Late payments cost global businesses upwards of $3 trillion, according to a recent economic study from Sage. This same study found that a whopping 1 of 10 invoices isn’t paid on time, and 10 percent of payments owed are never paid - eventually making it to the bad debt pile.
In order to get paid, businesses are spending 10 percent (or more) of their time managing the invoicing process, according to customer data analyzed by Xero. That includes generating invoices, sending them, and tracking down late payments. That’s quite a big chunk of time for any business!
So how do businesses try to collect on invoices that go unpaid? For many, the first step is writing and sending an email message, reminding the customer that the payment is outstanding and due immediately. But unfortunately, the story doesn’t end there, as repeated follow-ups often get no response (or subsequent payment).
The most effective thing businesses can do to reduce late payments is to eliminate the need for overdue invoice emails wherever possible.
Don’t rely on them as your only (or primary) strategy for dealing with late payments. Take a 360-degree view of your business to attack late payments from all angles, using incentives, automation, and upfront deposits. Think about how to encourage on-time payments before you ever send your first invoice.
Consider how you structure your pricing. Many businesses allow customers to purchase products and services on credit, which increases the likelihood of overdue invoices. In order to remedy that scenario, ask yourself what types of payment terms could you tack on to incent on-time payments. Here are just a few ideas:
- Offer customers a discount if they provide a credit card (rather than a mailed check) to be billed at predetermined times.
- Require either a partial or full upfront payment.
- Consider discounts for early or on-time payments (regardless of payment method).
- Outline late fees to be charged if payments slip beyond a specific time window.
- Give away a coupon for a free product or service for a certain number of on-time or early payments.
All these factors will need to be clearly spelled in each customer’s contract or terms and conditions, before they enter into a relationship with your business. But, if it’s something you’re coming to after you have a large customer base, you can always go back and ask them to agree to new terms.
And don’t forget a critical component to make this work: the billing or invoicing platform you use must support these different types of logic in an automated fashion. Otherwise you (or your employees) will be doing all the work manually.
Think about ways you could help reduce late payments while they are happening. When you send out that overdue invoice email, what types of options could you offer that might incent your customer to make the payment rather than ignore the email?
Let customers know that they have multiple options to pay their balance. They may not know that you accept PayPal, or they just got so used to mailing in a check that they forgot about their new corporate credit card. Look at the business case for payment plans. If you want to keep customers no matter how long it takes them to pay, you could present them with a payment plan option to at least receive a partial payment. Decide if some sort of account “pause” option makes sense for your business. If you’re in a service-based business, it may work to allow customers to place a hold on their account until they can pay in full.
The same goes for these options - you’ll only be able to provide multiple payment options and/or payment plans with automated functions from your billing and invoicing provider. Otherwise, you’re left to keep track of complex billing arrangements by hand.
Look for patterns in customer behavior that might help you improve accounts receivable.
Let’s say you start implementing some of these strategies, and you’re seeing mixed results. Take a further look into your invoicing data to see what’s happening.
Are larger purchase amounts generating longer past due invoices? Take a look at your slowest payers to find out. As a stop gap, consider proactively offering those customers payment plans. For the future, evaluate changing your payment terms by requiring a credit card for any purchases over $1,000, or other appropriate benchmark.
Keep reviewing invoicing data regularly to look for more opportunities to reduce the instances of late payments.
Related: Try these 3 strategies to take action on accounts receivable (A/R)
Now that you have a proactive structure in place, let’s get back to writing your overdue invoice email template.
Write an overdue invoice email like you would talk to your customer.
This is the hardest part for some, but try to think of it this way: if you were calling your customer about this unpaid invoice, what would you say? Let’s say your customer is Sally, and she answers the phone when you call. You’ll probably say something like, “Hi Sally, this is Bob from ABC Corporation. How are you today?” She’ll respond and ask you how you are, and then you’ll move on to the matter at hand - the unpaid invoice.
Sally might say she just put the check in the mail, and you’ll thank her for her payment and wish her a good day. Or she might say that her corporate card expired and she hasn’t been able to make the payment, so you offer to send her a secure link to use PayPal or an ACH transfer. She may even tell you that she can’t pay the invoice in full due to budget issues, and you might decide to offer her a payment plan.
When writing your overdue invoice email, you won’t know exactly what your customer’s response is. So you want to structure the email the same way you’d frame the phone conversation. Stick to the basics here - a greeting, your request, any upcoming action, a caveat (in case payment has been sent), your gratitude, and any special options. And one critical point: leave all emotion out of overdue invoice emails. Just keep it professional, and stick to the facts.
Hi Sally,
I hope this message finds you well. I’m reaching out regarding invoice number 6423 for ABC Corporation in the amount of $2,500, which was due on January 15, 2018. We haven’t received payment on this invoice yet.
Please send payment as soon as possible to avoid a late fee, which will be applied to your account once the invoice is 30 days past due (February 14, 2018).
If your payment is already on the way, disregard this message. Just drop me a note to let me know.
Thank you for the continued opportunity to serve you.
Warm regards, Bob
P.S. Did you know that ABC Corporation accepts credit card, PayPal, and ACH payments? If you’re interested in switching payment methods, you are eligible for a 10 percent discount on monthly invoices. Click here for more information.
The message above looks hand-crafted, right? It can be - but that doesn’t mean you have to send it manually to each customer. Using your invoicing platform, you can create templates that use specific variables. The customer’s name, due date, invoice number, total amount due, and any other invoice-specific data can be plugged in. Then just schedule the messages based on the number of days past due on the invoice.
Related: Write Invoice Emails That Get Paid
Chasing overdue invoices can seem like a requirement of doing business, but it doesn’t have to be that way. By creating a strong invoicing framework that is regularly evaluated, you can minimize the number of overdue invoices to chase - and get back to what you do best.
Want to learn how Invoiced can support your goal to bring overdue invoices as close to zero as possible? Contact us today for a customized demo.
