One of the realities of running a business is that sometimes you have trouble collecting payments from clients. Not every client pays every invoice on time, and some clients forget to pay. In some cases, you might even run into a client that just refuses to pay. When you have an unpaid invoice, you need to decide whether or not it’s worth it to send that invoice to collections.
How Late is the Unpaid Invoice?
Your first task is to determine how late the invoice is. Check with your client to see what the payment terms are. Some companies pay on a net 30 basis, or even a net 45 basis. This means that you won’t even be issued a payment until 30 or 45 days have passed since your invoice was sent.
Once you know the payment terms, you can start thinking about taking action. In most cases, it makes sense to wait until a client is 90 days late in paying before you take the drastic step of sending an unpaid invoice to collections (in the case of net 30, this might mean waiting 120 days from the date of the invoice to send an account to collections). This can lead to a cash flow crunch for your business, but you don’t want to jump the gun on your clients.
Any business is going to have a degree of uncertainty when it comes to receiving payment. As a result, it makes sense to use available technology tools to predict cash flow. Analytics can be one way to predict your business cash flow and account for the fact that sometimes you’ll have different payment schedules for different clients.
Have You Sent Reminders?
In some cases, an unpaid invoice is an oversight or a mistake. As a result, it makes sense to offer reminders of the payment. Re-issue the invoice at regular intervals as a reminder. Another tactic is to write a personal email and mention the work, ask for feedback, and remind the recipient to pay.
If you are still unable to collect, you can try one last time to encourage payment from the client. A polite email or call letting the client know that they are more than 90 days late and that you are consulting with your legal team to determine next steps can help light a fire under the delinquent client.
You don’t want to harass your client, so you need to be polite and avoid calling or writing all the time. After you’ve sent reminders, and if payment still isn’t coming, it’s time to decide if sending the unpaid invoice to collections is worth it.
Using a Collection Agency
One of the first things to do is to look for an agency certified by the Commercial Law League of America.
Next, consider that you won’t get “face value” for your unpaid invoice. If a collection agency is involved, they will take a portion of the invoice for themselves. Depending on the agency, you might end up only getting money for the invoice if the agency collects. You will receive a percentage of the total after the collection is finally made. Another possibility is that the agency will buy the unpaid invoice from you. You’ll get the money up front, and the agency will keep whatever is collected on the invoice.
How much you end up with for the invoice depends on how old it is, and other factors that collection agencies use to determine how successful they will be in collecting the entire amount that is owed. If the chances seem slim, you won’t receive as much for the invoice.
Using a collection agency is a big step. It will affect your client’s credit, and it might cause anger. Additionally, once you get the collection agency involved, you are basically admitting that you won’t be paid in full for your product or service. However, if you are tired of dealing with the client, and you just want something so you can move forward, it might be worth it to turn that unpaid invoice over to collections.