How to Handle Unpaid Invoices and Increase Cash Flow

Do you feel like you’re constantly tracking down unpaid invoices and following up with customers while your cash flow dwindles? Managing your small business’s cash flow can feel like a delicate balancing act, and late customer payments can make your finances even tighter. We’ll walk you through how to handle and prevent unpaid invoices while increasing your cash flow.

 

How to Handle Outstanding Unpaid Invoices

The following strategies can help encourage customers with existing unpaid invoices to pay their bills:

 

1. Be Persistent With Your Customers

Ideally, customers shouldn’t need a reminder to pay bills, but people are busy and sometimes forget to take care of responsibilities. It’s also possible that some invoices simply never made it to their destinations. Sending out a polite payment reminder to customers with unpaid invoices a few days after a due date can go a long way toward getting them settled.

You can use this customizable overdue invoice reminder template to follow up with your customers:

Dear _______,

This is a reminder for the outstanding balance of $____ for invoice #____ due on _____. You may pay your bill by ______ (ex: phone, on our website or in-person). Please note that late payments are subject to late fees per the contract agreement.

Feel free to reach out to me directly with any questions. I appreciate your prompt payment.

Thank you,

Your Name
Your Phone Number

If that doesn’t work, make a note to follow up with the customer again in a couple of weeks, and confirm that the contact information you have on file is correct. You can use this customizable template when following up with customers:

Dear _______,

This is a second reminder for the outstanding/past-due balance of $____ for invoice #____ that is/was due on _____. You may pay your bill by ______ (ex: phone, on our website or in-person). Please note that late payments are subject to late fees per the contract agreement.

I also want to make sure that we have your correct mailing address, as we have not received your payment. Is this your current address/phone number/email address?

Feel free to reach out to me directly with any questions. I appreciate your prompt payment.

Thank you,

Your Name
Your Phone Number

 

2. Develop an Automated Follow-Up System

Tracking unpaid invoices and following up with customers can take considerable time out of your already busy schedule. Rather than devoting precious time to do it yourself each month, you may be able to find a free or relatively low-cost invoice tracking system with automatic payment reminders. Some of the top invoice tracking software with automatic reminders include Wave Invoicing, Zoho Books and InvoiceSherpa.

 

3. Outsource Invoice Collection to a Finance Professional

If a customer is severely past due and/or ignores several invoice collection attempts, it may be time to outsource the task to an accountant or other finance professional. Doing so can help signal to clients that it’s time to pay before the issue escalates further.

 

How to Prevent Unpaid Invoices

You may be able to prevent customers from paying late or missing payments with these tips:

1. Double-Check Customer Contact Information

You could save time following up with customers with unpaid invoices simply by regularly updating customer contact information, including their current phone number(s), email addresses and mailing address, when you come in contact with the customer.

 

2. Shorten Payment Terms

Adjusting or shortening customer payment terms may also help you prevent unpaid invoices. If possible, adjust your payment contract for new and returning customers to a net-30 or less due date.

 

3. Perform Customer Credit Checks

Though not all companies will have a business credit score, you may be able to avoid customer nonpayment by performing business credit checks or using alternative financial references for new customers. You can find business credit reports from commercial credit bureaus like Dun & Bradstreet, Experian or Equifax.

 

4. Incentivize Early Payment

Customers may be more willing to pay early if it feels like they’re getting a better deal. Incentivizing early payments with a small customer perk like a discount, coupon, free product or other small gesture may help encourage clients to pay before their due dates.

 

5. Stay on Top of Your Business’s Books

Tracking unpaid invoices is much more difficult if your business’s bookkeeping isn’t up-to-date. Whenever possible, invoice customers immediately, and make sure to record payments as soon as they’re received.

 

How to Increase Your Cash Flow

 When your small business’s cash flow is low, the following strategies can help you bring more money in:

 

1. Have a Sale or Contest

Depending on your business, you may be able to hold a sale or limited-time event to help increase cash flow, refresh inventory and engage customers. Or, you could hold a contest for customers who’ve made a purchase within a certain time period to encourage additional sales. Spread the word to all your customers to increase engagement and make your event a success.

 

2. Increase Customer Payment Options

One simple way to increase cash flow and encourage fast billing is to expand your customer payment options. If possible, add choices like online, phone, automatic and ACH payments to add convenience for you and your clients.

 

3. Look for Alternative Funding

Business funding can help you manage day-to-day costs when your bank account is low. With access to capital from a credit card or revolving line of credit, you can borrow just the amount you need to help support your business without needing to reapply for funds.

 

 

 

 

 

 

 

 

 

 

 

About 

Bonnie is a Chicago transplant who's committed to seeing the world on a dime. As an avid news junkie with a fascination with finance, she loves to help others do more with less.

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