Chasing unpaid invoices can be one of the most uncomfortable and annoying parts of being self-employed. You’ve delivered all the work as promised but still, your client is dragging their heels when it comes to paying you and you’re not getting paid for work you’ve done.
Why does this happen? Quite honestly, I don’t know. Some clients are just plain awkward when it comes to paying people. Others have cash flow problems of their own and are simply passing that issue on to you. Or maybe there is some issue they haven’t shared with you. But, whatever the reason, chasing unpaid invoices still remains one of the biggest problems freelancers face.
In this guide, you’ll find out how to chase unpaid invoices, get email templates that you can send to your clients if you’re not getting paid for work you’ve done and how you can avoid suffering from overdue invoices again.
Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
1. What is an overdue invoice?
An overdue invoice is an invoice that hasn’t been paid by your client in the time period agreed for goods and services bought. For example, if you issue an invoice with a 30-day payment notice and it hasn’t been paid from the 30th day onwards, it becomes a late payment or unpaid invoice.
2. How to chase an unpaid invoice
One of the concerns small business owners have is that they feel rude chasing up payments. As a consequence, they worry about damaging customer relationships, or worse still, not getting their money at all! A client can end up wasting your time by forcing you to pursue a payment that should otherwise be in your bank account. Therefore, if a client is late paying, be diligent about chasing them up.
If an invoice hasn’t been paid within the specified timescale, then you need to start the steps to charge for overdue payments. Make sure you keep all records of communication in case you need proof for legal reasons. Check out my email templates for overdue invoices for more advice how to word the body of the email.
- 2 days late: send a polite but direct email as a reminder. Ask when they can pay and if they have any questions about the outstanding amount. Always attach the invoice to the email so everything is in one place.
- 7 days late: send another email to find out if there is an actual problem with the invoice or if there is another reason they haven’t paid. Make sure you check your own details of the accounting department or your point of contact.
- 10 days late: make a phone call to check if they’ve got your emails. Again, ask when they can pay you or if there is a problem with the invoice or work completed. Have all the invoice details with you for the call.
- 15 days late: Try calling again to remind them they still haven’t paid. Back up your call with an email recording the conversation. It might also be a good idea to tell them you will have to start taking legal action if they’re refusing to pay.
- 21 days late: send a formal, non-threatening notice letter. Support this with an email explaining that you will charge a ‘statutory interest’ of 8% plus the Bank of England base rate. You also need to send an updated invoice with the new amount. If you send it by recorded delivery, you’ll have proof of sending and confirmation when it was received.
- 35 days late: you now may have to send a final notice letter. This should outline all the details of the original invoice, outstanding fees and the payment terms agreed. Let them know that you enable the help of a debt collection agency if you do not receive payment within 7 days.
- 42 days late: at this point in time, you should get advice and consider taking legal action. This can be either from a debt collection agency or small claims court. Or, you can try using a professional mediator to claim your money.
If you decide to take action against a late-paying customer using a third-party, bear in mind any costs of legal fees. Also take into consideration and the time it takes from potentially winning a case.
Finding the balance between giving customers the benefit of the doubt and thinking they could be stringing you along can take time to develop. However, it’s really how you deal with the problem, whatever the situation, is the way you keep the doors open for future work opportunities. While it can be stressful and time-consuming to chase overdue invoices, ensuring you have clear process in place of how to chase for late payments will help to minimise late payers and get clients to pay you on time so your business will boom rather than go bust.
3. Take action to avoid late payments
If you’re having difficulties chasing up late payments, then here are some tactics you can use to protect your business so clients can pay you on time.
3.1 Set out clear payment terms
When you first land a contract or order, be transparent about your payment terms and conditions. That is, the timescale you have both agreed on that they have to pay you by. It could be that a customer only pays on a particular day of the month, for example. To avoid any misunderstandings, ensure both parties mutually agree from the onset. Are you charging 50% upfront and 50% on completion of a project? Payment terms could be 7, 14 or 30 days from when you send an invoice.
3.2 Charge for late payments
Many businesses add a late fee policy in a contract or sales invoice. And UK Government legislation backs up small businesses to charge interest when invoices aren’t paid on time. Although you’re free to charge what you wish, UK law states you can charge up to 8% interest plus the Bank of England base rate on late payments. According to government guidelines, a payment is officially late from the time a customer receives an invoice, or when services/goods have been delivered.
When you’re adding a percentage after 30 days, 60 days, etc, you’ll need to reissue an invoice. This is so the client is aware of the interest penalty. You can also charge for standardised ‘debt recovery costs’. These additional charges can help with prompter payment as most customers won’t want to pay more than necessary. They’ll also go towards covering the time and money you’ll spend chasing up a late payment.
3.3 Use invoicing software
If you’re sending invoices manually, it’s often difficult to keep track of all your payment data. However, when you sign up for an online invoicing system, it virtually does the job for you! Offering automatic e-invoicing and digital payment options, only takes your customers one click to pay up. Furthermore, online invoicing software will collate all the necessary information in real time and all in one place.
Automating your invoices through cloud-based accounting software such as Xero will also offer a more reliable way of sending invoices. Most of these companies create payment reminder templates that you can customise for your business invoices. It also means you can keep track of invoices and late payers from anywhere in the world.
3.4 Offer various payment methods
The days of waiting around for a cheque to clear have almost disappeared. To make things more convenient and run smoother, give your clients more opportunities to pay an invoice. Accepting online payments using a built-in accounting system will make it easier for a client to simply click and pay. Additionally, providing multiple and convenient ways to make a payment will also give your customers more flexibility to decide how they want to pay you.
For example, if a client forgets their monthly payment, set up a Direct Debit so you’ll get your monthly payments on time. Accepting online payments can range from credit/debit cards to setting up an account with a payment processing company, or offering payments via mobile apps. If a client really can’t pay an outstanding invoice, consider negotiating regular payment installments.
3.5 Get organised
It may sound obvious, but you should keep your invoices simple and direct. In doing this, a customer knows exactly what you’re asking them to pay for. For instance, if you’re using sales/purchases, make the order reference or invoice number clearly seen. Alternatively, if your invoice combines more than one job or a part of a project, precisely state milestones for completed work. Another point to remember is to ensure the design of your invoice has all the relevant information easy to find. To make it easier, use the same invoice template to stay organised.