Having an unpaid invoice, especially for small to medium-sized businesses, can be a frustrating situation to be in. Depending on the amount of the unpaid invoice or how many invoices are unpaid at the same time, it could have a detrimental effect on the cash flow of these businesses.
After all services or products were offered with the understanding that there would be a paid invoice at the end of it so that the company could continue. Resources were allocated to this project versus another client without assuming that it would be an invoice unpaid. (Visit this page) to read more about those effects.
Regardless, you don’t want to spend unnecessary time chasing invoices and should have a standard procedure to know exactly when to escalate unpaid invoices and chase payment.
What should your procedure look like?
First of all, always ensure that when you follow this procedure to escalate unpaid invoices, the days late start after the invoice due date. So, for example, sometimes you might have invoice due dates 30 to 60 days out. So if they’re a day late after 60 days, that’s technically one day late.
It all depends on what your business tolerance is and what your cash flow situation is. A perfect rule of thumb is that if the invoice is only a few days late, a simple, friendly reminder to the person who needs to pay the invoice is in order. Maybe they misfiled it, or perhaps they’re on a different payment cycle that may end up delaying the payment and doesn’t require chasing invoices daily.
If it’s been more than a week, there could be a courteous yet direct reminder that there is an unpaid invoice that is past due by the week. You want to do this every week at the same time, always mentioning the number of days past due. This helps keep a consistent reminder when to chase payment and when that payment needs to be resolved.
Since you’re having the conversation as soon as a payment is made, the chances are that the unpaid invoice will be resolved, and it may have been delayed for valid reasons on the debtor side. However, if you choose to ignore it and immediately move to escalate the unpaid invoice, it might begin in the wrong direction and may not be the best way to chase a late payment.
What happens if there’s been no response or payment?
If you’re chasing invoices weekly and even putting in a final notice as you approach the 30-day mark, that’s when to escalate the unpaid invoice. You have a consistent track record of communication. You’ve attempted every possible way to get your payment made. Each contact has reminded the debtor of the amount as well.
You may have even offered online payment solutions to make it easier for the debtor to pay. This allows them not to have to use their bank accounts but could also employ alternative payment methods like credit cards to pay the invoices and not have the invoice unpaid.
After all of that action is done on your side with chasing invoices, you can now consider escalating the unpaid invoice.
Taking legal action
Here you’ll now have to proceed with contacting a debt recovery services firm who may enlist the services of a process service to officially and legally notify that not only has the debtor defaulted on their payment, but you will take imminent legal action. Keep in mind that if the debtor ends up paying the amount during this window, you can simply move forward and stop the legal proceedings.
Suppose the debtor decides not to pay when you work with the debt collection services, and they’ll start to work to claim as much of the debt as possible. There are some instances where you can sell the debt at a fraction of the overall debt to clear your accounts and allow you to receive some funds. This ends you chasing invoices as well and not having to worry if you’re going to receive any type of money.
Then the debt collection services company will continue to get as much of that unpaid invoice as possible. It’s essential to consider this as an option and take the partial loss since you’ll be able to close that chapter, reallocate your resources to those that pay their invoices on time, and continue with your business moving forward.
Knowing when to stop chasing invoices, escalate unpaid invoices, and eventually move on is all about finding the right balance and checking how your cashflows can handle it. Consider simply how much less stress there’ll be had when you do not have to send constant reminders about the unpaid invoice.