Struggling with Unpaid Invoices? Here Are 7 Things You Can Do

Unpaid invoices are the bane of many small business owner. Not only do they lead to cash flow gaps and challenges, they can also make it challenging for you to go after growth opportunities due to a lack of working capital. Unpaid invoices frequently cause cash flow problems due to lengthy net terms, and even with extended net terms, invoices are paid late sometimes.

According to a QuickBooks survey of 2,000 mid-sized businesses, the average amount of late customer payments owed to them is $304,066. The same survey showed that 65% of businesses said they spent 14 hours each week on average completing administrative tasks related to collecting payments. This adds up to nearly two full days of valuable work time that could have been better spent on growing the business.

In our experience, successful SMBs who are making sales often struggle with cash flow because of net terms and unpaid invoices. It stresses them out thinking about how to make payroll, and many find themselves having to turn down growth opportunities just because they don’t have the necessary working capital to staff up, buy materials, or purchase equipment. There are a variety of approaches you can use to deal with unpaid invoices, including setting clear payment terms, following up regularly, and selling your unpaid invoices, that we’ll cover.

What Is an Outstanding Invoice?

An outstanding invoice refers to an invoice that has been issued by a seller or service provider to a customer but has not been paid in full or settled yet. It represents an amount owed by the customer to the seller for goods delivered, services rendered, or both. When an invoice is considered outstanding, it means that the payment due date specified on the invoice has not been met, and the customer still has an outstanding balance.

Businesses typically track outstanding invoices as part of their accounts receivable management. They may have processes in place to follow up with customers, send payment reminders or overdue payment notices, and actively pursue the collection of outstanding amounts.

What Can I Do About an Unpaid Invoice?

There are several ways to improve your payment cycle, reduce delay in payment, and reduce the amount of invoices that go unpaid to begin with, and several things you can try after an invoice has become overdue. (Without taking legal action.)

1. Set Clear Payment Terms

Setting clear payment expectations is crucial for effective financial management, maintaining healthy cash flow, and limiting your number of unpaid invoices. Clear payment terms outline the expectations and obligations regarding when and how your customers are expected to make payments for the goods or services your business provides. Here are some key elements to consider when setting clear payment terms:

• Payment Due Date: Clearly specify the date by which payment is expected. This helps both parties understand the timeline for settling the invoice.
• Payment Methods: Specify the acceptable methods of payment, such as cash, check, bank transfer, or online payments. Clearly communicate any preferred methods to streamline the payment process.
• Late Payment Fees: Clearly state any penalties or charges that may be imposed for late payments. This can serve as an incentive for timely payment and discourage delays.
• Payment Terms and Conditions: Include any additional terms or conditions related to payments, such as partial payments, instalment payment plans, or specific invoicing requirements.
• Communication Channels: Provide clear instructions on how customers should communicate any payment-related inquiries or issues. This can include contact information for the accounts receivable department or a designated point of contact.
• Contracts and Agreements: For larger transactions or long-term arrangements, consider formalizing invoice payment terms in written contracts or agreements. This provides a legally binding document that clearly outlines the payment obligations and protects both parties, including specifying when legal action may commence. Check out our blog on customer contracts for more info.

2. Invoice Quickly

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