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10 Ways to Get Clients to Pay Overdue Invoices

Overdue InvoicesOverdue Invoices
min read
August 21, 2023

If you're a small business owner, you know that one of the most important aspects of staying afloat is collecting payments for your services or products. But, unfortunately, some customers take a little longer than others to pay up.


In fact, according to the Export-Import Bank of the United States, as much as 60% of invoices are paid late. As a small business owner, late payments can be extremely stressful because when customers don't pay on time, your cash outflow can be greater than your cash inflow. Before long, you might have trouble paying wages, rent, and other day-to-day business expenses.


So, here's how to avoid letting overdue invoices kill your cash flow.

What Is an Overdue Invoice?

An overdue invoice is an invoice that hasn't been paid in full by a specific date. That invoice due date depends on your payment terms. For example, if your contract requires customers to pay net 15—meaning the customer has 15 days from the invoice date to submit their payment—then on the 16th day, that invoice would be overdue.


Standard payment terms vary by industry. For example, according to GoCardless, it's common practice for construction businesses to ask customers to pay within 90 business days, whereas cleaning services expect immediate payment or within two weeks.

Outstanding vs. Overdue Invoices: What's The Difference?

Outstanding invoices are unpaid bills that aren't past their due date, while overdue invoices are unpaid and past their due date. These terms are often used interchangeably but are different.

For example, if you send a customer an invoice that's due on March 15 and it's March 10, the invoice is outstanding but not overdue. However, if you send a customer a bill due on March 30 and it's April 15—then that bill is overdue.

While small business owners tend to focus on past-due invoices, healthy cash flow starts long before an invoice becomes overdue. Savvy business owners create invoicing and collection processes that address outstanding invoices long before they become past due.

How to Handle Overdue Invoices in 10 Easy Steps

When collecting outstanding invoices, an ounce of prevention is worth a pound of cure, so here's a step-by-step on managing your receivables—both before and after they become past due. 

Step 1: Establish Clear Payment Terms

When you start doing business with a new customer, be clear about when payments are due. Include this in your contract (if you have one) so customers know the number of days they have to pay once they receive an invoice. This will help you avoid any confusion or misunderstandings down the road. 


An invoice's due date should also be clearly stated on each and every invoice, along with any overdue sums and how long they're past due. For example, you might list how much is 1-30, 31-60, and 90+ days late.

Step 2: Offer Convenient Payment Methods

Different customers may have different payment preferences. For example, some prefer to pay by check, while others want to make an online payment via credit card, PayPal, Venmo, or other electronic payment methods.


When you offer a variety of payment options, it's easier for customers to pay you, and there's less of a chance that your invoices will become past due.

Step 3: Consider Offering Early Payment Discounts

When you provide a discount for early payments, you reward customers for promptly paying their invoices.


Early payment discounts are usually small—just 1% to 2% of the invoice amount. But they can incentivize customers to pay well ahead of the payment deadline, which can improve your collections.


Additionally, offering early payment discounts can help build strong customer relationships. Customers enjoy being rewarded for their loyalty, and they may be more likely to do business with you in the future if they feel appreciated.

Step 4: Make Sure Your Invoices Are Accurate and On Time

Accurate invoices are essential for getting paid for the products or services you provide. So make sure every invoice you send has the right contact information, invoice number, product or service description, amount due, and payment due dates. 


Not only do accurate invoices ensure that you're billing your customers correctly, but errors on invoices can lead to invoice disputes, payment delays, and unhappy clients.


Also, make sure you're sending your invoices on time—either as soon as you've finished work for the customer or on a regular cadence (i.e., weekly or monthly).


Sending invoices promptly ensures that your products or services are fresh in the customer's mind and reinforces the idea that you don't work for free. And when clients know you take the payment process seriously, they're less likely to ignore your invoices.

Step 5: Send a Polite Payment Reminder Email

Often your clients or customers intend to pay you on time, but your invoice gets lost in their inbox or forgotten during a busy time of year. A friendly email reminding them of the due date might be all it takes to get to the top of their to-do list. For example:

Dear [Client's personal name],

How are you doing? We're doing well over here and [include a specific accomplishment you're excited about]. Do you have time this week to send us payment for this invoice? It's attached!

Talk soon!


[Your name]


Another good reason to send a reminder to pay you ASAP? The longer a customer waits to pay, the less likely they will actually do it. According to a study, if a customer hasn't paid an invoice within 90 days, there's only an 18% chance that they'll pay it at all. 


If you use invoicing software, you might be able to automate the invoice reminder process too. To ensure your email is being delivered to a valid email address and opened by the recipient, consider requesting a read receipt. You can request a read receipt in Gmail if you use Google Workspace or Outlook. Or you can use an email tracking add-on like ContactMonkey or MailTrack.

Step 6: Follow Up with a Phone Call

Once an invoice is past due and your customer hasn't responded to your email, pick up the phone to follow up. Having a conversation gives your customer a chance to clarify any questions they might have about your invoice and get back on track with making payments.


It can also be helpful to discuss a potential payment plan if the customer is having difficulty paying the full amount right away. Again, by speaking with the customer directly, you can work out a plan that meets everyone's needs.

Step 7: Consider Charging Interest or Late Fees

Charging interest or late fees on an overdue payment can be an effective way to motivate customers to pay their invoices on time. Late fees can be a financial penalty, while charging interest helps offset any losses your business might suffer due to non-payment. Late payment penalties usually average 1% to 1.5% of the invoice amount.


If you're considering implementing late fees or interest charges, make sure you're familiar with your state's laws governing this practice. There may be specific regulations that prohibit you from charging interest or late fees, so it's important to do your research before taking action. It's also good to disclose this policy on your customer contracts and invoices.

Step 8: Send a Final Notice Letter

A final notice letter is a formal, written request for outstanding payment from a customer who has failed to pay an invoice on time. It can be sent as a last chance before taking more drastic measures, such as sending the account to collections.


There are a few key reasons why sending an overdue invoice letter is a good idea:


  1. It shows that you're serious about getting paid.
  2. It gives the customer one last opportunity to pay the invoice.
  3. It may motivate the customer to take action and avoid any further conflict or tension.

Final Notice Letter Template

Here's a template you can customize for your business. Just click "Make a copy" to get started.

Invoice notice letter

Step 9: Cut Customers Off Until They Pay Overdue Invoices

There are a few key reasons why you shouldn't do any more work or sell additional products to customers that haven't paid their late invoices.


First of all, you're essentially giving those customers free products or services. This can impact your bottom line and make it more difficult to get paid in the future since you're setting a precedent of accepting the situation.


Second, continuing to work with delinquent customers can create tension and conflict with customers who do pay on time. If a customer who routinely pays on time finds out that you're doing work for other customers who haven't paid their past-due invoices, they may be less likely to take your collections seriously.


Finally, there's always the risk that these customers will never pay their outstanding invoices. By cutting them off until they do, you're protecting yourself from potential losses down the road.

Step 10: Get A Collection Agency or Attorney Involved

If the above steps don't work, you may consider more aggressive tactics, such as sending difficult clients to a collections agency or taking them to court.


Collections agencies specialize in getting debtors to pay the money they owe. They do this by contacting the debtor directly, often through phone calls or letters, and explaining the consequences of not paying the debt.


If you're thinking about sending an outstanding invoice to a collection agency, there are a few things you need to keep in mind:


Don't Get Stuck Writing Off Unpaid Invoices

You can minimize the chances of having delinquent invoices and maintain a healthy cash flow for your small business. How? By being proactive, setting clear payment terms, and using gentle reminders and other negotiation tactics before resorting to more aggressive measures.


If you're still having trouble collecting your accounts receivable, consider performing credit checks on new customers or requiring certain customers to make payments upfront.


Now that you know how to handle your outstanding receivables, start collecting them like the confident business owner that you are!

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