Last editedJune 20233 min read
Chasing overdue payments may be awkward and time-consuming, but it’s a necessary part of doing business. When left to accumulate, unpaid invoices translate into lost revenue. So, what are your options when dealing with an overdue payment? In this article, we’ll cover how to ask a client for overdue payment in a professional, but effective, way. We’ll also give a few tips to help prevent late payments in the first place.
What is the impact of overdue payment on your business?
It’s hard to overstate the detrimental impact that a series of late payments can have on a business, both in terms of mental stress and impeded cash flow. When a client consistently makes late payments, it can damage your relationship and lead to a loss of trust on both sides. An obstructed cash flow has a trickle-down effect into your business’s own ability to pay its bills on time. This is why it’s so important to manage this issue effectively.
When should you send an overdue payment reminder?
Don’t wait. The process of payment collection begins with sending clients an overdue payment reminder email as soon as payment becomes past due. You can find out how to write a payment reminder email in our guide that’s professional, polite, and likely to get results. Be sure to include an attention-grabbing subject line that references the invoice and due date, so the message doesn’t go missing. Inside the message, reference important details like the payment process and methods accepted.
How to ask clients for overdue payment when an email doesn’t work
In many cases, all it takes to retrieve overdue payment is a polite nudge. But what happens when your overdue payment reminder email goes ignored? Here’s a chain of actions to take as you escalate the issue.
1. Pick up the phone to speak to the client directly. It’s possible they missed your email or have questions about payment that can be quickly resolved. Make sure you’re dealing with the individual responsible for paying invoices.
2. Put a pause on work until payment has been made. If you provide ongoing work or services for a client, stop these until the overdue bill’s been paid. This could be enough to grab their attention – send a final notice letter first to inform them that work will not continue until debts have been paid.
3. Send a final demand letter. If your prior outreach isn’t getting the desired effect, it’s time to escalate the matter. Send a final letter using stronger wording outlining the next steps you plan to take. If you’re going to pursue any legal action, this is usually required. Check out the ACCC guidelines for collector and creditor rights first.
4. Proceed to collections. At this stage, your own efforts haven’t been enough to collect overdue payment. You need outside help, which might mean hiring a collection agency. Just be aware that collection agents will take a cut of the funds retrieved – sometimes as much as 50%. Another option is to take your client to court yourself, though this is time-consuming and also costly.
Tips to prevent chasing overdue payments
Of course, the best way to avoid chasing overdue payments is to encourage on-time invoice payment instead. This starts with drawing up a written contract before completing work where applicable. Includes payment terms and conditions, expectations, and payment methods spelled out in writing. B2B businesses should find out if the customers have signed the Business Council of Australia’s Supplier payment code. Signatories state that they are committed to paying suppliers promptly within 30 days. Consider applying a late fee policy, particularly for repeat offenders. Another approach would be to offer a small discount off invoices that are paid early. This may end up being less costly than the collections process.
When creating invoices, send them as soon as the work’s complete. Use automated invoicing software to eliminate any chance of delay-causing errors, along with a tracking system to ensure everything’s been received on time.
Consider using a pull-based form of payment collection like direct debit, which puts your business in full control over payment amounts and timings. GoCardless helps significantly reduce the chance of late invoices, eliminating the awkwardness of chasing overdue payments. According to an Attest study, 35% of non-GoCardless customers dealt with late or incorrect payments. In the UK alone, this translates to 30 hours a month spent chasing late payment. By contrast, GoCardless users spend 43% less time on late payments – freeing up your time for something more productive.
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.