Past due carries significant implications in the realm of financial transactions. It signifies unpaid invoices or payments that have exceeded their designated due date, leading to a disruption in the smooth flow of cash within a business.
When invoices remain unpaid past their due date, it creates a gap in the expected cash flow, hampering the ability of businesses to meet their own financial obligations. Without timely payments, businesses may face difficulties in paying their own suppliers, employees, and other expenses.
This can lead to a domino effect, causing disruptions throughout the entire supply chain and potentially affecting other businesses as well.
Collecting past-due invoices can be a frustrating and time-consuming task, but it's essential for maintaining a healthy cash flow and keeping your business afloat. On average it takes three reminders for each invoice before a payment is made and this can add up to a significant drain on resources for companies of all scales.
This article will provide you with a step-by-step guide to help you collect past-due invoices efficiently and effectively. You'll also see templates that you can use to streamline the process.
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Key takeaways
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Why past due invoices are a problem
Past due invoices are a common problem for businesses of all sizes. There are a number of reasons why invoices may become past due, including:
- Customer forgetfulness
- Cash flow issues
- Poor communication
Unresolved past due invoices can have a significant impact on a business's financial health and operations. Some of the potential consequences include:
- Late fees and penalties
- Damage to customer relationships
- Difficulty paying suppliers and employees
- Reduced cash flow
- Increased risk of bankruptcy
Steps and tools to resolve past due Invoices
There are a number of steps that businesses can take to resolve past due invoices. These steps include:
- Sending friendly reminders
- Following up with phone calls
- Sending formal demand letters
- Filing a lawsuit (last resort)
- Using a collection agency (if needed)
There are also a number of tools that can help businesses to collect past-due invoices. These tools include:
- Invoice factoring
- Credit insurance
- Collections software like Chaser
By taking the right steps and using the right tools, businesses can improve their chances of collecting past-due invoices and protecting their financial health.
How to collect past due invoices in 5 steps
In this section, you'll see a step-by-step guide to help you collect past-due invoices efficiently and effectively. This covers everything from sending automated past due reminders to filing a lawsuit or using a professional debt collection service.
Step 1: Send a past due reminder
Timely communication is crucial when an invoice becomes overdue. It demonstrates professionalism, maintains positive customer relationships, and increases the chances of receiving payment promptly.
By reaching out to the customer promptly, you can address any concerns or misunderstandings, offer payment options, and prevent the invoice from becoming further delinquent.
Past due invoice reminder email template:
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Subject: Reminder: Invoice [Invoice Number] Overdue
Dear [Customer Name],
I hope this email finds you well.
I am writing to remind you that invoice [Invoice Number] for [Amount Due] is now past due. The invoice was originally due on [Due Date].
Please find a copy of the invoice attached for your reference.
I understand that sometimes payments can be delayed, but timely payment of invoices is essential for maintaining a healthy business relationship.
If you have already made the payment, please disregard this email. However, if you are experiencing any difficulties making the payment, please let me know, and we can work together to find a solution.
Thank you for your prompt attention to this matter.
Best Regards, [Your Name] |
Tip: Ensure you attach a copy of the invoice to your reminder so your debtor has everything they need to make payment when they receive it.
Step 2: Follow up with a phone call
Personal contact can be an effective way to collect past-due invoices. It's more personal, effective, and efficient than written communication.
Tips for what to say during a call to collect past-due invoices:
- Stay professional and polite. Remember that the person you're speaking to is likely busy and may be feeling stressed about the overdue invoice. Be respectful and understanding, and avoid being confrontational or accusatory.
- Empathize with the customer. Let the customer know that you understand that things happen and that you're willing to work with them to resolve the issue.
- Be clear and concise. Explain the situation to the customer and let them know what you need them to do to resolve the issue.
- Offer payment options. If the customer is having trouble paying the full amount of the invoice, offer them payment options, such as a payment plan or a discount.
- Be persistent but not pushy. If the customer is still not able to pay the invoice, continue to follow up with them but avoid being pushy or aggressive.
- Document the conversation. Keep a record of all conversations you have with the customer, including the date, time, and what was discussed. This will be helpful if you need to escalate the issue.
Step 3: Offer payment options or plans
Offering flexible payment terms or installment plans can encourage customers to pay past due invoices. This approach fosters goodwill, increases payment likelihood, reduces collection costs, improves cash flow predictability, and creates a win-win situation for businesses and customers.
It's a strategic approach that enhances timely payments, strengthens customer loyalty, and promotes financial stability.
Payment option proposal template
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Dear [Client Name], I hope this proposal finds you well. I am writing to discuss potential payment options for invoice [Invoice Number] for [Amount Due]. As you may know, the invoice is currently past due. I understand that financial situations can be unpredictable, and I want to work with you to find a payment solution that works for both of us. I would like to propose the following payment options:
Pay the full amount of [Amount Due] by [Due Date].
Pay [Amount] every [Frequency] until the full amount of [Amount Due] is paid.
Pay [Amount] now and the remaining balance of [Amount Due] by [Due Date]. I am open to discussing other payment options that may work better for your situation. Please let me know if you have any questions or concerns. Thank you for your prompt attention to this matter. I look forward to hearing from you soon. Best regards, [Your Name] |
Step 4: Escalate with a demand letter
It is appropriate to escalate the situation with a formal demand letter when:
- The customer has not responded to multiple friendly reminders.
- The customer has promised to pay but has not done so.
- The customer is disputing the past due invoice.
- The customer is refusing to pay.
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Dear [Customer Name] I hope this letter finds you well. I am writing to you today regarding invoice number [Invoice Number], which is now [days past due] days past due. The original invoice was issued on [Invoice Date] for the amount of [Amount Due]. I understand that there may be circumstances that can lead to delayed payments. However, the timely settlement of invoices is essential for maintaining a healthy business relationship. As a valued customer, we appreciate your business and want to resolve this matter amicably. To this end, I kindly request that you make immediate payment of the outstanding amount. Please be advised that further delay in payment may result in additional late payment fees and/or interest charges, as outlined in our terms and conditions. To facilitate prompt resolution, please contact me directly at [Your Email Address] or [Your Phone Number] to discuss payment arrangements. Thank you for your attention to this matter. I look forward to hearing from you soon. Best regards, [Your Name] [Your Title] [Your Company] |
Tips for writing the perfect demand letter
- Maintain a professional and respectful tone throughout the letter.
- Clearly state the invoice number, amount due, and due date.
- Emphasize the importance of timely payment for maintaining a healthy business relationship.
- Offer to discuss payment arrangements if the customer is facing financial difficulties.
- Provide clear contact information for further communication.
Step 5: Consider legal action or debt collection services
If none of the other steps above are successful, there is always the option to pursue the debt through the courts or via the services of a professional debt collection service. Careful consideration should be taken before choosing either of those options as they come with distinct pros and cons.
Legal action
One option to pursue an unpaid invoice is to take legal action. However, there are some significant drawbacks. Legal action can be costly, time consuming, and, even if it goes your way, there is no guarantee that the outstanding amount can be recovered.
Debt collection services
Modern debt collection services might be a last resort, but they are an effective one. Using mediation and different payment plans, they can help reach a mutually agreeable compromise. If you don’t have further time or resources to devote to chasing past due invoices, passing the problem over to a professional debt collector can be an effective last resort.
What templates can help collect past due invoices?
There are a range of templates available from Chaser that can help you collect past due invoices. These templates are designed to be professional and effective, and they can be customized to fit your specific needs.
Some of the most popular past due invoice templates from Chaser include:
- Past due reminder email template
- Invoice reminder templates
- Payment plan proposal template
- Demand letter template
- SMS reminder template
Find everything in the learning centre on Chaser's website. In addition to these templates, Chaser also offers a number of other tools that can help you collect past due invoices. These tools include:
- Automatic payment reminders: Chaser can automatically send payment reminders to your customers on a regular basis. This can help to keep your invoices top-of-mind for your customers, and it can encourage them to make a payment sooner.
- Online payment processing: Chaser allows your customers to pay their invoices online. This makes it easy for your customers to make a payment, and it can help to speed up the collections process.
- Reporting and analytics: Chaser provides you with detailed reports and analytics on your collections activity. This information can help you to track your progress and identify areas for improvement.
If you are looking for a way to improve your past due invoice collections, Chaser can help. To find out how, book a demo with one of our experts or start your 10-day free trial.
