One of the most difficult tasks you have to do in business is reminding your clients that their invoice is overdue for payment. This only gets harder the longer you leave it and if your client hasn’t paid within 60 days then the chances are high that this invoice will not get paid. When an invoice is well overdue how do you politely demand payments without causing any conflict with your client. To avoid, or at least lessen, the risk of overdue invoices then you need to invoice effectively.

So, first things first. Always send your invoices out promptly. It is vitally important to your cash flow that you invoice as soon as possible once the work is done – you can’t be paid if you haven’t billed the client for the work! Overdue invoices can cause you major cash flow problems and impact on your ability to pay your suppliers, your staff and cause disruption to your business. Knowing that you have money in the bank to pay your bills and staff every month is critical to running a healthy business.

To enable you to invoice effectively you need to create an invoice template for your business. Business.govt.nz for example, offers a free invoice template on its website. Make sure your invoice includes all the details to make it easy for your client to pay you such as your full bank account details, your GST number, the date of the invoice and your payment terms. Also include their full contact details, description of the work done with dates, and full contact details for you. Make it easy and clear for the client to get hold of you if they have a query about the invoice or a problem with payment.

Do you have Terms of Engagement (ToE)? Do you make sure every client has these when you take on new work, whether for a new or an existing client? If you use ToE then these should set out all your payment terms and what is expected from the client in relation to this. If you don’t have ToE then it is important to have a contract with the client to set out the specific terms relating to them and, in particular, to cover payments due to you. Once you know you have an effective invoicing mechanism then you can look at the ways to make sure this works to get your clients to pay on time.

Some tips to help you include:

1.      Make payment terms clear at the outset: Outline payment terms, deadlines, fees, and other essentials, including when invoices are sent and how long they have to pay the amount due.

2.      Be flexible with payment method: The easier it is for your client to pay their bill, the less likely it is that you’ll find yourself chasing a late payment. If the sum involved is larger or the work will be carried out over a lengthy period of time then you may choose to offer flexible payment methods – a payment before the work commences with regular instalments at specific milestones or dates. If the work involves a lot of money you may wish to check the creditworthiness of your client before commencing the work. 

3.      Be flexible with payment type: While some clients want to pay by Eftpos or credit card, others may prefer direct deposit. Accepting a wide range of payment methods gives clients every reason to get you paid on time.

4.      Use cloud based invoicing software and automate invoices: Invoicing is boring and paying invoices even more so, and means it often gets ‘put off’ until later. Cloud-based software allows you to create, edit, and send invoices from anywhere at any time. Automating invoices gets the invoice into the client’s hands more quickly. When your invoices are integrated with your accounting software, the probability of missing a payment deadline or letting your invoices go stale is minimised.

5.      Offer a retainer: If the client is providing long-term work, a retainer will allow the client to know exactly how much should be paid and when. This helps them manage their budget more effectively, and it may get you paid quicker.

6.      Standardise your payment schedule: Make sure you send out your invoices on the same date each month to avoid any confusion on what date the invoice will then be due. This consistency could be the difference between getting paid and not getting paid. An automated invoicing system can help. 

7.      Review your receivables weekly: Review your accounts receivable weekly in order to determine which clients have and have not paid. If you don’t receive payment soon after invoicing your client, keeping in touch is key to ensuring your client knows you’re keeping track of the status of the payment. Outstanding payments can be stressful, particularly if your cash flow is impacted, but addressing the situation ensures you’ve done what you can.

8.      Send reminders to clients of upcoming invoice due dates: Being proactive before payment is due will help ensure your client is aware of upcoming due dates. This will help clients remember that the deadline is drawing near or has arrived.

9.      Incentivise early payment and penalise late payment: Reward those who choose to pay early with a small incentive or discount but also penalise late payment with a late payment fee. Both of these can have a big enough impact on your client’s bottom line to motivate prompt payment. 

10.  Follow up quickly on late payment: When payments are past due, being proactive can help get the money you’re owed into your hands more quickly. Having a standard approach to following up on outstanding payments can make the process less stressful. Send a reminder, as soon as the invoice is overdue, if not paid a week later then consider a phone call to confirm your client has received the invoice and see if they have any questions or reasons for non-payment.

11.  Talk to the client: If payment is late and this is unusual for that client then pick up the phone and talk to them. They may have something happening which has affected their payments. You can show you understand their circumstances and discuss options for payment plans or an extended term for payment.

12.  Hold on to work until payment done: In some circumstances you may not have yet released the work you have done for the client. If so, hold on to it until the invoice is paid.

13.  ‘Stick to your guns’: Unfortunately, there will always be some clients who pay late every time. Remind the client that your payment terms have not changed. 

14.  Lengthy non-payment: The last thing you want to do is lose a client over an unpaid invoice. However, do not let lengthy non-payment slide. Take necessary action to recover your fees even if this means using a third-party debt recovery agency.

Focus on developing good communication and understanding with your clients. If, and when, payment for an invoice becomes an issue, a strong relationship can provide a way to work through it and help both of you reach an agreement without fracturing the relationship. Maintaining positive relationships with clients may even prevent issues from ever arising in the first place.