A week goes by and your client still hasn’t paid your invoice. A month goes by and it’s still the same. Two months become six months and you’ve now lost out on opportunities to expand your business because money you’re owed remains elsewhere.
Any business – large or small – knows the true cost of unpaid invoices. There’s the actual cost and potential lost revenue. Then, there’s the opportunity cost.
So, what can be done about it? Having a sound, effective dunning and chasing strategy is a good first step. This can push the payment process to the forefront of your clients’ billing and get you paid and paid faster.
What’s a good chasing cadence?
There’s no scientifically proven method that works best. Every situation is different and can be affected by any number of variables. However, we have a general outline that can serve as a starting point.
| Date | Action | Note |
| Issuance | The date a transaction is made. A standard bill is sent with a due date of at least 14 days included | Your first touchpoint. Make the due date clear. |
| Due Date minus-7 days | A friendly reminder that a bill is coming due | Could use a copy of the originally issued invoice |
| Due Date | A second reminder stating that today is the due date | Make clear that the invoice is now due |
| Due Date plus-7 days | A third reminder stating the bill is now late and late fees may apply | Maintain a friendly tone |
| Due Date plus-30 days | Apply late fees if applicable | Tone moves from friendly to neutral |
| Due Date plus-60 days | Additional late fees are applied | Tone becomes more threatening |
| Due Date plus-90 days | A written letter is sent. Explain that the account will be handed over to collections if not resolved within 30 days | CC the CEOs of both organizations and the legal counsel of yours |
| Due Date plus-120 days | Account is handed over to a collection agency | Further legal action may be required |
Now, ideally, you’ll never have to go this deep into your chasing cadence. However, any business owner likely knows the difficulty of zeroing out accounts receivable.
Additional factors
The above is a general guideline. Your cadence will depend on a multitude of factors and may differ from customer to customer. These could include:
- Length of account
- Size of the invoice
- Potential for future business
- Personal relationships
- ROI of pursuing further action
Every situation will be its own, unique story. Remember that these are simply examples for each industry. To truly optimize you’ll want to have multiple dunning cadences for different groups or segments of your customer base. Let’s take a look at how three different companies may approach three different account types.
Small SaaS
Software Inc. is a small company of 14 employees and annual billings of $15 million. They offer a subscription service that is billed monthly and have 2,000 paying customers. There are a dozen enterprise clients that make up a third of the company’s annual revenue.
But some of those clients are historically late payers. Because Software Inc. offers a subscription service, there’s no physical product being made and no shipping costs. It would be easy to simply shut off the account of this large client, but that puts a large monthly billing at risk.
Their cadence could look like this:
| Date | Action | Note |
| Due date minus-14 days | The standard monthly billing | Large businesses may have different payment schedules, so extra time may be necessary |
| Due date minus-7 days | Re-state the previous bill | Serves as a gentle reminder |
| Due date | A third, identical version of the first bill | State clearly that the bill is now due |
| Due date plus-7 days | Explain that their account is now overdue and their service may be suspended | Retain a neutral tone |
| Due date plus-30 days | Call a company contact and explain the situation | Be respectful and empathic. Ask if there’s anything the company can do to help. |
| Due date plus-60 days | Turn off service | Follow up with another call explaining why their service is being suspended |
| Due date plus-120 days | Send to collections | Do this only if it makes financial sense |
Mid-sized auto parts manufacturer
Sprockets makes auto parts for a variety of automobile clients. They have 150 employees and annual revenue of $125 million. Their client list includes large manufacturers and small re-sellers. Their smaller re-sellers order about once a month and have late payments from time to time.
A cadence to chase down this customer group could include:
| Date | Action | Note |
| Issuance | The bill that comes along with the order | The standard invoice that includes the due date |
| Due date minus-7 days | A second issuance of the bill | A kind reminder |
| Due date | The third issuance of the bill | State clearly that the bill is now due |
| Due date plus-14 days | Explain that their account is overdue | State that no new orders will be filled until their account is paid in full |
| Due date plus-30 days | A second issuance of the previous bill | Follow up with a phone call if necessary |
| Due date plus-60 days | A written letter stating that their account is frozen and may be sent to collections | CC the CEO of the company and both legal departments |
| Due date plus-90 days | Send to collections | It’s now out of A/R’s hands |
Large Utility Provider
The Electric Utility is a publicly-owned power provider that services over 750,000 accounts. Rates are capped at a reasonable rate and the utility operates as a non-profit. Still, annual revenues stretch above $1 billion.
For customers who sometimes reach a point of delinquency, an appropriate chasing cadence might include:
| Date | Action | Note |
| Issuance | The monthly bill that comes every 30 days | Could be paper or electronic |
| Due date minus-7 days | A reminder that their bill is now overdue and could be charged late fees | Provide electronically if at all possible. Provide easier payment options and offer to work with the customer. |
| Due date minus-30 days | A new bill that includes two months worth of charges | Clearly state that if the bill is not resolved, service could be suspended |
| Due date minus-60 days | A third bill that has three months of use | Provide a clearly stated date that if the bill is not resolved – or a payment plan established – service will be suspended on a specific date |
| Due date plus-75 days | A letter is sent explaining all payment options and a contact to reach to discuss the account | Follow up with a phone call if necessary |
| Due date plus-90 days | Service is suspended | The last option |
| Due date plus-120 days | Send to collections | Do this only if there is hope that the account has a chance of actually being paid |
These are just a handful of examples for a few industries. Getting your dunning and balance chasing activities appropriately handled is critical for optimizing financial performance. Picking the right frequency, messages and mediums to reach customers who owe can be the difference between a comfortable cash position and a lousy one.
