How to handle unpaid invoices, step by step (2024)

For business owners, the delicate dance of maintaining positive cash flow is essential, and nothing disrupts this rhythm more than unpaid invoices. In this article, we’ll delve into strategies and actionable steps to effectively manage unpaid invoices.

An unpaid invoice is not merely a financial inconvenience, it’s a puzzle that demands careful resolution. When a client fails to meet their payment obligations within the agreed-upon timeframe, it not only affects immediate cash flow but can strain client relationships.

To navigate this challenge, a structured approach to resolution is necessary.

In the following sections, we will explore common reasons behind unpaid invoices, shed light on the deadline for claiming such invoices, and discuss proactive measures to mitigate the risks associated with non-payment.

What is an unpaid invoice?

Unpaid invoices not only affect the immediate cash flow of a business but can also strain client relationships and necessitate a structured approach to resolution.

Common reasons why clients don’t pay invoices

There might be several reasons why customers don’t pay on time. Among the most common are:

• Financial challenges: Clients may face financial difficulties, making timely payments challenging.
• Disputes or dissatisfaction: Issues or dissatisfaction with the delivered product or service can lead to payment delays.
• Administrative errors: Overlooking or encountering errors during invoice processing may contribute to delays.

What is the deadline for claiming an unpaid invoice?

Across Australia, the statute of limitations is generally 6 years, with the exception of the Northern Territory, where it is 3 years. It’s important to note that this doesn’t mean the debt has to be collected within this timeframe, but rather it is the deadline for filing court claims.

How to follow up on unpaid invoices, step by step

1. Review the terms of your contract

Ensure a clear understanding of payment terms, due dates, and any late fees specified in the contract.

2. Send a gentle reminder

Initiate contact with a polite reminder, confirming invoice receipt and checking for necessary information.

3. Send an updated invoice

Resend the invoice, emphasizing the outstanding amount and any applicable late fees.

4. Call the client

Open communication with the client to identify and resolve any issues causing the payment delay.

5. Send a letter of demand

If reminders are ineffective, send a formal letter of demand, specifying consequences if payment is not made promptly.

6. Final notice

Craft a clear and assertive email, maintaining communication and addressing the issue.

7. Escalate the situation

Consider legal action or involving a collection agency if other attempts fail.

Advantages of using a collection company

A debt collection company is a business that tries to recover money on behalf of creditors for a fee. These companies engage in activities such as sending letters of demand, making phone demands, and, if necessary, taking legal action to recover the debt.

Among the most prominent advantages of using debt agencies are:

• Professional intervention: Collection agencies have expertise in debt recovery, handling the process efficiently.
• Legal expertise: They understand the legal aspects of debt collection, ensuring compliance with regulations.
• Time-saving: Outsourcing collection efforts allows businesses to focus on core activities.

Payment collection best practices

Know your customers

Understanding your clients’ payment patterns helps anticipate potential delays and tailor your approach accordingly.

Be clear about your expectations

Clearly outline payment expectations, due dates, and any penalties for late payments in your contracts.

Collect advance payments when necessary

In instances where clients exhibit a low credit score or a history of delayed payments, consider proactively safeguarding your financial interests by requesting upfront payments.

Send invoices promptly

Timely invoicing sets expectations and promotes prompt payments.

Offer early payment discounts

Provide incentives for early payments to encourage clients to settle invoices sooner.

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