When you send out an invoice, you should specify a deadline. This typically spans from 14 to 30 days for B2B customers. The invoice's status is determined by whether or not clients pay within this time frame. This might range from being overdue to past due. It also decides whether you must send your customer an overdue invoice letter.
What Is an Overdue Invoice?
When a customer fails to settle his or her bill within the agreed-upon timeframe, the invoice becomes overdue. When bills remain unpaid for an extended period of time, they interrupt operations and make it more difficult for your business to fulfill its own financial commitments. This domino effect may continue to send ripples across the business world, and it is more destructive when large firms are on the hook.
Outstanding Invoice vs Past Due Invoice
The invoice or payment is overdue from the time you send it to the deadline for payment. It is late or past due the day after the deadline has passed and you have not received payment. Some businesses may additionally specify a certain number of days to distinguish between the two. For example, if an invoice is 30 days past due, it may be termed "overdue."
What Is a Late/Overdue Invoice Letter?
The accounts receivable staff prepares a series of these, sometimes known as dunning notices, and sends them through email or text. They get more pressing with each consecutive notice. Some letters say that the account will be turned over to a collection agency if the customer does not pay within a specified number of days. Other firms may threaten legal action or refuse to grant more loans.
A typical late invoice notice has the following elements:
- Outstanding Balance
- Payment Due Date
- Late Fees Incurred
- Payment Method
- A demand to pay as soon as possible
How Can Businesses Reduce Past-Due Accounts Receivable?
Even with the greatest risk management systems, extending trade credit will almost always result in late payments and defaults at some point. Businesses typically use the following strategies to increase early and on-time payments:
- Offering early payment discounts: You may offer your clients a percentage off the entire amount if they pay the invoice early, such as 1% for 10 days ahead.
- Partial Payments: Accept partial payments with the knowledge that the rest must be paid in full by a set date.
- Accounts receivable automation: A system that can automate and digitize many of your manual accounts receivable operations, such as issuing invoices and sending reminders.
- Reducing the number of days before payment is due: Some businesses have observed an increase in payments by shortening the number of times customers have to pay an invoice.
- Offering a different payment method: Offering a wide range of payment options makes it easy for your customers to decide what works best for their needs.
- Sending reminders before the due date: Notifying your customers before invoicing and before the due dates can greatly help remind them to pay on time.
- Adding late payment penalties: Because late fees increase the cost of each transaction, sensible business owners will do all necessary to prevent them.
What Role Can Accounts Receivable Automation Play?
Accounts receivable automation, which automates the billing and invoicing process, can assist businesses in reducing delinquent accounts receivable. This can aid in the timely delivery of invoices and the receipt of payments. Automated systems can also track payments, inform you when they are late, and provide other reporting tools to assist you in managing your accounts receivable.