How to collect late invoices

Act on day one, not day sixty

The longer an invoice sits unpaid, the harder it is to collect, so start follow-up the first day after the due date.

Late payment is often an oversight: a lost email, a missing purchase order number, or an approval stuck on someone's desk. A quick, courteous nudge solves most of these. Waiting until you are anxious usually means the customer has forgotten your invoice and moved on to other bills.

Build a schedule and stick to it. Illustrative sequence for a net-30 invoice: a reminder 3 days before the due date, a friendly note on the day after, a phone call at day 7 past due, a formal letter at day 15 and a final notice at day 30. Adjust timing to your industry.

Send a clear first reminder

State the invoice number, amount, due date and how to pay, and attach a copy of the invoice.

Keep the first message short and neutral. Something like: I am following up on invoice 1042 for $3,800, due on the 5th. A copy is attached, and you can pay by ACH or card using the link below. Please let me know if anything is holding it up.

Ask a question that invites a reply, such as whether the invoice was received, and who handles approvals. Sending to the wrong person is a common cause of delay. If you use clear invoices from the start, you reduce these problems; see how to create invoices customers do not ignore.

Use the same tone for every customer, and keep a log of each contact with the date, who you spoke to and what was promised. That record helps if the account later goes to collections or court, and it keeps you consistent when you are busy.

Pick up the phone

A call gets answers that emails do not, such as the real reason for the delay and a specific payment date.

If email brings no reply, call. Be calm and specific. Ask whether there is a problem with the work, whether paperwork is missing and when payment will go out. Then ask for a date and confirm it in writing the same day.

Listen for disputes. If the customer disagrees with the work or the amount, resolve that issue first. The guide to handling invoice disputes covers how. Money is rarely paid while a dispute remains open.

Do not threaten actions you will not take. Say what you will do next and when, then do it. Customers learn quickly which vendors follow through, and those vendors tend to be paid first.

Escalate in writing and offer a payment plan

A formal letter that states the amount, any late fee under your agreement, and a final date shows you are serious without being hostile.

At the next stage, send a letter by email and mail. State the balance, restate the contract terms, apply any late fee that your signed agreement allows, and set a deadline. Be careful with wording; the guide to late fee wording helps you avoid unclear or unenforceable language.

If the customer has a genuine cash problem, a payment plan can recover more than a fight. Put it in writing with fixed dates and amounts, and state that missing a payment makes the full balance due. Partial payments on a schedule are better than none.

Know your options when payment still does not come

Options include stopping further work, a collection agency, small claims court or an attorney's demand letter, depending on the amount and the customer.

Stop providing new work or credit to a customer who is seriously overdue. Continuing to extend terms increases your loss. Then weigh the choices:

• Demand letter from an attorney: inexpensive, and often enough to prompt payment.
• Collection agency: typically takes a percentage of what it recovers. Useful for larger or out-of-area balances.
• Small claims court: suited to smaller amounts. Limits and procedures vary by state, so check your state court's website.

Read how to send someone to collections before taking this step, and ask an attorney about your situation, since rules vary by state.

Stop it from happening again

Prevent late payments with deposits, clear terms, easy payment methods and credit checks on new customers.

Most collection problems are set up at the start of the sale. Ask for a deposit on large jobs. Put payment terms on the quote, contract and invoice. Offer ACH and card payment so paying is easy. Send invoices the day work is done. Review new commercial customers before extending credit terms.

If late payers have left you short of cash for payroll or supplies, bridge the gap with a plan, not panic. Revenue-based options such as revenue-based financing or a business line of credit can cover timing, though ROI Funder does not place invoice factoring. See the true cost before you decide.