What Do I Do When a Customer Won’t Settle Their Unpaid Invoices?

Invoice aging report

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Invoice aging report

One of the frustrations of running a business and offering credit terms is that sometimes your customers won’t pay you on time (or at all). This can seriously affect your business’s cash flow.

Read on to find out about strategies you can use to chase overdue customer payments, as well as a cash flow finance strategy that can protect you against payment risk.

Strategies to chase overdue customer payments

If you find yourself in a position where your customers have overdue invoices, it may be a good idea to try the following strategies:

Promptly follow up the overdue amount

The squeaky wheel gets the oil, so don’t delay. As soon as a payment becomes overdue, chase it up (ideally via the phone, but at the very least, in writing. Ideally, do both. This lets your customer know that you monitor your payments and promptly follow up if they ever fall overdue.

Sending a friendly reminder is usually a good place to start in case the overdue payment has slipped your customer’s mind. If you still do not receive payment of the overdue invoice after friendly reminders, a formal letter or final notice demanding immediate payment may be necessary for debt recovery.

Be prepared to charge late fees

Your credit terms and conditions should give you the right to charge late fees (and these should be in the credit terms and conditions your customer received when they received goods or services on credit). If they do, be prepared to charge your late payment fees.

If your credit terms and conditions don’t give you this right, you can always amend them so that you have it as an option in the future if prompt payment is not received.

Be prepared to negotiate a revised repayment arrangement

A part payment (or a delayed full payment) is better than no payment at all. If your customer is experiencing cash flow issues, try and work out a revised arrangement. If you do, make sure you get it in writing and that you enforce it.

Consider using a debt collection service

A debt collection agency will cost you money, but it may be worthwhile if the outstanding invoice amount is large and other options have failed. You can include a clause in your payment terms that any costs incurred for debt collection services will be charged to the customer.

Using debt collection agencies to chase outstanding invoices may harm your ongoing client relationship, so before you commence recovering payments through debt collectors, it’s important to weigh up whether you’d like to try to keep them as a customer in the future.

Report the default if the customer refuses to pay

If your customer flat-out refuses to pay, you can report them to one of Australia’s credit reporting agencies (like Equifax). This can prompt the business to pay to avoid damaging their credit score (which in turn damages their ability to get future finance).

Take legal action

This is a last resort to demand payment after using a debt collector and will cost time and money, but may be worthwhile if the value of the unpaid invoice is significant.

Protecting yourself against late customer payments

A great way to protect your business against the impact of late customer payments is to take out Invoice Finance (also known as debtor finance). If you have business customers who have unpaid invoices, you can secure finance against those invoices to access cash before the invoices have been paid.

In some circumstances, the financier may even take responsibility to collect unpaid invoices and chase late payments on your behalf.

Invoice Finance can help to prevent cash flow problems from late customer payments. You can claim up to 85% of the value of your unpaid invoices immediately. Invoice Finance can be used as a part of your strategy to reduce the impact of late customer payments.

There are a range of strategies you can use to help you chase overdue customer payments. Having an Invoice Finance facility in place also gives you ongoing protection against the negative cash flow impacts of overdue payments.

To discuss your suitability for Invoice Finance in more detail, please feel free to get in contact with us.

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