Accounts receivable (or debtors) are a large part of your working capital and can significantly impact your cash flow if you have overdue invoices.
Collecting overdue customer invoices can be frustrating and time-consuming, but it is essential to running a successful business. If you have customers who are consistently paying their invoices late, it can have a negative impact on your cash flow and bottom line.
Here are six tips to help you effectively collect overdue customer invoices:
1. Set clear payment terms
Make sure that your payment terms are clearly stated in your terms and conditions, quotes or proposals, as well as on your invoices. Also, include the due date and any late fees that may be incurred. Setting clear payment terms can help prevent misunderstandings and encourage timely payment.
2. Follow up promptly
If a payment is overdue, follow up with the customer as soon as possible. The sooner you follow up, the more likely you will receive payment.
Most accounting and invoicing software allow you to use automation for these payment reminders. The reminders can be sent via email or text message and be customised to be sent at regular intervals until the invoice is paid. This can help ensure that customers are reminded to pay their invoices and can help ensure payments are noticed.
3. Offer payment options
Consider offering your customers multiple payment options. This can make it easier for customers to pay their invoices and may encourage them to pay on time.
Payment options include bank transfer (ETF), credit card, PayPal, BPAY, and buy now pay later apps. Whilst offering a range of options is excellent, you need to be mindful of the fees associated with each type of payment. Alternatively, you can charge a surcharge to a customer or include the cost in your pricing model.
4. Negotiate payment plans
If a customer is having difficulty paying their invoice in full, consider negotiating a payment plan. This can help you receive at least a portion of the payment while allowing the customer to pay off their balance over time.
5. Use a collections agency
If you are unable to collect an overdue invoice after repeated attempts, consider hiring a collections agency. Collections agencies specialise in recovering outstanding debts and can effectively get your customers to pay their unpaid invoices.
E-Invoicing is a way to exchange invoice details through software using a secure network automatically. One of the significant benefits of e-invoicing is that many government departments have reduced their payment terms to 5 days for invoices received via e-invoicing.
You can read more about e-invoicing in our article here.
Following these tips can effectively collect overdue customer invoices and improve your business’s cash flow.
If you are providing credit terms to customers, having a good legal set of terms and conditions that protect you is essential. Some other documents and considerations include:
- A credit application (so you have all the relevant details in case you need to rely on a collection agency
- Director guarantees
- Registering a security interest
Cash flow is the lifeblood of a business, so ensuring you are collecting your debtors in an easy and timely manner is essential.
Are you struggling with collecting overdue debts and managing your cash flow? We can assist you in setting up efficient processes for collecting outstanding debts and improving your overall financial management.
Our services include:
- Developing a plan for managing and collecting overdue debts
- Identifying and addressing any bottlenecks in your current debt collection process
- Providing regular financial reporting and analysis to help you stay on top of your cash flow
- Working closely with you to establish clear payment terms and follow-up protocols
- Assessing and implementing automation tools to streamline the debt collection process
Don’t let overdue debts continue to weigh on your business. Contact us today to book a discovery call and see how we can help you take control of your finances and improve your cash flow. Together, we can create a customised plan to help you collect overdue debts, improve your financial management and achieve your business goals. Let’s take action now!