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How to avoid overdue invoices in Xero

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Last editedNov 20212 min read

What percentage of your invoices are paid on time? For most businesses, it’s about 50% - but is there a way to prevent late invoices in Xero? Keep reading to find out how to bump the on-time payments percentage up, giving your cash flow a needed boost.

Method 1: Adjust payment terms

One of the primary factors to consider are your invoice payment terms. These give customers the information needed to make a payment, spelling it out on the invoice. Payment terms typically included your accepted payment methods, late payment penalty charges, and due date. While 30 days is considered a standard in many industries, you might want to think about using a shorter term.

Longer payment terms were traditionally given to allow customers time to make payments by post, giving time for paper cheques to clear. Most of us make online payments now, which means there’s no need to wait a full month. Consider using 14-day terms instead, keeping the invoice fresher in your client’s mind.

Method 2: Send reminder emails

As the due date draws near, send a friendly payment reminder email to avoid late invoices in Xero. There’s no need to wait for the invoice to become overdue to start chasing up, but you’ll need to send another reminder once the due date has come and gone. With this invoicing software, you can set up automatic reminder emails to do this on your behalf. Xero invoice reminders and phone calls will be required if these go ignored, which is a hassle that everyone wants to avoid. It’s better to prevent the late invoices in the first place.

Method 3: Charge late fees

Another way to prevent overdue invoices is to charge a fee for late payments. You’ll need to state this fee clearly on the invoice under the payment terms section. Some businesses will charge a flat fee for late payments, while others will charge a percentage of the total bill. One thing to keep in mind is that this practice can be off-putting to customers, so it should be used sparingly. 

Method 4: Automate your system

Manual invoicing is time-consuming and costly, giving you less time to work on more important tasks. As your business grows, you’ll be sending out more invoices accordingly. This is why it’s really important to set up a system for creating, tracking, and following up on them. Automated software streamlines the entire process, from invoice creation to chasing up on late payments. And with software like Xero, your accounting books are automatically updated when invoices are paid. The result? Less paperwork and fewer overdue invoices.

Preventing late invoices in Xero with GoCardless

The best way to avoid late invoices altogether is by setting up automatic payments with GoCardless for Xero. There’s no need to send your customers Xero invoice reminders. Instead, payments are taken on schedule when the invoice is due. The money’s deducted directly from your customer’s bank account for a more predictable cash flow.

Lower costs are another benefit of automatic bank-to-bank payments. Not only are transaction fees lower than they would be with a card network, but automation cuts down on the cost of admin involved with chasing overdue invoices in Xero.

How to set up automatic payments

Getting started is simple.

  1. Send your first invoice through Xero with GoCardless. It will include an embedded ‘Pay Now’ button redirecting customers to a simple form to provide their payment details.

  2. Now that the customer has authorised payment, you can create your usual payment invoice and schedule a time for submission to the customer. Select the ‘manage online payments’ option to add GoCardless as your chosen payment method.

  3. When you receive a payment, Xero marks the invoice as paid in the system and it’s automatically reconciled. Xero records the GoCardless fee as an expense in your accounting files, while GoCardless transfers the payment directly into your account.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.

Over 85,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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Interested in automating the way you get paid? GoCardless can help
Interested in automating the way you get paid? GoCardless can help

Interested in automating the way you get paid? GoCardless can help

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