top of page
  • Curtis Mackenzie

How to collect on an unpaid invoice

Updated: Dec 20, 2019

Small business owners and managers can feel uncomfortable collecting overdue invoices for fear of alienating the client and the expected confrontation that could occur. Despite these apprehensions, you MUST have a standardized process for handling overdue payments. Let's go deeper.

The best way to avoid overdue payments is of course to not have them occur in the first place. Be proactive, send a reminder on payment due dates "before" the invoice expiry date. Sending a simple email with the title "Gentle reminder, that payment is due this coming Friday....etc". This will very likely reduce, but not completely eliminate, overdue payments. Train your sales staff on how and why to do this, and make it a company-wide standard.

If the due date has passed however, you'll need to follow a few steps.

The worst thing you can do is to let the payment go overdue for several weeks. Notify that the payment is overdue immediately. Email is fine for the first notification or a short call to your client counterpart. During the call or email, Itemize the exact invoice number, payment due date and amount. This makes it easier for the client to chase it down internally and shows you are organized with the collection process. If necessary, ask to speak to the accounts payable team, manager or person in charge. Do not rely on emails, they are too easy to ignore.

Stay calm and professional, but be firm and consistent.

It is easy to get upset and imagine the worst when dealing with unpaid money, but it could be the payment was simply mishandled or misplaced. Give the client a chance to correct the matter (and hopefully apologize). Set a new specific deadline of seven days later, get this in an email so you can refer to this in future if this deadline has also passed.

If it's clear the client is avoiding the payment for some reason, find out why. Were they unhappy with the product or service? Perhaps that can be corrected. Do they understand the terms of your fee agreement?

Make an effort to engage client stakeholders at increased seniority level and level of urgency. Do not stay stuck speaking to the same counterpart or junior employee. if necessary, go around or over their heads.

The worst thing you can do is to let the payment go overdue for several weeks. Notify that the payment is overdue immediately.

Ask for a face-to-face meeting. If the client is acting in bad faith they will likely wish to avoid any face to face confrontation. Asking for a face to face meeting shows the problem is not going away and that you're going to take the necessary steps to ensure you get paid., often this request will be enough to get paid.

Final Steps if the client still will not pay. Mention that you would prefer not to have to "escalate" the issue, but will soon need to engage your "legal team". Give them another day to respond, and then, If necessary, engage a lawyer or collections agency. This does not mean you need to actually go to court and it does not need to be expensive.

Send a "warning letter" from a lawyer. This will not be excessively expensive and will show them that you are serious. The letter needs to outline the terms and reasons that payment is required. Neither client nor vendor typically wants to go to court but threat of legal action is a final step you may need to take. You will find that clients will wish to avoid this at all costs and typically pay up at this stage.

In the end, If necessary you may need to offer an out of court settlement, agreeing to discount a percentage of the amounts owed in order to close the matter. If you are very confident you will win and the amounts are large enough to justify, going to a Japanese court may be your best (and only) choice. You may win, but legal costs and time spent will likely make both parties wish they had settled the matter earlier.

Want a business hack to all of this ? Hint: ... rarely will you need to take formal legal action to collect a payment since neither party will want to go to court. The trick is to make "not paying" a bigger hassle and cost to the client than the value of the amounts owed.

For other readings on small business management, "cash management"and other topics, see our post Are you ready to start your own business?, or 7 Common Mistakes when starting a new business. For more information on ways we can help, please contact us at - Curtis Mackenzie - MD New Frame KK

139 views0 comments


bottom of page