How to pursue past due invoices politely and effectively

Businesswoman Calculating Invoices.

Whether you are a freelancer, small business owner, or part of an enterprise team, getting paid properly is what keeps you working. And while drawing up and submitting invoices to your customers is easy enough, getting them to actually pay their bill can be surprisingly difficult. Your customers could have legitimate reasons for falling behind on submitting payments, but whatever the cause, past-due payments and delinquent invoices can add up to a major headache for your business. A survey of freelancers conducted by FreshBooks found that 40 percent go into the end of the calendar year with over $2,800 in outstanding invoices. The problem is not unique to the holiday season, though it can be especially taxing for small businesses at the busiest time of year.

Collecting on these past due and delinquent invoices can be an uncomfortable but necessary part of doing business. While you can potentially turn these accounts over to a collection agency, generally it is better for both your business and your customers if you can find a way to work together to get these bills paid. You will need a combination of patience, persistence, and good organization to take on the challenge, but we have outlined the basic steps to help make it as painless and effective for you as possible.

What you can do when you have a past due invoice

When handling a past due invoice, it is important to stay calm and approach the buyer politely. Even if your customers are being difficult, it is up to you to remain professional as you work with them.

Begin with a past due invoice letter

If a client has not paid their bill, your first step should be to send a past due invoice letter. You can automate these letters, or you can write them individually to add a personal — and personable — touch to the message. While you should maintain a pleasant tone in your early reminders, you should also be concise and direct. Follow-up on a past due invoice should take place the day after it is due, particularly in cases where the client has a habit of making late payments. If this notice is ignored, you should follow up at regular intervals, sending a new past due letter at least once a month. The earliest of these should use a friendly tone, whereas later letters should be polite, but firm.

There is not any one correct way to write a past due invoice letter. However, it should always contain the following basic elements:

Reach out to the client personally

In addition to sending formal past due notices, it can be helpful to reach out to clients on a more personal level. They may respond better to a personal email or phone call than to a formal letter, as you can control your tone and make them feel like you are on their side.

As Entrepreneur magazine points out, a personal message may be a better tactic if you discuss a payment plan, offer to speak on their behalf regarding extenuating circumstances, or establish a personal connection to make it clear that you want to help them make this work. However, it is also important to stand your ground, set clear expectations, and avoid making promises you can’t keep.

Still unsettled? Send the invoice to a collection agency

After 90 days, if your past due notices are still ignored, you should send the invoice to a collection agency. The last few past due notices should politely but firmly warn customers before the account reaches that point.

If you have to escalate to the point of sending an invoice to an agency, do your research to ensure that you choose a reputable company to work with. Resources such as the Better Business Bureau (BBB) are ideal for this process. The BBB normally acts as a third-party mediator, receiving and investigating complaints and working with both businesses and consumers to resolve conflicts. As such, they can be a great place to research potential collection partners and find an agency that charges reasonable rates and follows ethical collection practices. Once you identify a good option, you will also want to carefully review their policies before agreeing. If the collector receives the payment, they will keep a share of the profit, typically at least 25 percent.

Sell the debt to a factoring company

While similar on its face, a factoring company is distinct from a collection agency. While a collection agency pursues debts that are well past due, and ultimately takes a relatively large cut of the profit, a factoring company essentially just speeds up the payment on a pending invoice. If an invoice is expected to be paid, but is delayed, you can hire a factoring company to verify that a payment is in process, then pay the creditor up front for a fee.

In some cases, rather than selling the debt to a collection agency, you may need to take legal action. Before you take this route, however, you will want to make sure that you have thorough records regarding the amount owed, that you have the money necessary to successfully pursue litigation, and that the debtor is financially healthy enough to pay you. You will then want to carefully research and choose a lawyer, send a formal demand letter (Nolo’s Cara O’Neill offers helpful tips and templates you can use), and file a complaint. It is important to note that this option is only worthwhile in situations where a large sum of money is owed, and the debtor is disputing their invoice or refusing to pay you.

Past due invoice letter example

Past due invoice letters should be polite, yet firm. While the first letter can essentially be a friendly note with the attached details, later letters should become slightly more terse. The following template is an example of a reminder letter for a debt that is well past due:

[Client’s title and first and last name],

We are contacting you about your past due payment for [work completed] as detailed in [invoice number]. We have not received a response to our previous notice on [date]. Your payment of [amount (this should include any late fees)] is now [number of days past due] past due. [If applicable, discuss any late fees as detailed in your contract, and tell them when they can expect to accrue late fees and/or how much they have already accrued].

We would like to help you honor this payment to avoid any damage to your credit score. You can pay your total at [include link] or contact us at [provide relevant contact information]. If you are experiencing any difficulty in making your payment, we can discuss a payment schedule that will be mutually agreeable.

Please make this payment or contact us by [give a specific date that precedes the next scheduled communication].

Thank you in advance for your cooperation.

[Your name]

A wet signature may be a particularly effective way to close the communication if you feel the situation would benefit from an additional level of formality.

How to prevent outstanding invoices

There are a few ways that businesses can avoid or reduce the impact of outstanding invoices, including:

When it comes to pursuing unpaid accounts, do not immediately assume negative intent — give customers the benefit of the doubt whenever possible, and communicate as though you expect the relationship to continue, or else end on a positive note. It is never ideal to have to chase down old accounts to get paid, but as long as you are organized, communicate clearly, and keep a positive attitude and tone, you can cut down your missing monthly revenue and keep your business comfortably afloat all year round.