“If you don’t know your numbers, you don’t know your business”- this holds true for business.
It is essential to have a strong grip on your finances, otherwise, it will sink your business. And, this is why you need to track your invoices to balance your cash flow.
It may seem frustrating to chase your runaway clients for clearing the outstanding invoices, but there is a way out. You may be wondering what can be done to get your outstanding invoices cleared and make situations less stressful. Here we are with some amazing pro tips that would help you to nail it down.
So, let’s first get the basics cleared by understanding the outstanding invoice meaning!
What is an outstanding invoice?
An invoice that is yet to be paid by the customer or the buyer, is known as an outstanding invoice. An outstanding invoice is something that remains in the pending status until the customer clears the payment within the payment due date. The time period for an invoice to remain in an outstanding status depends upon the payment terms mentioned in the invoice.
For example, if it is mentioned net-30 in payment terms, that means the client or the customer has 30 days to pay the invoice. If the buyer does not pay the cash within 30 days, then the invoice is stated as an outstanding invoice.
As per US Bank report, average unpaid invoices of small business sums around to $84,000 and approximately $825 billion of all small business across the US. This amount is nearly 5% of US GDP and as per reports, 82% of small businesses fail due to poor cash flow management.
Is it risky to have outstanding invoices?
Yes, it is risky to have outstanding invoices, as it can sink your business by ruining your finances. Depending upon the number of outstanding invoices, your company’s credit limit may drop. This will further stop you from getting orders from clients and eventually your business will get permanent bad credit marks as per legal policies. Once your company or business is tagged with such a remark, vendors will stop their transactions with your business. This may bring your business finances to a standstill leading to heavy loss.
Unpaid invoices also interrupt the cash flow that puts all your business payments on hold and stunts the growth rate of the business. Here’s how to tackle such invoices.
Outstanding Invoice: Few Simple Strategies to deal with it
Unpaid invoices cause severe inconvenience for the existence of the business. It also interrupts the cash flow that puts all your business payments on hold. Starting from payroll, supplier payments to overhead expenses, entire systems get disturbed if your invoices remain unpaid. Hunting down outstanding invoices isn’t much fun. So, to prevent your outstanding invoices from being to be converted into past due invoices follow the below-mentioned tips.
1. Set clear payment terms
Dealing with outstanding invoices is really stressful. Therefore, setting payment terms clearly at the beginning would offer you the best bet. Mention the payment date and implication of late payment to avoid such situations. Sending out invoices with Billbooks will help you specify the payment due date for those who are regularly late.
2. Send a request letter or email
You take the first move and send a request letter or email asking about the payment. Mention the invoice number and due date and keep the tone polite. Your invoice number will refer to the unpaid invoice hence you don’t need to mention any other details. Keep the note short and simple and ask about when you can expect the invoice clearance.
3. Make a phone call
Chasing for late payment is a tedious task. Calling the late payers tends to have better results as they cannot avoid the call. Politely remind them about the overdue and ask when you can expect the payment. Don’t get off the call until you have clarity as to when they are going to settle the payment.
4. Send overdue invoice
Sending an overdue invoice with an “overdue” stamp on it gives an effective visual. You can even attach the original invoice with the request mail and send it again. This way you can remind your clients about the outstanding amount that needs to be cleared immediately.
What is a past-due invoice?
Businesses that are dealing with extensive unpaid invoices often run into a loss, losing thousands of dollars. This ends up extra effort and extra expense in chasing the customer for payment. In such a case, past due invoices come into the picture that is sent to remind the customers about the payment. Therefore, past due invoices work as a reminder invoice to help you get your payments faster.
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7 additional pro-tips to handle your past due invoices
It isn’t comfortable to chase your customers for paying past due invoices. Some business owners even hesitate, as to how to approach their clients. To avoid getting late payments, here are some pro-tips.
1. Offer various modes of payment
All your clients won’t have the same choice while selecting the payment modes. Some would prefer online payment systems, while some would opt for direct bank deposits. Opening as many options as available would encourage your clients to pay back within the scheduled time.
2. Implement late fee
Chasing your late payers may seem daunting, hence implement a late fee policy in your contract to encourage your customers for timely payments. Clearly state the late fee policy at the beginning of the sale and have your customers sign in the agreement. This way you can legally bind them and they cannot ignore paying the late fee if they miss the due date of payment. You can even remind them before they miss out on the date so that they can waive off late payment by clearing the payment right away.
3. Give early payment discounts
If you apply late fee charges for delayed payment, then do implement early payment discounts to encourage your customers to pay back on time. This might apparently seem that you are losing a few bucks, but on the other hand, this helps to maintain a steady flow of cash all the time. Completing a project and waiting for days to get paid is not acceptable after all the hard work you put in. Therefore, losing a few dollars is worth it, as it makes your payment regular.
4. Send account statements
If a customer has a few outstanding invoices, then generate a systematic account statement with any online accounting tool and send them directly to the customer. You can make a phone call and discuss the outstanding amount and expected payment date.
5. Stop supplying goods
Stop supplying your products or services until the invoice is paid. To protect your business from being unsustainable, stop fulfilling the orders of the customers who are late with their payments. This may seem aggressive but this may seem effective and would ease up your job when it’s time to get the payments.
6. Hire a debt collector
Debt collectors are professionals with specific skillsets for collecting overdue invoices. But this method may seem expensive, as these debt collectors charge around 25% or more of the money they collect.
7. Take the help of a lawyer
If any of the above methods do not work and even debt collectors fail to process the overdue invoice, involve a lawyer. A specialist lawyer can deal with such situations if things get complex. Even debt collectors have contact with some in-house lawyers who can help you on this matter.
What makes an invoice outstanding or past due? Let’s discuss!
Outstanding invoice vs past due invoice
Apparently, it might seem similar, as both of the invoices are in pending status and are yet to be paid by the customer. But what makes one outstanding and the other past due? Let’s discuss!
Invoice sent much before payment due date, just after completing an order and are still unpaid, is referred to as outstanding.
Whereas, when this invoice remains unpaid even after the payment due date, then it is referred to as past due. Therefore, a past due could be more serious than an outstanding invoice as it has crossed the payment timeframe.
Outstanding invoices are tracked and reviewed by the finance department. But it does not invoice any serious action.
Whereas, past due invoices are liable to charge a late fee (as per the policy) to the customers.
The outstanding unpaid balance of the current amount due is known as outstanding payment. It could be a payment that is done but not marked paid for some reason. Even it could be the interest-bearing outstanding balance taken on credit against a loan, product, or service.
Unpaid invoices are those invoices that are to be paid by the customers and are also known as outstanding invoices.
The invoice due date is a specific date set by the company or the vendor as the due date for making the payment at the latest.
1-1.5% is the standard rate that is charged per month by most business owners for late invoice payments.
This article shares every detail related to the outstanding invoice and shares the strategies that can make the payment process faster. Follow them to normalize the cash flow and keep the business running smoothly. For faster payment clearance get Billbooks to get your invoice ready in minutes.