How to Avoid Outstanding Invoices

Making sure invoices are paid on time is crucial for any business. The most obvious is for cashflow (see our guide on Protecting Cashflow), but also to ensure that your time, money and resources are not taken up in managing debtors, leaving you to concentrate on managing and expanding your business. Customers that have outstanding accounts with you are less likely to spend with you so keeping on top of invoices and receiving prompt payment will lead to good business based on excellent customer relationships. Here are our top tips to avoid outstanding invoices.

What’s the difference between outstanding and past due invoices?

Despite outstanding invoices and past due invoices often being used interchangeably, they are actually different things within accounting. Outstanding invoices are used when an invoice has already been delivered and is waiting to get paid, however, there is no set due date. Past due invoices are also unpaid, but refer specifically to those where the payment deadline has already been exceeded.

Make payment terms clear from the outset

Payment terms should be realistic but as short as possible. If you need to be paid within 30 days, then think about making your terms 14 days as inevitably some customers will go beyond this. Long payment terms go back to the days when invoices were sent by post and processed by hand, most are now dealt with electronically and hands free so are long terms really required? Make sure terms are provided in writing and preferably in a contract.

Upfront payments

Consider asking for upfront payment or part payment from new customers and particularly for large orders.  A new customer should be happy to show their commitment to you as a supplier to them and understand the cashflow burden.

Prepare and send invoices frequently and as soon as possible

Preparing and sending invoices should be of utmost importance, the last thing you want to do is create your own delay on payment. If your accounting system can send invoices electronically then USE it, you will have a full audit trail and may even know when the invoice has been viewed – there’s no claiming that it hasn’t been received!

Make sure invoices are accurate and easy to understand

It’s vital to ensure invoices are clear and contain the correct information, if not, they will likely go to the bottom of the pile for payment. If your customer has given you a purchase order number make sure you quote that on the invoice.  If your client requires evidence of time spent or visits made, then make sure this is included on or attached to the invoice.

Include payment details on the invoice

You need to make it as easy as possible for your customer to pay your invoice. Make sure you include your bank payment details in a prominent place on the invoice and include a reminder of payment terms including the due date. Consider other options for taking payment, many software packages offer a payment service which will include a pay now link on your digital invoice, e.g. gocardless, Paypal or Stripe.

Get the VAT right

If you are VAT registered, then check you are including all the required information on your invoice. Make sure that you know the VAT status of the goods/service you are providing, and these are clearly set out. If in doubt, please check with us.

Know who to send the invoice to

It may not be obvious, but your customer could have a separate team responsible for processing and paying invoices. Make sure you know what their policies are for receiving invoices, a vast number of businesses now operate on a digital-only basis. Always ensure that the invoice goes to the correct place but COPY your contact in so if there are any queries they can be dealt with without any delay.

Consider incentives for early payment

We all like a good deal! Consider an incentive for an upfront or early payment by offering a discount. The VAT rules on early settlement discounts changed a few years ago so if you haven’t offered this for a few years please check with us and don’t get caught out.

Chase outstanding payments as soon as the invoice becomes overdue

Don’t be afraid to chase payment. Act before invoices go overdue with a friendly reminder by email. If the invoice goes overdue, then take action immediately. Many accounting systems can send out reminders and statements automatically. If these don’t work then pick up the phone and establish the reason for non-payment, is there a query that could be quickly resolved, or could you offer a payment plan?

Consider adding fees and interest for overdue payment

If all else fails, then know your rights. If you have set out your payment terms clearly to your customer, then you are entitled to charge interest. www.gov.uk has useful information regarding the charging of statutory interest and issuing a statutory demand, you do not have to spend a fortune on professional fees to deal with this.

Our Accounting Solutions team are experienced with many different accounting software packages including apps and have a vast knowledge of systems that can be used to issue invoices, receive various forms of payment and even chase your debtors. If you would like a review of your current processes, then please get in contact or fill out the form below and we will get back to you.