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5 strategies to efficiently collect outstanding invoices

Lucile Borgne
Lucile Borgne
Jan 05, 2022

Late payments can be one of the most frustrating obstacles to building a healthy business. 

The key to getting paid on time is to be proactive in your A/R collection process to avoid overdue invoices, or worse, bad debt. 

What’s the difference between outstanding and overdue invoices?

The terms outstanding and overdue are often used interchangeably when describing the payment status of an invoice. But the two words are not synonyms and the difference is more than a semantic issue.

  1. When an invoice is outstanding it means your client has not paid for a service but they are yet to cross the deadline to do so. 
  2. When an invoice is overdue it means your client has not paid for a service and the deadline to do so has now passed. This is also known as a past due invoice.

An outstanding invoice doesn’t seem like a problem at first. After all, your client may still pay before the due date and it's chasing an overdue invoice that costs you time and money. 

But your invoices are 60% less likely to be paid once they pass that 90-day threshold. Thus you’re more likely to receive your money if you create a payment strategy targeting clients while invoices are still outstanding.

A/R collection

Why you should care about outstanding invoices?

  • Cash is the oxygen of your company: Most companies measure their success in net credit sales. But what’s the point if cash doesn’t follow? Regardless of your last funding or the cash in your bank account, collecting payment is crucial and should be a priority to build a healthy and scaling business. 
  • Accounts Receivables are expensive: collecting payment isn’t just about asking “bad payers” to pay their invoices. Late payments sometimes means underlying customer dispute, bad market fit, and bad debt. Detected too late, these can have a terrible impact on your business.

5 strategies to efficiently collect outstanding invoices

1. Build a personalized and systematic collection strategy

The goal of your collection strategy is to minimize the time it takes to get paid. It also means implementing efficient processes so you no longer waste time on manual tasks.

First, you must automate your redundant processes to enable you to focus on the most important part of the job: automating first email reminders will for example allow you to concentrate on risky accounts. 

Then, you should set up different types of collection strategies depending on the types of accounts, how much they owe you, and how late they are. 

Indeed, you shouldn’t send the same reminders to “bad payers” (customers who often pay late) compared to your major accounts. In the former case, you should send a reminder before the invoice is late. As for larger accounts, you should make sure to highly personalize your reminders and start for example with a friendly call. 

Regardless of how you segment your clients, you should guarantee that everyone has a consolidated view of all their invoices to avoid confusion about what’s owed and when.

Instead of sending individual reminders for every invoice, you should only send one reminder which totals all money owed. That way your clients aren’t bombarded with multiple messages and payment deadlines.

2. Ensure that your whole team understands their role in the AR process

For the AR process to run smoothly you need the cooperation of your whole client-facing team - especially sales and customer success.

As explained at the beginning of the article, cash is the lifeblood of your company and there’s no point selling your product if you don’t get paid promptly for it. Most businesses don’t include their sales team in their AR strategy because they wrongly assume the task is the sole responsibility of the finance team. 

But if you’re still struggling to get paid after a third reminder then your sales team may be the key to understanding why. You may think your client simply has poor management over their finances, but your sales team may be aware of an underlying issue. This could be an unresolved customer dispute or another problem your client has with your product or service. 

You could have the perfect collection strategy in place. But there will still be obstacles to getting paid that can only be resolved by your business team.

3. Provide an exceptional customer experience

Once you’ve automated redundant collection tasks, you should dedicate the time you’ve gained to building relationships with customers.

You can use a pre-written reminder template to ease your work but you shouldn’t forget that all customers are different. Personalize your message based on the size or type of account, the role of the recipient, and how late the invoice is.

Offering flexible payment methods will better your customer experience, and it’s the best way to help your customer pay you. Avoid payment gateway that is complex to set up or involve fees. 

You can also offer early payment discounts or payment plans if you suspect your client is struggling with cash flow problems. This allows them to make timely payments they can afford, and revenue will be more predictive for your business. 

4. Design a contingency plan for unpaid invoices

You should be proactive with your invoice reminders and flexible with payment methods. But you should also have a plan in place for customers who don’t pay despite your best efforts. 

Here are three final steps you can take:

  1. Call your clients: some client-facing businesses like restaurants or retail are simply bad at dealing with their emails. A phone call to issue a friendly reminder is often enough to get paid. 
  2. Follow up with a letter: outline every correspondence so far, from the original invoice through to your call. Your letter should clearly state the invoice number, the amount of the invoice, and the payment methods available right now. 
  3. Use a collection agency or take legal action: this will likely sour your relationship with your client and debt collectors can charge fees as high as 50% of the amount due. This is your final course of action and should only be used when all other options have been exhausted.

A/R collection

Five steps to writing email reminders that get you paid

You’ve devised an amazing collection strategy that incorporates your whole team. But ultimately, your customers only see the end product of that strategy which are most often email reminders - and that’s why you can’t get this part wrong. 

There are two aspects you need to consider: 

  1. The quantity and timing of your emails
  2. The content of your emails 

Both are important. And knowing when, how often and what to write depends on your client’s payment behavior and account size. Let’s dive into how to talk with them.

A good reminder email increases the likelihood of being paid

When deciding on your email templates it’s important to assume that the recipient will read as little as possible, if they read your email at all. This may sound rude, think about it, do you read every word of every email that arrives in your inbox?

This realization will help you develop an email strategy that gets responses.

Write a good subject line that communicates what the reader must do

This part of the email is often quickly written before you click send. But it’s the first impression you make with your customers and it’s often the only part they read.

So make it simple and remember that short emails with subject lines that are 50 characters or less result in a 12% higher open rate

Example: {your company name}: ${balance due} overdue for {client name }

Start with a short greeting that again makes clear what the reader must do

Limit your opening paragraph to a maximum of 11 words. Studies show that short sentences are easy to read and the recipient is more likely to continue reading when you are concise. 

Main body that outlines how the client can pay you and details on what they owe

This section is heaviest in detail so make it easy to read. 

If you have a lot of unrelated numbers or facts to state, don’t use connectives and long paragraphs. Instead, use numbered bullet points like you’re reading here - it keeps the reader marching along.

But again make sure your bullet points are no more than a sentence long. Big lists of bullets are no easier to read than big blocks of text and if you have a lot to say to your customer then recommend they give you a call. 

For more advice and examples on how to write email reminders, check out this article (with templates!)

Sign off with a call to action

There’s no point sending a reminder email to pay an outstanding balance if you don’t tell them how to pay it. Close your email with a call to action that explains the various and easy ways the client can settle the account.

With Upflow you can easily send your clients a link to their customer portal. Here they can view all their invoices on one page with any outstanding balances clearly visible. And then, with just one click, your clients can pay their invoices instantly. 

Remember, the easier it is for your clients to pay, the more likely it is that you will get paid. 

To sum up…

You shouldn’t assume any outstanding balance you’re owed will be paid just because you sent an invoice. 

Collecting your money requires a tailored strategy for each of your clients. Automating manual tasks and categorizing your customers into pre-existing segments will speed up this process. Every member of your team then needs to understand your strategy because everyone has a role to play in resolving the obstacles to your business being paid. 

Once you’ve designed the right collection strategy and your plan is in motion, you’ll be increasing your cash flow faster than ever. 

A/R collection