5 important steps to take when an invoice goes overdue

Once an invoice exceeds its credit terms, the pressure is on as the likelihood of collecting the debt in full decreases as the debt grows older.

It’s therefore essential that you have a procedure in place to ensure you, or your team, are doing all you can to get paid as quickly as possible.

Here are five steps you can take to get you off to the best possible start.

1. Know exactly when an invoice becomes overdue

A fundamental element of credit control is to know precisely when an invoice exceeds its credit terms.

Without this knowledge, your credit control process will lose its efficiency and punctuality.

It’s therefore important that your accounts department or credit controllers regularly review your sales ledger to ensure that your customers’ payment activity is always observed.

2. Update your cash flow forecast

Once it’s clear that an invoice is going to exceed its credit terms, there are two things you must consider.

If the second is the best way to go about recovering that debt, the first is of more immediate concern: your cash flow.

Without that expected revenue coming in, the company may not have sufficient funds to satisfy the money going out of the business to bills or suppliers.

This makes it imperative that you’re aware of what’s going in and out of your company at all times.

By updating your forecasts, you will promptly be aware of any impending gaps in the business’s cash flow.

3. Take steps to protect your cash flow

If updating your cash flow forecast reveals that the late payment is going to leave you with insufficient funds you should take action to ensure you don’t become the one being chased for outstanding debts.

The first option would be to negotiate an extension to your credit terms with suppliers.

A second would be to request earlier payment from another customer – perhaps at a slightly discounted rate as an incentive – whilst a third would be to approach your bank to request an extension of the business overdraft or for a short-term cash flow loan.

4. Start chasing as soon as terms have been exceeded

As soon as an invoice goes overdue pick up the phone to the person dealing with your invoice and ask why you haven’t been paid, and when they expect you to be.

You’re much more likely to make an impact over the phone than through letters or emails.

It’s important to be polite in these early stages, understanding the circumstances and explaining your company’s procedure for the collection of outstanding debts.

This can include charging late payment interest and may result in handing over of the debt to a collection agency after a certain time.

Always log all correspondence detailing who you spoke to and when, as well as what was said.

Am I due any late payment interest or compensation?

To calculate how much late payment interest you are eligible to charge on overdue invoices simply use our tool below. 

5. Know when to let go

There will inevitably come a point when you’ve tried all you can to recover the debt.

At this time, you should consider whether it is worth your time and resource to continue chasing the debt in-house.

Specialist commercial debt collection agencies excel at the recovery of particularly outstanding debts.

They can dedicate the time and attention to each individual debtor that you may no longer be able to afford.

Their name alone will add further weight to your collections process and increase the chances of successful recovery.

Most collection services are success-only. This means that you’ll only pay if the money is recovered.

Plus, the cost of recovery services can be offset against the risk of losing your money altogether.

It may even be beneficial to pass all debts that reach a certain age on to a commercial debt recovery agency so that you can focus your attention on newer invoices.

Can we help?

We hope that these tips help you to recover late payments and minimise the impact on your business.

But, if you still find that some customers are proving difficult to chase, we could help.

Get a quote to see how much we would charge for successfully recovering your overdue invoices. Or request a call back from one of our collections experts to discuss your requirements at a convenient time.

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