How to Deal With Unpaid Invoices: Top 12 Ways to Recover Debts
You may come across several clients who simply don’t pay on time, and such situations need your immediate attention! Many companies and individuals fail to oblige your payment terms even after agreeing to them before placing an order.
During such times, you may want to know how to deal with unpaid invoices. It helps you recover your debts and keep your cash flow running efficiently.
Naturally, unpaid invoices are a liability for businesses. They cause several inefficiencies, deficits, and other issues. Thus, you may find your company in a complicated position where most of your revenue is stuck. Fortunately, having robust payment-recovery strategies can help you!
First, write an unpaid invoice letter to your creditors. You may also pair it up with other strategies, like email reminders and phone calls. Remember to remain persistent with customers who constantly delay payments. Also, try to interact professionally at all stages of your payment-recovering process because it reflects your brand image significantly.
So, what is the correct way to deal with non-payment of invoices?
Which plans can you adopt to get paid faster and save customer relationships?
In this article, let us discuss the best strategies you can use to acquire these objectives simultaneously.
How to Recover Unpaid Invoices?
Several debt collection agencies, credit controllers, etc., focus on getting clients to pay their due bills. Their methods aren’t too hard to implement. But, they need some planning and perseverance to keep you going until your bills are no longer outstanding.
Below, we have compiled the most effective methods to handle unpaid invoices:
Be Prepared in Advance
Never wait for an invoice to go unpaid to do something about it. Draft some tried-and-tested plans beforehand to be ready to face such scenarios.
Know Your Clients
Try to know about your clients before you get into a credit agreement with them. A quick credit and background check can help you understand their history and reputation in the industry.
Thus, you can choose whom you want to provide your products and services on credit. It should be your first step to prevent having unpaid invoices in the first place.
You can also get some information on the Australian Securities and Investments Commission (ASIC) website about dealing with companies you don’t know.
Have Your Clients Sign a Contract
It is essential to enter an agreement with your customers to avoid non-payment of invoices. This contract should list the payment terms and conditions clearly to avoid misinterpretation in the future. Moreover, it safeguards your interests and makes the creditor liable for the bill they are signing the contract for.
Putting all your terms on the table at the start helps you form trustworthy customer relationships and help you with unpaid invoices. Ensure that your clients are completely aware of the costs and the due dates. Such clarity helps both parties act accordingly and prevent potential problems.
Employ an Effective Invoicing System
Sending your invoices on time is one of the best tips on how to deal with unpaid invoices. You may send a proforma invoice beforehand for your clients to review and accept the terms. Once you get the confirmation verbally and in writing, you can fulfil the order.
You should always provide clients with bills upfront. Avoid waiting too long before sending an invoice because your customers might forget about it. Also, a primary reason for unpaid invoices is incorrect details in a bill. Hence, ensure that your invoices are accurate and timely.
Keep in Touch With Your Customers
Most businesses that wonder how to recover unpaid invoices might already know this method. If your payment terms say that the payment is due after six months, you should stay in constant contact with your customers until then. You may send them marketing emails, newsletters, postcards, etc., to remind them about you and their soon-to-be-due bills.
Thus, you can improve your rapport with your customers while reinstating your messages.
Understand Your Trading Rights
Always stay up-to-date regarding fair trading practices and consumer protection laws. You may speak to a legal advisor to learn more about the non-payment of invoices and how to deal with creditors.
Send a Reminder With an Overdue Invoice
After a bill is overdue, you can start sending out payment reminders to your clients. Also, attach a copy of the invoice with a big ‘overdue’ stamp. This way, your client’s first thought, when they open the envelope, is that their bill is outstanding.
You can also stamp non-payment of invoice’ on your outstanding bill, indicating that the customer missed their due date.
Before you take any further steps about the unpaid invoices, you must ensure that the client already has a digital and print copy of the bill.
Provide Your Customers With a Statement of Accounts
An account statement allows customers to view their invoice details together. It summarises all their transactions with your business and what they owe you. It may be a good idea to send an account statement after the client fails to acknowledge their unpaid invoices.
Australia Post has many delivery services that provide you with the recipient’s signature. Storing the evidence of delivery to your clients can help you in case of legal disputes. Also, it lets you guarantee the correct recipient received your mail item.
Alternatively, you can email the statement with the unpaid invoices to the concerned person. You cannot ensure that the recipient pays attention to your message, but you still have digital proof.
Make a Phone Call
Don’t hesitate to contact your clients 1:1 and ask them about their unpaid invoices upfront. Making a phone call to creditors is another effective technique for businesses that consider dealing with unpaid invoices. But, most companies avoid conversing with their clients this way because it may seem awkward.
Hence, it is best to leave this task to the sales representatives. They already know the client better and have a personal connection with them. So, they can make the call to request clients pay as soon as possible.
Write an Unpaid Invoice Letter
Direct mail is an excellent way of grabbing people’s attention and making an interaction memorable. Therefore, it is the best channel for people to send financial correspondence, like bills, receipts, statements, cheques, etc.
You can draft a personalised unpaid invoice letter to your clients as a reminder. Also, you can use it as a notice or ‘letter of demand’ before you take legal action.
However, there are some things you should keep in mind before sending out direct mail letters, including:
- Write the number of days since the unpaid invoices were overdue.
- Remind them of the payment terms you and the client agreed to before confirming the order.
- Encourage the client to reply to your letter and offer you an update regarding their outstanding dues.
- Mention your contact details visibly and print your unpaid invoice letter on letterhead.
- Use professional-looking envelopes to prevent the recipient from confusing your letter with junk items.
- Switch to a firmer tone if your earlier letters don’t get a reply. However, remember to use professional language only.
Here’s a template of a result-driving unpaid invoice letter:
[Your name]
(You can send the letter on behalf of your sales representative who was in touch with the client. Or let a decision-maker like the head of the department or senior manager write it.)
[Your full address]
[Date]
[Recipient’s Full Name]
(It is best to address the person you had the deal with or whose name appears on the invoice.)
[Their mailing address]
Subject: Non-Payment of Invoice
[Salutation]
(Use an informal salutation if you know the recipient personally.)
[Introdution] (Mention the details of the client’s unpaid invoices and discuss the payment terms. Let them know they missed the deadline and may need to pay interest.)
[Body]
(If you missed any information regarding their bills, include it in the second paragraph.
Also, you can propose a revised payment plan to help the client pay in full.)
[Closing paragraph]
(Ask them to contact you if they are unclear about the unpaid invoices and need assistance.)
[Closing line]
[Signature]
[Enclosures]
Below, we have also included a sample for your reference:
H&F Motors Pvt. Ltd.
71 ANEMBO AVE
PIMPAMA QLD 4209
Contact no: +61 7 xxxx xxxx
Date: 4th August 2022
To,
Mr Harry Kelly
8 ASHTON RD
DURRAN DURRA NSW 2622
Subject: Non-payment of invoice.
Dear Mr Harry,
This is to inform you that your invoice nos. 9812 and 8423 are still overdue. Their due dates were 18th June 2022 and 20th July 2022, respectively.
We have already sent you two reminders over the past two weeks. Please note that a 5% interest is applicable on your unpaid invoices.
We have attached a copy of your invoices for your perusal. Also, we have emailed them to you. Please review them and contact us if you have any questions or concerns.
We thank you in advance for your payment.
Yours sincerely,
Pheobe Tonkin
[Signature]
Note: This unpaid invoice letter sample is for contacting your clients between one to four weeks after their bill is overdue. It is best to send at least three letters before passing the invoice to a collections agency:
- After three days to two weeks of an invoice being overdue
- Between one week and one month
- After two months
PostGrid’s direct mail services help you precisely draft, print, and ship such letters to the intended recipients. Also, it allows you to track your mail and monitor your campaign progress in real-time.
Some companies that want to know how to recover unpaid invoices also opt for email reminders. You can use the same template and conduct an email drip campaign to make your message noticeable.
Charge a Penalty on Non-Payment of Invoice
The good news is that you can charge interest on unpaid invoices. But, you cannot do it without informing the client about it before they place an order. It means you must have an official late-fee policy that you should communicate to your customers beforehand. Also, mention the same in your credit agreement to avoid confusion later.
Most businesses quote this interest as a specific percentage of the invoice amount. You can also adopt the same practice, but it’s better to break it down for your clients. Mention the calculated interest in your unpaid invoice letter. Here’s an example:
Inform your client that their invoice amount is $100. But, if they pay late, they need to pay interest of @10% per week, totalling $110 every additional week. Hence, if they fail to honour their dues until a specific date, their total due will be $xxx.
You can offer to waive this fee if the client gets ready to pay off the unpaid invoices right away.
Give Discounts and Try to Reconcile the Payment Terms
Instead of offering incentives after your unpaid invoices are outstanding for a long time, try to give discounts at the earliest possible. For instance, many businesses mention in the invoice that they would offer a 2% discount on the bill amount if the client paid before the due date. These things encourage customers to pay ahead of time, eliminating the problem of non-payment of invoices.
Moreover, you can offer a revised payment schedule ranging between three to six months for resolving non-payment of invoices. However, resort to this strategy only if the client communicates with you and is ready to pay if you renew the payment terms. Some customers don’t pay because they want to hop onto such incentives, wherein it is best to use other options.
Stop Supplying to Clients With Unpaid Invoices
Sometimes, you may still get orders from creditors who claim they would pay off all the invoices together. However, piling up invoices while continuing supply may not be a good idea. Instead, ask the clients to pay first before they can place another order. It may seem like an aggressive strategy, but it protects you against non-payment of invoices.
Hire a Debt Collections Agency
Employing a debt collection agent and handing over your unpaid invoices to them helps you move on with your business. Take this step when you have exhausted all ways to interact with the client and wait for a reply. However, in your last unpaid invoice letter, you can mention that you would pass the matter to a collections agency. It acts as a final warning to clients before you move ahead.
The agency may charge a small commission on every bill, but it is still better than getting nothing. Also, this step allows you to forget how to deal with unpaid invoices and focus on other clients. And you can get your fee back by charging interest on your bills.
Another option is getting in touch with a trading bureau and making the issue public record. It can hurt the client’s reputation, but this step is crucial to alert other businesses of such customers.
Factor Your Unpaid Invoices
Invoice factoring is not ideal, but it allows you to function smoothly at present. If you have financial issues and need the money, you can sell your unpaid invoices to a factoring agency.
Factoring helps you get a cash advance of around 70% to 90% of the bill amount. You need to pay the necessary interest and service fees to the agency.
The agency advances the money to you within three to seven business days. Then, it recovers the payments from your creditors for the unpaid invoices and sends the balance cash to you.
Please note that factoring agencies aren’t like debt collectors. You may need to pay the service fee and interest even when your creditors don’t pay. Also, these agencies run a credit check on your client before accepting any non-payment of invoice matters.
Consider Mediation
A mediator is a neutral individual or agency that helps you and the client resolve the dispute over unpaid invoices smoothly. You can hire a local mediator or try requesting help from the Australian Small Business and Family Enterprise Ombudsman, which offers a dispute resolution service online.
Mediation is also a form of negotiation, which means that you may require to give some discounts to incentivise the client to settle the dues.
File a Complaint at the Small Claims Court
If none of the above options work or you feels confident that the client does not want to pay off the unpaid invoices, you must take legal action. However, ensure that the invoice amount is worth your time and effort to prepare and present a case in court.
The recovery of debts not exceeding $100,000 falls under the jurisdiction of the Local Court. Similarly, the case starts in the District Court if the amount of your unpaid invoices is more than $100,000. Consider following legal advice before initiating any court proceedings.
How Can PostGrid’s Direct Mail Services Help You Handle Non-Payment of Invoice?
Our print and mail automation solutions help you draft and send accurate invoices to clients. Hence, you never have to solve queries related to incorrect details, late invoicing, lost client mail, etc.
Also, PostGrid allows you to keep records of all the sent mail, which you can use in case of unpaid invoices. You may use our direct mail automation software to trigger mailing campaigns on specific dates. Thus, you can send timely reminders to clients before and after their bills become overdue, enabling you to keep non-payment of invoices at a minimum.
Armie, who works for a large pharmaceutical corporation, uses our automated direct mail API to send nearly 4,000 invoices monthly. Some of them are new invoices, while others are copies to remind the clients to pay. Today, they only deal with 1% unpaid invoices and have a smooth revenue flow.
Also, they don’t need to worry about how to recover unpaid invoices because they have a strategic payment-recovery program. Using PostGrid, they prepare and ship payment letters to creditors that allow them to cut losses by about 90%.
You can integrate our API into your CRM to send invoices and payment letters to clients effortlessly. With our 2-business day SLA, it feels like a breeze to place orders for bills, statements, and other mail items.
Furthermore, PostGrid cross-checks your clients’ delivery addresses to ensure they get your mail—further helping you deal with non-payment of invoices.
To Summarise
It is worrisome to have a pile of unpaid invoices sitting on your desk. These outstanding dues can disrupt your internal functioning severely. In short, it is unsustainable for your business, and you must do something about them.
Luckily, having a proper payment plan and sending out an unpaid invoice letter can help you to a great extent. You can try using PostGrid’s direct mail services to automate everything and sit back. Our solutions enable you to bag a positive ROI, boost your brand image, and nurture client relationships.
Learn more about how to deal with unpaid invoices using PostGrid. Sign up now!
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