How To Collect Past Due Invoices?
A past due invoice is when a client/clients don’t pay the amount you billed for a service or product you provided in the past. These amounts add up to create a business’ accounts receivable- the revenue expected but yet to be collected. In this article, we want to discuss:
- Why a large amount of past due invoices can be damaging to your business and a hindrance to your business’ success.
- Common Reasons past due Invoices Collect
- Ways to Be Proactive about past due Invoices
- How to Use Technology to Collect Past Due Invoices
Most businesses use accrual accounting due to needing to stay compliant or simply the size of their business. This means that they are reporting (or recognizing) revenues and expenses as a transaction occurs, not when payment is received. For example, a business completes a service or sells a product to a client and bills them, giving them 15 days to pay. However, immediately this sale is reported in their books as revenue even though technically they don’t have the money. This is when accounts receivable build. If this happens often, or if clients are not paying on time…we start to have a large amount of past due invoices and therefore a large amount of accounts receivable.
How Past Due Invoices affect your Business Success
Having a balance in your accounts receivable is normal, especially since most businesses use an accrual basis for accounting. But a growing accounts receivable can be detrimental to your business’ success. This is for several reasons, but here are the top three:
Third, when making financial decisions, it is important to both have and understand an accurate cash flow. When you have good systems in place to keep your accounts receivable low, this is possible. However, when businesses fall behind in collecting unpaid invoices- it becomes difficult to know how much money a business really has and make any predictions to inform decision making.
First and foremost, your company did hard work to perform a service or create and sell a product to a client. If there is a big gap between the amount you expect in payment and the amount you’re actually getting, you’re losing money that could be used to reinvest in your business.
Secondly, if your company needs a loan- some banks will be looking at profit/sale history and question high amounts of accounts receivable. We don’t want you to be denied money you need because of a pile of overdue unpaid invoices.
Third, when making financial decisions, it is important to both have and understand an accurate cash flow. When you have good systems in place to keep your accounts receivable low, this is possible. However, when businesses fall behind in collecting past due invoices- it becomes difficult to know how much money a business really has and make any predictions to inform decision making.
Common Reasons Past Due Invoices Collect + Ways to be Proactive to Avoid Them
- Inaccurate Invoices: Mistakes on the invoice, such as incorrect details, quantities, or pricing, can cause confusion and delay payment.
- You can ensure all invoice information is accurate and double-check before sending them out.
- Unclear Payment Terms: If the payment due date, accepted payment methods, or late fees are not clearly communicated, clients may forget or delay paying.
- Clearly state your payment terms on the invoice and in all client communications.
- Lack of Follow-up: Without regular reminders, invoices can get lost in a client’s inbox or forgotten altogether.
- Implement a system to follow up on outstanding invoices, such as automated payment reminders.
- Client Cash Flow Issues: Clients may be facing their own financial challenges, making it difficult for them to pay on time.
- Consider offering flexible payment options, such as payment plans or early payment discounts, to accommodate their needs.
- Communication Breakdowns: If there are any disputes or misunderstandings about the invoice, it can delay payment.
- Maintain open communication with clients and address any concerns or issues promptly.
By addressing these common reasons why invoices go unpaid, you can take proactive steps to improve your cash flow and get paid faster. Remember, effective invoice management is crucial for the financial health of your business.
How to Use Technology to Collect Past Due Invoices
In today’s digital landscape, businesses have access to a wealth of technological solutions to help streamline the invoice collection process and get paid faster. By leveraging these tools, you can automate and optimize your accounts receivable management, making it easier to stay on top of outstanding invoices and improve your cash flow.
A powerful tool for managing unpaid invoices is CollectPro, an all-in-one accounts receivable platform. CollectPro streamlines the invoice collection process by providing real-time payment tracking, offering a suite of collections features, and includes an intuitive dashboard to give you a comprehensive view of your accounts receivable, allowing you to easily identify and address any outstanding invoices.
By embracing the power of technology, you can take a more efficient approach to managing your past due invoices. CollectPro, can help you reduce the time and effort required to get the money you’ve earned, ultimately improving your overall financial health and cash flow.
Getting Started with CollectPRO
Try our Invoice Managing App
Want to see how it works? Sign up for a free demo in our sandbox environment or take advantage of our 14-day free trial to experience the full benefits of the accounts receivable app platform including a QuickBooks online integration with your account. Visit our main page for more info.
Very interesting read!