Overdue payments: the bane of any business owner's existence.
It’s a problem that can quickly spiral out of control, leading to cash flow issues and even (in extreme cases) bankruptcy.
As if running your business wasn't difficult enough!
Unfortunately, overdue payments are a given. But as a business owner, what happens *after* an invoice goes overdue is fully within your control.
That's what we're going to be talking about today. Below, you’ll learn how to arm yourself with the knowledge you need to handle overdue payments in the most effective way possible: with a well-written overdue payment letter.
Source: Construction News
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Simply put, an overdue payment letter is a document sent to a customer who has failed to make payment on an invoice within the agreed-upon timeframe.
The primary purpose of this letter is to remind the customer that payment is past due and (politely) request immediate payment of the outstanding balance. It’s an opportunity for you, as a business owner, to demonstrate your professionalism and commitment to resolving any issues in a timely manner. It's also an opportunity to improve your margins significantly - sometimes as much as 5% or more - with just a couple of hours of research and foresight!
It’s important to say at the outset - before we get into these ten tips - that nine out of ten times, customer late payments are simply a byproduct of them forgetting to pay you.
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More generally, starting with the assumption that “my customer just forgot” helps frame the situation to your (and their) benefit, while pushing you to implement alternative methods that keep you from having to send overdue payment letters in the first place.
For instance, invoice reminders are a great way to cut down on needing to send an overdue payment letter. An invoice reminder system is an automated approach that checks in with your clients on a daily or weekly basis, and can usually improve both the speed at which they pay, plus reduce the likelihood of an overdue payment.
We recommend starting with these approaches wherever possible. In fact, you can set up GoSite to do this for you in just a few clicks.
But, at the same time, there are some situations where that just isn’t the case. Unfortunately, some customers will take advantage of the situation and continue to delay payment without any intention of ever paying up. And that’s where an overdue payment letter comes in handy.
Now that we've covered basic assumptions and invoice reminders, it's time to get into the meat of how to send an overdue payment letter.
First, when's the best time to do so?
Ideally, you should send an overdue payment letter as soon as the invoice is late. After all, the longer it takes to remind a customer of their payment obligations, the more likely they are to forget about it completely, or use it as leverage to push the payment back even further.
Oftentimes, you can set up automated notifications in your billing platform to check in with you if a payment is late. By having a template on-hand, you can quickly plug in their email and have a payment letter sent out in no time.
Some businesses prefer to wait a few days after the invoice is due before sending an initial reminder. The idea is to give the customer a bit of "breathing room", and provide them a chance to pay without feeling too much pressure. But the reality is, you're a service provider and you should be paid on time for the work that you do - and sending a reminder as soon as an invoice is late helps to reinforce this message.
Next up: what should you include? There are several schools of thought about this, but generally speaking, you'll want to include the following elements in your overdue payment letter:
Each of these covers one or more factors that might be leading to the customer's late payment; reminding them it's due, for example, takes care of customers that have simply forgotten. A call to action provides a sense of urgency, which can be helpful for customers that are deliberately pushing back payment. And by including details about late fees and other charges, you're making it clear that there will be consequences for not paying on time (while also being sympathetic to any extenuating circumstances).
If it ever gets to the point where you’re considering legal action, official, paper letters must be mailed (for legal reasons like verifying receipt & giving ample notice). However, we recommend starting your overdue invoice collection process through email and SMS first.
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Ultimately, the more touch points you have with your customer, the more likely they are to pay you. This rings true for all aspects of business – not just overdue invoice collection.
At this point, you’re almost ready to write the perfect overdue payment letter. Here are some final tips before you do so:
Your goal is to remind customers that payment is past due without making them feel like they’re being attacked or accused of anything. The best way to do this is by using a friendly but professional tone in your letters.
Keep it conversational and polite, while still firmly emphasizing the importance of paying their invoice on time.
When it comes to overdue payment letters, timing is everything. You'll want to make sure you send the letter at a time that’s convenient for your customer (e.g., not too early or late in the day), while still getting the message across that payment is past due and they need to be timely about it.
Generally speaking, we've found that sending letters out in the morning is best - customers are more likely to read and act on them right away if it's the first thing they see in their email inbox. We like to shoot overdue payment letters between 7:00am-9:00am on weekdays.
Third, make sure you include all necessary details about the invoice in your overdue payment letter. This includes the amount due, when it was sent out, and any penalty fees that might be associated with late payments (if applicable). The idea is to make it as easy and simple as possible for customers to make their payments without having to search through old emails or contact you directly. By minimizing the amount of effort needed on their part, you'll increase the odds that they'll actually pay up.
It's not always easy to pay bills on time - even when you're trying your best - and a little understanding can go a long way. Don't be afraid to let them know that you understand their situation and are open to a chat if necessary.
This will help build trust with the customer, which is critical for any successful business relationship. And of course, it increases the likelihood that they'll pay up in a timely manner, since you're expressing compassion and sympathy.
Consider offering alternative payment plans. If a customer is having trouble paying their invoice in full, suggest splitting it up into smaller payments over time. This way, they still get the services or products they need without breaking the bank in one fell swoop.
This also shows customers that you're willing to work with them and appreciate their business - which can go a long way towards building strong relationships with your clients.
Don't forget to mention any late payment fees and penalties associated with not paying on time. Try and describe them as precisely as possible - they'll owe exactly $X extra for every day/week/month they don't pay.
This is important because it shows customers that you're serious about getting your money back - and if they don't, there will be consequences. It can also act as an incentive to pay up sooner rather than later.
Don't be alarmed if your initial letter doesn't get a response right away - it's not uncommon for customers to ignore the first reminder. That's why it’s important to send follow up letters at regular intervals, reminding them that payment is still due and reiterating any late fees or additional charges associated with not paying on time. This is serious to your business, so don’t be afraid to remind your customers of that.
Ideally, you wouldn't even have to go through the process of sending out overdue payment letters in the first place; an automated system would take care of that for you. Automation can be a great way to ensure that all your customers receive their overdue payment notices on time - and follow up letters, too!
There are plenty of software solutions out there designed specifically for this purpose; they make it easy to set up automated emails and reminders when invoices become overdue, freeing you up to focus on more important things (like running your business!).
The subject line is the first thing customers will see when they receive your letter, so it’s important to make sure it's clear and non-threatening. Avoid phrases like “Urgent Payment Request” or “Final Warning” - these are likely to put customers off before they even read the email! Instead, try something simple and straightforward: "Invoice #X is overdue - here's what to do next".
Dealing with overdue payments is frustrating. But no matter how tempted you are, never use aggressive language in your letters. This will only make the customer less likely to pay - and it's also unprofessional.
Instead, focus on being respectful and professional at all times. Remind customers that their payment is overdue and politely request immediate payment of the outstanding balance. If necessary, suggest alternative payment plans or late fees/penalties associated with not paying on time - but always do so in a courteous, straightforward way.
Lastly, the part you've all been waiting for – here’s a cut-and-paste example overdue invoice letter you can use for your own records. Make sure to fill in the blanks with your own information!
Hi *Customer Name*,
This is a friendly reminder that invoice *#123* for the amount of *$1,000* USD is now overdue. We kindly ask that you make payment as soon as possible, so you don't incur late fees.
To make it as easy as possible for you, you can pay through our online portal here: *link*. Alternatively, you can transfer the funds directly to our bank account below:
Account Name: *Business Name*
Account Number: *0000-0000-0000*
Bank Name & Address: *Your Bank's Details*
All payments must be made in full and received within 7 days of this letter; otherwise, you'll owe an additional late fee of *$X USD* per calendar week that your invoice remains overdue.
We value your business and understand that there may be extenuating circumstances. If you are having difficulty making payment for financial reasons, please don't hesitate to contact us for assistance.
Sincerely,
*Your Name*
*Business Name*
In summary, an overdue payment letter is one of the most important tools in a business owner's arsenal. It's a way to demonstrate professionalism, increase cash flow, and protect your bottom line.
By following the advice in this article - including what to include, how to phrase it for maximum effectiveness, and an example letter you can use as a template - you're now well-equipped to tackle overdue payments head on.