No doubt overdue payments are a difficult issue for any business owner to handle. They cause frustration, wasted time, and worry about not getting paid – in addition to impacting your cash flow. If you’re in this situation now, this post will go over a few strategies you can try to get the money you’re owed. If you’re not, we’ll also cover ways to prevent overdue payments in the future.
Ideas for collecting a current overdue payment
Send a series of emails and calls
While this is an obvious action to take, knowing what to say and how to say it might not be clear when you’re trying to collect payment. That’s why we wrote a blog about how to ask for payment professionally that includes six email templates that you can follow up on with a call. It lays out when to consider sending each email along with subject lines and body text. Take a look at it here as a first step toward collecting an overdue payment.
Consider a payment plan
If you’ve contacted the customer over and over again to get paid, ask them if they’d be willing to pay off their unpaid invoice in installments. Some cash is better than no cash, especially if you can agree on a plan to eventually collect the entire balance. Since your customer contracts should include any late fees or interest that will be applied to overdue payments, be sure to follow the contract and include those as well.
Place a lien on their business
If none of your attempts to collect your customer’s balance have worked, consider placing a lien on their business as a last resort. This requires going to court and seeking a judgement against the business. If the case is decided in your favor, you gain legal rights and authority to sell the debtor’s property and use the proceeds to pay off their balance. The customer can remove the lien by paying the balance or entering into a payment agreement with you.
Ways to help avoid a future overdue payment
Prevention is always better than a cure, and that’s true for overdue payments. While you can’t control when a customer will actually pay, you can stack the odds in your favor by taking additional actions during the contract phase and beyond.
Check your customer’s credit
If you’re dealing with a new customer, or you’re worried about your customer’s current ability to pay, you can check their business credit score. Using public records, these reports show the company’s annual sales, payment history, credit limits, and any legal judgments or collections activity. Business credit scores range from 0 to 100. 80 is a good score, although 70 is still considered okay. If you don’t want to pay for a credit check, you can also check references who have worked with your prospective client.
If you factor an invoice with FundThrough, we check your customer’s credit as part of our process and can provide that information if you’d like.
Find out needed invoice information in the contract phase
One way to speed up the payment process and avoid an overdue payment is to ask your customer if there are any data points they need on their invoice beyond the expected, or if they need the information formatted in a certain way. That way the invoice will be ready for them to process as soon as you deliver it, eliminating inefficient back-and-forth communication.
Include payment terms in your contract and on your invoice
Payment terms, including late payment penalties, should be clearly explained in your customer contract. Make sure you add those details to the invoice as well to serve as a convenient reminder to your client of how you want to be paid, when you need to be paid, and what will happen if they don’t pay on time.
Automate payment reminders
Many accounting platforms allow you to automate email reminders about invoices that are coming due. Take advantage of this feature so you spend less time chasing payments and more time focused on your business.
Factor the invoice
When you factor an invoice, a factoring company (like FundThrough!) advances you the full invoice amount, less a fee, way ahead of the payment terms. Even if your customer misses the invoice due date, as long as there is an expected payment date, we will wait for the payment. This also saves you the time you might spend chasing accounts receivable. You’ll always be contacted first before we contact your customer so that you’re in the loop and your relationship is maintained. (See more about how we work with your customer.)