Three (Tactful) Ways to Get Clients to Pay Outstanding Invoices

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Every small business owner’s dream is to keep up a healthy cash flow. So when outstanding invoices become overdue (as they sometimes do) you need fast-acting ways to collect those payments. Better still: you find reliable means of avoiding late payments altogether.

Invoices 101: Outstanding Invoices vs. Overdue Invoices

You may hear “outstanding invoices” and “overdue invoices” used interchangeably, when in fact they’re not the same.

Outstanding invoices

An outstanding invoice is a payment that a customer has yet to pay. Outstanding invoices should be sent before the actual payment due date, helping you collect funds at a suitable time.

Overdue invoices

An overdue invoice represents a payment yet to be made that is past the agreed due date. Late payments increase business risk by slowing down your cash flow, so it’s important to track outstanding payments, and follow up with clients who aren’t paying on time.

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Collecting outstanding and overdue invoices

If you have clients repeatedly at risk of making outstanding invoices overdue, there are tactful ways to encourage them to stay on top of their payments. Tactfulness is important for a few reasons:

  • It shows emotional intelligence and respect, keeping your client relationships sweet
  • It shows your understanding when unavoidable issues hold up payments on the client’s side
  • It’s a more effective way of getting paid — hostile communication often closes doors rather than opening them

Outline your terms from the start

Avoiding overdue payments altogether is better for everyone. It means putting in a little more preparation before you start working with a client, but it’s preparation that pays off tenfold.

Communicate your expectations clearly

The best way to get paid on time is to be clear and precise with your terms from the start. Before you provide any services to a client, make sure your payment terms are outlined in a contract or official engagement letter, signed by both parties. Contracts should also include details on how you’d like to be paid, e.g. into a bank account, as well as the details of that account (these should be included on your invoices too). It’s acceptable to include terms such as not providing further work until overdue payments have been made.

Always include a due date on your invoices — Square Invoices does this automatically. You might also consider adding a reminder note about the expected payment date in the personal message field.

If you manually email your invoices to clients, there’s no reason you shouldn’t state the due date and invoice amount in the email body. This ensures that even if attachments aren’t opened, clients are aware of your expectations.

Include overdue payment charges

Many sole traders and businesses include overdue payment terms in their contract as an impetus for business customers to pay on time. This is usually a cumulative fee calculated per each day that an invoice is overdue. For example, you could charge interest of 10% of the total invoice amount each day past the due date. This would mean that an invoice of £100 overdue by one day becomes £110, then £121 on the second day and so on. Including overdue payment terms is common practice, and business owners shouldn’t shy away from using them. If you don’t feel comfortable outlining these terms yourself, you can simply refer to the 1998 Late Payments of Commercial Debts Act.

Send reminders

There is always the possibility that your invoice simply got lost in the client’s inbox. You can hit the “Remind” button in your own inbox (if you use Gmail), or send them a personal message with the invoice re-attached. You can also do this with Square Invoices, by selecting a specific invoice, then the client’s name, then the three dots at the bottom right of the page. If you expect an overdue payment from the start, set up email reminders whilst creating the invoice initially.

Reminders are best staggered and planned in advance. Sent impulsively, they can lack the kind of tactfulness that supports positive, ongoing client relationships.

It’s likely that your invoices will get paid on time when you use the correct terms up front, create a strategic plan for reminding clients and communicate tactfully. In the unlikely event that they aren’t, here’s the process of involving a legal representative.

Plan your course of action

Timing and planning are everything. So before you make contact, ask yourself these questions:

  • Did you deliver services to the client as outlined and agreed?
  • Have you sent them a reasonable number of reminders?
  • Have you called or written to them as well as emailing?
  • Have they consistently ignored your communication or stated outright that they won’t pay?
  • Can you afford the potential cost of involving a representative?

If the answer to all of these is yes, it could well be time to get assistance. There are a number of ways, such as involving a debt collector or solicitor, or using the small claims court. Do your research, and speak to other business owners to figure out which is best for you.

Communicate your intentions to the client

Once you’re confident that nothing more can be done from your side, send a formal email and letter to your client letting them know your plans. This is often the nudge that gets you paid. But consider this: once you reach this stage, it’s unlikely that the client relationship can continue amicably, so don’t jump before you’re sure.

Gather all correspondence

Whichever legal route you choose, you’ll need to provide evidence that you did everything you could to collect payment, and that you’re lawfully due that payment. Evidence includes:

  • The original signed contract
  • Examples of the work you undertook, such as receipts for materials, files, photos and timecards
  • Emails between yourself the client
  • Copies of letters sent to the client
  • Records of phone calls made to the client

With all the evidence gathered, you’re in a strong position. Contact the representative that makes the most sense for your situation, and be communicative throughout the process.

Overdue invoices are a challenge faced by plenty of small businesses, but with the right upfront planning and tactful communication, they are avoidable.

**This article is intended to offer helpful guidance and does not constitute qualified legal advice. Please consult an independent legal advisor, if you have any questions pertaining to your business. *

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