How to collect on an overdue invoice
How do overdue invoices affect Aussie businesses?
Overdue invoices can put businesses into a cash crunch that disrupts their operations, limits their ability to grow and take on new projects, and prevents them from paying their suppliers on time.
Cashflow is a significant stressor for 31% of small and mid-sized businesses* with late payments a contributing factor. So it’s important to know how to ask for payment when an invoice is overdue — and what to do if your customer ignores your request.
*MYOB Business Monitor Report, June 2022
How to tell a client their invoice is overdue
Follow-up with a phone call
Start with a phone call to ask about the invoice’s status. Mistakes happen, with key stroke errors on either side a leading cause of late payments. If your phone call doesn’t identify what the hold-up is and result in prompt payment, you may need to move on to more proactive measures.
Send a final notice
If you’re still awaiting payment following your initial phone call and a follow-up overdue invoice reminder, send a final notice.
Send a formal letter of demand
Hopefully, you won’t have to issue a demand letter. But if you do, explain how you’ve attempted to collect the debt, when the final due date is, and what the consequences are for continued non-payment.
When to consider a debt collection agency or legal action
If a customer fails to make payment arrangements, you could enlist the help of a collection agency or solicitor.
Bringing in a third party to pursue payment will damage your relationship with your customer, but that may be an acceptable loss if it means recouping the money they owe you. You’ll also have to consider how the collection agency or solicitor charges for their service, and whether this is suitable for your situation.
Another option is to claim a tax deduction for “unrecoverable income” — you can deduct the full amount of the debt for the income year in which it became a “bad” debt. You’ll need proof that you tried to collect the debt, and that the customer showed no intention of repaying it.
Tips for quick payment:
Confirm contact information
Verify that you have the right contact information for invoices, including name, email and phone number. Make sure that you issue a compliant invoice with all mandatory details filled out.
Create policies for early and late payments
Adding an incentive for early payments may encourage customers to pay you well in advance of the due date.
For example, you may offer 1/10 Net 30 - a 1% discount if the invoice is paid within 10 days or the full amount payable in 30 days. Just be sure to clearly communicate your payment terms before rendering services or sending your first invoice.
Likewise, your late fee policy may also motivate customers to pay on time. Just be sure you explain your late fee policy in your initial statement of work and that the fees are reasonable so it doesn’t deter your customer from doing business with you.
Set up automatic payment reminders
With the right invoicing software, you can generate and send invoices, collect and reconcile payments, and automate payment reminders for overdue invoices. This means you can follow up on amounts owing without having to sacrifice time that you could be spending in your business on new sales opportunities.
Provide flexible payment options
Being flexible about payment options can help customers pay you on time in a method that’s most convenient for them. If you make it hard to pay the invoice, your customer won’t prioritise it over all the other things that they need to do each day.
Automate your invoicing with MYOB
With MYOB’s invoicing software, you can create and send invoices from any device. By invoicing accurately and efficiently and offering several payment methods, you can get paid faster. With automated reminders for customers with invoices overdue, you also won’t need to spend so much time chasing late payments.
We help businesses of all sizes in Australia and New Zealand get timely payments, remain compliant and uphold the highest standards of customer service. Find out how much easier invoicing can be with MYOB. Start your FREE trial today.
Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.