If you have a client that hasn’t paid their invoice, it is important that you don’t panic and don’t just do nothing. As a general rule, confirm your client has received the invoice and offer a courtesy reminder of what the due date is. Once that payment date passes, follow up on the first business day to let them know it’s overdue. After that, you can escalate the reminders on a fixed schedule: from statement to phone call, then formal notice and finally professional recovery if needed.
This ensures you remain in control of the entire process while protecting your client relationship. However, to ensure your business has the working capital to run smoothly and efficiently, ScotPac’s Invoice Finance gives you access to the cash tied up in your unpaid invoices while the collection process plays out. This way even slow-paying clients don’t interrupt your cash flow.
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What Do You Do First When a Client Hasn’t Paid an Invoice?
Late payment is one of the most common pressures on working capital for Australian businesses, including those selling business to business on standard trade credit terms.
After all, your payroll, supplier payments and rent don’t wait for anyone or anything. Once you have delivered the products or services, and sent a compliant invoice, how do you chase up a client who has an outstanding account?
It is important that you follow a clear, repeatable collections process. But this focuses on the relationship side of the problem, i.e., the client. When it comes to the cash flow side of the equation, Invoice Finance advances funds against your outstanding invoices, which keeps working capital available while the account is still open.
But before we get to that point, if your client has yet to pay their invoice, here is a basic order of how to approach the situation.
1. Check that the invoice was sent to the correct contact and the right email address. It is possible it was lost in a spam or junk filter, or sent to someone who has left the business and is therefore not checking their inbox.
2. Confirm the client received it. This can be done with a short email or a quick phone call, and simply ask them to confirm receipt.
3. Next, you need to check your own records. Is the purchase order number correct? Is the amount invoiced right? Is the due date correct? And do the terms match what your agreement was?
These steps are critical because genuine administrative mistakes happen. Ruling out factors on your side of the invoicing process can ensure that the situation really is a late payment and not a paperwork mix-up.
How Do You Politely Remind a Client an Invoice Is Due Soon?
A clear courtesy reminder should be sent a few days before the due date of payment. In many cases, this prevents late payments before they even happen.
Here are some tips for your email or phone call.
- Keep it friendly and to the point.
- Re-provide the invoice number, amount and due date.
- Keep the communications administrative and neutral in tone.
- Re-attach the invoice in case it was misplaced or deleted.
Remember: in many cases late payments aren’t deliberate. They could be the unfortunate result of disorganisation or even just suboptimal payment processes.
A reminder before the due date gives clients ample opportunity to get on top of their payment without putting your relationship with them in jeopardy.
What Should You Do the Day After an Invoice Becomes Overdue?
The important point here is that your follow up should be on the first working day after the due date passes. Do not wait a week or more. Why? Following up on day one signals that you track payment terms closely and helps prompt clients to prioritise your invoices in the future.
At this point send a polite and written follow-up. In it, note the invoice is now overdue and ask, politely, for an expected payment date.
Keep the communications clear and reference the original invoice’s details so that there is no confusion. At this point you are not escalating the situation; you’re just confirming the status of the unpaid account.
How Do You Escalate in the Case of an Overdue Invoice?
If the initial follow-up process doesn’t work, it may be time to move through a clear, standard escalation sequence. Keeping your approach uniform rather than reacting case by case helps to maintain control and composure during the process.
1. Send a formal written reminder
A slightly more formal follow-up in writing should be sent first. Make reference to the previous courtesy contact and politely ask for confirmation of payment status.
2. Issue a statement of account
Next, you need to issue a written statement showing the invoice as overdue. You can provide information regarding any late payment charges that were agreed to prior or disclosed upfront in your contract or terms of trade.
3. Call the client directly
A phone conversation can often reveal the core issue. This could be a disputed line item, an internal approval delay, or a genuine cash flow problem of your client’s. A phone call is faster and more effective than email.
4. Apply any agreed late payment terms
At this point, if your contract includes late payment charges, you should apply them transparently and clearly, referencing the original due date, amount owing and the terms you agreed.
5. Bring in outside help if needed
Once you get to this point in the process, if the payment remains outstanding, it might be time to send a solicitor’s letter or engage with a licensed debt collection agency. This adds formal weight, and just by mentioning your intention to do so can sometimes even help to move things along.
6. Use Invoice Finance to keep cash moving
To plug the gap in your own business’s cash flow, Invoice Finance advances funds against the value of the outstanding invoice while you are waiting for your client to provide payment.
Does a Good Collections Process Actually Stop Cash Flow Problems?
A clear and universally applied collections process can reduce how often invoices go unpaid or reduce the amount of time they are overdue.
But, alone, it can’t guarantee a payment date.
Often, invoices can sit unpaid at 30, 60 or even 90 days post issue. This can even happen with creditworthy and reliable clients that have strict approvals processes, or cash flow problems of their own. At the end of the day, it is sometimes a process failure and sometimes simply the nature of business-to-business trading on credit terms.
For your business, the cause is almost never as important as the impact.
A well run collections process and a cash flow gap are not mutually exclusive. A small number of high value invoices sitting at 60 days will stretch working capital no matter how closely the process is followed.
It is exactly for these cases that Invoice Finance becomes useful.
How Does Invoice Finance Help While You’re Still Waiting on a Client to Pay?
Invoice Finance leverages your accounts receivable as security, so you can access cash for goods and services you have already sold.
It means even an overdue payment doesn’t have to translate into a cash flow gap for your business.
How does it work?
1. You submit the outstanding invoice and receive an immediate cash advance against its value, with a small percentage charged as a facility fee. Funds can often be provided in as little as 24 hours following approval.
2. During which time you continue your normal collections process without negative impact to your cash flow.
3. Then, once your client pays, you receive the remainder, less any fees.
There are also no fixed monthly repayments, and you keep complete control over how many invoices you submit for financing and when to submit them.
Is your business eligible?
ScotPac publishes the following eligibility criteria for Invoice Finance.
- B2B transactions: your company sells goods or services to other businesses on standard trade credit terms.
- Trading history: a minimum of 6 months in operation, demonstrating consistent invoicing and collections.
- Creditworthy debtors: your customers are creditworthy Australian businesses with a reliable payment history.
- Invoice value: your business generates a minimum of $10,000 in invoices per month.
- Australian operations: your business is registered and operates within Australia, with invoices issued in Australian dollars (AUD).
Businesses issuing invoices in stages, in advance, or to consumers (B2C) may not be eligible.
And if your business regularly works with imported stock and supplier deposits, ScotPac’s Trade Finance facility is always operated in conjunction with an Invoice Finance facility, so both the buying and the selling side of your trade cycle are funded together.
Do you need to cover the cash flow gap caused by late paying clients?
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Ready to stop waiting on slow payers?
A collections process protects the relationship. Invoice Finance protects the cash flow. You can run both at once.
