Top 6 Excuses by Clients for Late Invoice Payment and How to Deal With Them
According to a comprehensive study by MarketFinance, formerly known as MarketInvoice, around 60 percent of all invoices are paid late. The report goes on to reveal that the average invoice is paid six days late and that one-fifth of all invoices are paid more than two weeks late.
This is, especially devastating for a small business owner, who depends on constant cash flow to run the operations smoothly and pay employees and vendors on time. It is hence, prudent to know the top excuses given by clients for non-payment of the invoice and also how to deal with late payment —your businesses’ survival depends on it.
1) “Our check is in the mail.”
Since there is no way for you to verify if the client has posted the check, they might blame the postal system and tell you that the check has not been delivered to you due to the inefficiency of the postal department. This might just be an excuse to buy some time. So, if the payment is delayed for long, it would make sense to take a firmer stand and demand they cancel the previous check, pay you via certified mail, and give you the tracking id.
2) “We have not gotten your bill.”
When you hear this excuse, first of all, recheck the address you sent the invoice to. If that is accurate, send your invoice again through fax/certified mail with the requirement of getting the client’s signature on delivery.
3) “We did not receive the product.”
If your product is a digital file/document, you can quickly send it again. But if it is a physical product, you need to track the shipment and delivery process and get the client’s signature upon receipt.
4) “The person who takes care of this is unavailable.”
This can be heard from the clients especially around holidays. During other days, they might respond with the classic “he/she is sick” excuse. If they are set to return in a couple of days, it is reasonable to wait and reach them to take care of the payment later. However, if the client is unsure of the time, ensure that you find out the contact details of a substitute and urge them to process your payment. You should stress the importance of your account and the fact that payment is long overdue.
5) “We are yet to receive payment from a bigger client.”
One way to deal with this excuse is by having your client pay you in installments. If you realize your client has cash flow issues, you can ask them to make payments ahead of time or at least put up a deposit during future dealings.
6) “The system is down.”
Shifting the blame to technology is a common way to delay payments. Be upfront with your clients, and ask them when they expect it to be resolved. Request them to send a check if they respond by saying that they are not sure when the system will be up again.
Small businesses can avoid most of these excuses through the use of top-notch invoicing software, such as the one provided by Cloud Books. The client cannot claim that the payment check is “in the mail” or “we have not received a bill” or “the system is down.” Cloud-based invoicing software can keep track of all the transactions and the details are stored in the cloud. The information can be accessed at any time from any device.
For a small business, on-time payments from clients are mission-critical. Hence, learning to deal with late payment excuses efficiently can go a long way in ensuring your success. Crucially, it fosters an atmosphere of mutual respect and sets up the precedent for better future dealings.
Atradius, a prominent financial institution operating in the insurance sector, estimates that 39% of all invoices in the USA are paid late, and that the companies are asked for an extension in the deadline for the invoice payments 52% percent of the time. Invoices area crucial aspect of business operations, and getting late payments for the services rendered or the products you sold canfrustrate you greatly.
For a small business, the billing process can be quite complicated and time-consuming. Despite the emergence of automated software that is constantly figuring out how to reduce delays and errors in the billing procedure, occasionally an issue may crop up, causing trust issues between the business owner and their client.
The process of improving the billing process flow is never-ending, but it can yield results that can enhance the output you get from your billing software. Here are a few suggestions youcan follow to optimize your billing process.
Automate your billing process
Automating your billing processes can go a long way in ensuring the smooth operation of your business. Make sure you get the billing software for business that can help you create custom recurring invoices, track their status, keepsensitive client data securely, and schedule and send reminders for payment as well. This will not just save you a lot of time, money, and effort, but also reduce your stress levels.
Provide complete information
Providing relevant and complete information to your customers is key for your process for billing to go smoothly. Many business owners tend to make the mistake of focusing too much on their invoice designs rather than ensuring that it has crucial information, such as a description of the product/ service, the order and invoice number, total amount, the last date for payment, acceptable modes of payment, the terms of payment, and contact details as well. A thankyou note to the customers, which shows you care, can also be a welcome addition to the invoice.
To increase your chances of getting paid on time, make sure you establish the payment terms and policies with the client beforehand. Tell the customer what you expect, ensure that they are comfortable with it, and also let them know what the penalties are for violating the terms.Theywill appreciate the effort and thought that has gone into the process. Establishing these ground rules will foster an atmosphere of trust between the stakeholders.
Make your invoice impressive
Sending out an easy-on-the-eye invoice is important as the client can gauge your level of commitment just by looking at the invoice. Always ensure to personalize the invoice as the customers feel special when you do that. Whileyou need to ensure that the invoice is well-designed and attractive, it should not take precedence over simplicity.
Monitor the payments
It is quite prudent to keep track of what stage of the billing process you are at. Monitoring the payments is crucial as it allows you to ensure that the invoices are error-free and reaching on time while also providing you with constant feedback on the billing software you use.
Get on the cloud
This will allow you the flexibility and accessibility that is necessary for today’s competitive business environment. Cloud-based systems not only speed up the process and eliminate irrelevant data from your system, but it will also allow you the luxury of monitoring the data from wherever you want.
Success in business often boils down to how smooth the operations are, and getting your invoicing right is a key part of that process. It doesn’t have to be a painful and confusing journey as long as you have the right tools – clear payment policy and an automated billing system – that keeps your billing process running like clockwork.
Know how Past Due Invoices can help Tackle Late Payments
SMBs bear the brunt of late payments, which hit hard on the underpinning functionalities and success of organizations.
As facts are best told in numbers, here is a survey conducted by Marketvoice on every aspect of invoices for small businesses. The results of this survey are based on data collected from over 80,000 invoices issued to different companies in nearly 90 countries.
The key facts derived from this data are:
62% of invoices are paid late
1/3rd of the invoices are paid more than two weeks late
Find below an image that shows the amount of delayed payments made to companies from different sectors.
Is there a way to tackle this challenge effectively?
Though different types of invoices exist, the past due invoice helps initiate the process of getting the past due amount from customers.
Let us understand past due invoices.
What Is a Past Due Invoice?
A past due invoice is an important part of small business invoicing. It is an official document reflecting the billing statement that refers to the amount that has not been paid within its due date. Typically, SMBs implement a structured process of sending invoices for services to their clients. They usually have online invoice software in place that sends invoices with details of the payments.
If the due date lapses, the invoicing tool automatically triggers a past due invoice with details about the overdue payment and any penalties for the time lapse.
When Is a Past Due Invoice Needed?
Usually, in SMBs, projects are finalized, developed, and delivered in advance. They are either paid for in installments with the ongoing work or after completion. Clients begin using the product, experience its advantages and clear payments from the profit they obtain. This is not due to the lack of trust in the service/product provider, but because clients are not always equipped with heavy funds.
In this scenario, service providers seek the help of online invoicing software that maintains accounts of payments received and those that are due. If a client fails to pay up and the time period provided lapses, the invoice software immediately sends out a past due invoice as an alert.
Who Past Due Invoice Can Help?
Though freelancing has its own benefits, freelancers frequently experience the pain of not being paid on time. They can use the past due invoice to inform their clients that they have a payment due.
A past due invoice helps freelancers convey to their clients that they need to arrange funds for overdue payment. This invoice may also include extra charges for late payment, if applicable.
In a retail set up, managing inventory is one of the most challenging tasks. A retailer ideally places an order for the products from the wholesale provider and begins to distribute them. A partial payment is made for the products received.
In this case, the wholesale provider may find that payments are pending and the due dates have lapsed. He may send out past due invoices to inform the retailer about the past due amount.
Purpose of a Past Due Invoice and Its Role in Collecting Payments
Past due invoices also help in collection of due payments in a streamlined manner. This procedure includes the following steps:
Reconfiguration of Payment Terms
A service provider may advice the client about making full or partial payments within a given time. He may also reduce the time provided for the payment or charge a penalty for the late payment.
Checking for Errors
An error-free invoice may help speed-up invoice approvals, facilitating faster payments. This may involve a third-party to proofread invoices and check for errors.
Review of Credit
This includes reviewing the financial position of the customer if a medium-to-large credit request has been made. This review shall include an examination of the client’s financial statements and credit reports.
What Information Needs to Be Present on a Past Due Invoice Template?
Invoice date with payment due date
Customer/service provider name and contact information
Detailed split-up of services rendered, including dates, descriptions, man-hours involved, manpower invested and applicable charges
The subtotal and total of the amount to be paid
Specific payment methods accepted
Terms and conditions for early or late payments, if applicable
What to Expect after Sending a Past Due Invoice?
Past due invoices harm the credit of any particular individual/company. Service providers may reduce the credit limit or even stop accepting project proposals.
Long-standing past due invoices are eventually directed to collection agencies. This may result in a permanent discredit on that particular company, leading to other service providers limiting their business association.
A service provider may alert the customer and request a payment multiple times after sending a past due invoice. If the customer fails to revert, such invoices are directed to collection agencies.
These are the steps undertaken after issuing the invoice:
1. Sending a Dunning Letter
This is a low-key reminder message that conveys the amount due, invoice number, and invoice date.
2. Reminding over Call
If a dunning letter does not receive a response, a personal phone call is facilitated to know the status of the payment.
If the service provider is not able to speak to the concerned person over call and doubts the intention of the customer, the provider may escalate to the accounts or senior management.
4. Setting up a Payment Schedule
If the customer is in a financial crisis, the service provider may help by breaking down the payment into installments and scheduling it. However, this is backed by a personal guarantee for the payment from the customer’s side.
5. Taking Legal Action
If these attempts fail to obtain the payment from the customer, an attorney letter may be hired to issue further warnings.
6. Filing an Involuntary Bankruptcy Petition and Suing the Customer
If the service provider finds that the customer has not cleared payment dues for other companies as well, he along with these companies may together file a bankruptcy case and initiate legal procedures accordingly.
It should be noted that the first few points are modest efforts to get payments from the customer while attempting to pursue a cordial business relationship. The remaining aspects focus on simply getting the due payments based on the virulence of the situation and may result in the discontinuation of the business association.
Past due invoices play a pivotal role in the payment cycle. They help service providers remind their customers about pending payments and that they need to arrange funds within a stipulated time to avoid functional hiccups.
The incorporation of effective online invoicing software can ease payments collection by triggering past due invoices, when required. Have you implemented one to manage your payments? Do share your experiences with us in the comments section below!