June 28, 2024

How to collect on past due invoices (and avoid any more)

Denym Bird
CEO of Paidnice

There is nothing worse (as a business owner) than waking up in the morning, checking your bank account and not seeing the payment you expected to be there...

Maintaining healthy cash flow is more critical than ever for businesses of all sizes.

As a business owner, getting paid on time is not just about keeping your books balanced—it's about sustaining your operations, fueling growth, and reducing stress. 

At Paidnice, we understand the importance of streamlined accounts receivable processes. That's why we've partnered with friends iCollect, a leading debt recovery service based in New Zealand, to bring you this comprehensive guide.

Together, we can show you how you can pursue an overdue invoice (and avoid any more).

First up: Establish Clear Terms and Conditions

The foundation of any successful payment strategy lies in having well-defined terms and conditions. This isn't just a legal formality—it's your first line of defence against payment delays and disputes.

Why it matters:

  • Protects your business from those who might try to take advantage.
  • Provides legal grounds for demanding payment.
  • Allows you to include clauses for late fees and debt recovery costs.

Key considerations:

  • Even if you're a small business, having basic terms about payment is non-negotiable.
  • Consult with a legal professional to ensure your terms are comprehensive and enforceable.
  • Include specifics about payment timelines, accepted methods, and consequences for late payments.
TIP: Send your Terms automatically with Paidnice. Paidnice can automatically attach your Terms and Conditions (or any other file) to every invoice, and send it automatically to your customers (even during business hours). Ensuring that every client receives your most up to date payment terms from the start. Learn more here.

Next: Review and Optimize Your Payment Process

The way you structure your payment process can significantly impact how quickly and reliably you get paid. It's crucial to choose a method that works best for your business model and client base.

Best practices:

  • Consider upfront payments or instalments rather than payment upon completion.
  • For one-off jobs, require payment before leaving the premises.
  • Utilize portable card machines or online banking for immediate transactions.
  • Clearly communicate payment terms before commencing work and get client agreement.
TIP: Collect payment via Credit Card via your existing accounting system or via Paidnice (to avoid sending unnecessary reminders and late fees). While you might take a small hit on the credit card processing fees. The convenience of receiving payment upfront is worth it. With Paidnice you can also accept partial payment, or setup instalment payments via credit card. Learn more here.

The 6th Sense: Trust Your Gut Instinct

Sometimes, the best way to avoid payment issues is to prevent problematic clients from becoming clients in the first place. While it's not always possible to predict who will be a reliable payer, your intuition can be a valuable tool.

What to watch for:

  • Clients who are overly difficult during initial negotiations.
  • Those who balk at standard payment terms.
  • Individuals or companies with a history of payment disputes.
Remember: Saying no to a potentially troublesome client can save you time, stress, and money in the long run. It's okay to be selective about who you work with.

Use and Regularly Update your Accounting Software

Tracking payments and client work is essential for maintaining financial health and making informed decisions.

Without a proper system in place, you risk losing track of who owes what and when payments are due.

Benefits of good accounting software:

  • Accurate tracking of all financial transactions.
  • Easier reconciliation of payments.
  • Simplified reporting for tax purposes and financial analysis.
  • Streamlined collaboration with bookkeepers and accountants.
TIP: Paidnice integrates seamlessly with popular accounting platforms like Xero and QuickBooks. This integration ensures that your financial data is always up-to-date and easily accessible. Learn more here.

Set Up Automated Reminders (email, SMS or phone calls)

One of the most effective ways to improve your payment collection is through automated reminders. These gentle nudges can significantly reduce late payments without requiring constant manual follow-ups.

Best practices for reminders:

  • Set up a series of reminders at strategic intervals (e.g., 7 days before due, on the due date, 7 days after).
  • Use a friendly but firm tone in your reminder messages.
  • Include all necessary payment information in the reminder.

Important to keep regularly reconciled accounts: Regularly reconcile payments to avoid sending reminders to clients who have already paid, which can damage your professional relationships.

Automate reminders with Paidnice and customize the timing and content of your reminders (send via Email, SMS or AI calls), ensuring that they align with your brand voice and payment policies. Plus, our real-time payment tracking helps prevent unnecessary reminders to paid accounts.

Proactively Follow Up on Overdue Payments

When payments are overdue, it's crucial to act quickly and decisively. Timely follow-ups demonstrate that you take your payment terms seriously and can often resolve issues before they escalate.

4 Effective follow-up strategies:

  • Start with phone calls—personal contact can be more effective than emails or texts.
  • If you're uncomfortable making these calls, consider delegating to a staff member or a third party.
  • Keep a record of all communication attempts.
  • Be persistent but professional—avoid harassment (familiarize yourself with relevant laws in your area).
Never let an invoice fall through the cracks with Paidnice you can schedule and escalate follow up tasks, such as phone calls, sending letters of demand or other manual tasks for your team to action when invoices hit a certain overdue date. As invoices hit your overdue dates, Paidnice creates tasks for follow up. Learn more here.

Consider Debt Collection Services

Despite your best efforts, there may be times when professional debt collection services are necessary. Understanding when and how to use these services can be crucial for recovering stubborn debts.

When to consider debt collection:

  • After multiple failed attempts to collect payment through your own efforts.
  • For debts that are significantly overdue (e.g., 90+ days).
  • When the amount owed justifies the potential costs of collection.

Things to consider:

  • Research multiple agencies to compare fees and services.
  • Understand the legal landscape for debt collection in your area.
  • Ensure your terms and conditions allow for the recovery of collection costs from the debtor.

Remember: Debt collection laws vary by country and sometimes by state or region. For example, in New Zealand, the Construction Contracts Act 2002 provides specific mechanisms for resolving payment disputes in the construction industry.

Need a hand finding debt collection services? Find one of our expert service provider directory. Listed are approved professionals who can handle and collect on your overdue debt.

Remember to Breathe: Prioritize Your Well-being

While managing accounts receivable is crucial for your business, it's equally important to maintain your mental and emotional well-being throughout the process.

Dealing with debt and debtors can be incredibly stressful, affecting not just you, but also your family and staff.

Why it matters:

  • Stress can cloud judgment and lead to poor decision-making.
  • Emotional strain can negatively impact other areas of your business and personal life.
  • Maintaining perspective is crucial for long-term success and satisfaction.

Key considerations:

  • Take a step back when feeling overwhelmed.
  • Practice stress-management techniques like deep breathing or meditation.
  • Remember that your health and sanity are paramount.

Practical tips:

  • Set boundaries for when you deal with payment issues (e.g., not right before bed).
  • Delegate collection tasks if they're causing you excessive stress.
  • Seek support from mentors, peers, or professional counselors if needed.
Remember: In rare cases, you may need to ask yourself if pursuing a particular debt is worth the time and stress involved.

While it's generally important to collect what you're owed, there may be instances where the emotional and time cost outweighs the potential financial gain.

By incorporating this mindfulness into your debt collection process, you're not just protecting your financial health, but your overall well-being too.

This holistic approach will help you maintain the energy and clarity needed to drive your business forward, even in challenging times.

Now it's your turn

At Paidnice, we're committed to supporting businesses in their quest for smoother, more efficient payment processes. Our accounts receivable software for Xero and QuickBooks offers a suite of tools designed to address each of these critical steps, from customizable invoices and terms to automated reminders and comprehensive reporting.

We're also proud to collaborate with iCollect, whose expertise in debt recovery has been invaluable in compiling these tips. As specialists in the New Zealand and Australian markets, iCollect brings a wealth of knowledge about effective debt collection practices and the specific legal frameworks in these regions.

By leveraging the right strategies and tools, you can create a payment ecosystem that works for you and your clients, ensuring that your focus remains on growing your business rather than chasing payments.

Ready to fix your accounts receivable process?

Discover how Paidnice can help you implement these strategies and more. Book in a call with one of our team, or start a free trial today.

And if you find yourself needing professional debt recovery services in New Zealand or Australia, consider reaching out to our partners at iCollect. Their team of experts can provide tailored solutions to help you recover outstanding debts efficiently and legally.

Remember, with the right approach and support, you can significantly improve your payment collection process and maintain a healthy cash flow for your business.

Denym Bird
CEO of Paidnice
Denym is a software entrepreneur and writes about accounts receivables management for small business.