the due date.
Another way to encourage timely invoice payments is to offer a discount for early payment. This strategy is best used with larger customers who you can rely on for consistent work.
Finally, be sure that your invoices are error-free to avoid any delays. Before putting a late payment notice on invoices, ensure they’re filled out correctly to reflect the number and cost of all work completed. Are your payment details clearly displayed? Is your address correct?
The bottom line
Perhaps the best way to deal with late invoice payments is to take control over the payment process. Make it as easy as possible for customers to pay you using click-to-pay links or automated collections. For example, GoCardless offers a stress-free way to collect recurring invoice payments directly from customer bank accounts. This puts your business in control over the timing and amount of payments to prevent reduced cash flow. We also offer a PayTo solution that allows merchants to initiate real-time bank payments for a faster, even more efficient method of collection. Get paid on time, every time, without awkward conversations.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.