The Ultimate Guide to Collecting your Unpaid Invoices in B2B

Côme Chevallier
Côme Chevallier
Jul 13, 2020

You've closed deals, issued invoices and your customers are happily using your product or service. But it's been a few days or weeks and cash still hasn't hit your bank account.

As a business owner or finance team member, you know why it is critical to collect cash from your customers on time: you have bills to pay.

Now, you’re probably wondering how to professionally and politely ask your customers to pay you before it really starts to hurt your business.

A QuickBooks Online screenshot with a lot of past due invoices.

How to deal with late-paying customers?

First off, I want to congratulate you for the following:

  1. Accurately defining the problem: not getting paid for the value you deliver.
  2. Understanding why it puts your company in danger.
  3. Actively looking for actionable solutions.

You're not alone: in the US, an estimated 60% of US Small and Medium Businesses (SMBs) regularly run into cash flow issues caused by late customer payments.

Without a healthy cash collection your company indeed runs the risk of:

  • being unable to cover business expenses like salaries or marketing in the short term.
  • writing off bad debt, which is effectively a double penalty (no revenue but costs incurred).
  • having to resort to costly financing options to meet your obligations.
  • being forced to slow down on growth.

Bar chart about the negative effects of late customer payments for US Small and Medium businesses (SMBs).

I know that following up on past due invoices is tedious & time-consuming. In a perfect world, you would get paid on time.
Unfortunately, this doesn't happen naturally in B2B, where you typically invoice on net 30 or 60 terms.

We've observed that most B2B companies don't have a streamlined process in place to follow-up on unpaid invoices. When they do, it’s only for a subset of customers and is limited to one-off actions when the problem is acute.

A banner to learn about the best way to deal with past due invoices.

After analyzing over 1 million invoices across 150,000 customers tracked and collected through Upflow, I can say that there is no hidden secret to getting paid on time: you have to set up a robust process to identify and remind your customers of their late payments.

So let's quickly revisit a few definitions before jumping right into the battle-tested, actionable sequence that you can start implementing today to collect your unpaid invoices.

What is the difference between unpaid, overdue and past due invoices?

If you sell B2B, your invoices have payment terms that define when you expect to receive payment. This is called the due date of the invoice.

An invoice is said to be "open" or "outstanding" if it has a non-zero balance. In other words, full payment hasn't been received from your customer yet.

As a result if an invoice is still "open" after its due date, it then becomes "past due" or "overdue". Although the term overdue is sometimes used to differentiate the invoices that are way past due, they are often used interchangeably.

There are many things you can do to prevent your invoices from becoming overdue in the first place like making sure you have the correct billing information or checking that you actually sent it to your customer.

But chances are if you're here, a significant portion of your invoices are already past their due dates - so we'll focus on how you can collect those swiftly.

The 5-step sequence to collect your past due invoices

We understand it can be overwhelming to figure out where to start or what to do when it comes to reminding your customers to pay you. You might sometimes even feel "sorry" or awkward, almost as if you weren't entitled to do so.

Don't.

When you sell a product or provide a service, you are delivering value to your customers which they compensate you for. After all, that's what doing business is all about.

Asking for timely payments is a perfectly normal business practice - rest assured that your customers also expect exactly the same from their own customers.

If you find yourself often having to deal with late-paying customers, I want to share a simple sequence that you can implement today to collect your past due invoices in a professional yet polite way.

To be as efficient as possible, the key is to:

  • keep your communication simple and factual.
  • set a tempo to show your customer that you care.
  • make it personal but don’t go too friendly.
  • gradually escalate as payments become more and more overdue.

Before implementing this sequence though, make sure that:

  • there is a clear owner of follow-up tasks at every step.
  • time is allocated to regularly perform these tasks.
  • you always track where you are in the sequence for each customer.

You'll find a simple and free template for tracking payment reminders here so you can get started right away!

PS: Don't forget to replace your company and customer-specific information between the curly brackets {...} below.

Step 1 - Email - 2 business days after due date

At this point you should either have:

  • already received the payment in which case you have nothing to worry about!
  • obtained confirmation that the payment will be executed at a specific date.

If not, then sending a gentle reminder often works wonders when you clearly lay out all the information needed for your customer to pay you.

Subject:

{your_company_name}: ${overdue_amount} overdue for {customer_name}

Body :

Dear {main_contact_first_name},

I hope you are well!

I am reaching out regarding your account balance which stands at ${customer_outstanding_amount} on our end, of which ${customer_overdue_amount} are overdue.

Please find the list of our invoices references which are now past due: {invoices_references_list}

You will also find the corresponding PDFs attached to this email if needed.

We would appreciate a swift payment upon receipt of this email.

If your payment is already underway, please disregard this notice.

Best,

{your_name}

Step 2 - Email - 8 business days after due date

At this point, you should have heard back from your customer - in most cases they will simply have forgotten to process your payment.

If not, it might very well be that your first payment reminder simply got buried in your customer's contact inbox - so a slightly stronger subject line and content will usually do.

It's a good idea to emphasize the most overdue invoice and clearly display its due date.

Subject:

[Reminder] {your_company_name}: ${overdue_amount} overdue for {customer_name}

Body:

Dear {main_contact_first_name},

I am reaching out again to enquire about our overdue invoices for which we are still awaiting payment. 

Please note that invoice {oldest_invoice_reference} was due to be paid on {oldest_invoice_due_date}.

Furthermore your total overdue balance now stands at ${customer_overdue_amount}, with invoices {invoices_references_list} all being past due.

Could you communicate the date at which we should expect to receive your payment?

If you already made your payment in the meantime, please disregard this notice.

Best regards,

{your_name}

Step 3 - Call - 15 business days after due date

At this point, there is no reason that you shouldn't have received payment or confirmation of payment and your invoices run the risk of turning into bad debt.

You should now involve your customer's account manager and ask them to call the customer. This is particularly efficient as very few B2B companies actually pick up the phone to recover past due invoices.

Objectives:

- understand why the payment has not been made yet

- agree on a payment date with your customer

- send a recap email with what was agreed

Step 4 - Email - 20 business days after due date

If a commitment was made at the previous step and you still have no news from your customer, you now need to be firmer.

It is a good idea to cc your customer's account manager and the buyer they sold to, in addition to your customer's finance or accounting team.

You should underline that these overdue payments are concerning for your company.

Subject: [URGENT] {your_company_name}: ${overdue_amount} late overdue for {customer_name}

Dear {main_contact_first_name},

Despite our previous attempts on {dates} to collect payment for your past due invoices, we are concerned to see that your overdue balance still stands at ${customer_overdue_amount} on our end.

Indeed, our invoices {invoices_references_list} are all way past due.

We need to remind you that timely payments are necessary for us to operate in a sustainable way.

Can you communicate a definitive date for the above or let us know if you already made your payment?

Best regards,

{your_name}

Step 5 - Snail Mail Letter - 25 business days after due date

Snail mail is seldom used nowadays to collect unpaid invoices except by collection agencies, and in almost all cases this step shouldn't be necessary.

However if needed, it definitely "pays" to show that you're willing to go the extra mile to claim what you are owed.

Remember to print and attach your invoices to this letter for clarity!

Subject:

Letter of formal notice for your overdue balance of ${overdue_amount}

Dear Sir or Madam,

Despite several reminders to your company, we still haven't been able to collect payment for our invoices which are now overdue {invoices_references_list} and that you will find attached to this letter.

We therefore demand that you proceed to the payment of ${overdue_amount} within the next 15 days.

If we do not receive your payment or hear from you by {payment_deadline}, we will unfortunately have to escalate the situation and resort to legal actions.

We look forward to hearing from you,

Regards,

{your_name}

How to deal with past due invoices?

If you have a robust process to collect your unpaid invoices, you will drastically reduce your stock of unpaid invoices. Don't take our word for it - see how companies like yours have reduced their overdue payments by 50% in 2 months by doing just this.

To handle late-paying customers:

  • Start by always doing a quick check-in for payment before an invoice becomes past due - we recommend at least 1 week ahead
  • Follow up quickly and gently within 1-3 business days past the due date; proactively set the tempo and show your customer that you have strong processes in place
  • If you don't obtain a commitment to pay, follow up again within 7 business days with a firmer tone
  • Keep in mind that the first 15 days past due are the most critical: without reminders, late payments can easily stretch out of control
  • Involve the customer account manager on your end as soon as things start to go off around payment date - there might be underlying and unknown issues to be surfaced
  • Consistently log the reminders your team performs, as this will give you factual data when engaging with your customers
  • Use calls and snail mail to escalate as needed - they're seldom used nowadays and thus are particularly effective
  • In rare cases where all of the above don't work, think about involving C-levels at your company before outsourcing collections to specialized (and costly) agencies

Do you know how much your customers owe you right now?