Having a customer not pay an invoice on time can create major cash flow issues and financial stress for any business. While an initial friendly reminder is often all that’s needed to receive payment, further escalating action may be required when a debt remains unpaid for an extended period.
Unpaid invoices can happen for all sorts of reasons, and if you’re wanting to maintain your current relationship with the customer, there are some things you can do to still get the money you’re owed and keep the relationship healthy. Follow this gradual process when attempting to recover overdue payments while preserving customer relationships as much as possible:
Send Friendly Payment Reminder
As soon as a payment is even slightly late, send a friendly email or physical letter reiterating the amount owed and politely requesting payment.
Remind them of all available payment options and make paying the outstanding amount easy. Sometimes a simple reminder is all that is needed if they merely forgot or misplaced the original invoice.
If this happens frequently, it may be worth considering reviewing your current invoicing processes. Many companies send out reminders leading up to the due date by text or email, so if you’re not doing this, you might be unknowingly making it easier for people to overlook paying you.
Send Polite Second Notice
If the friendly first request is ignored and payment is still outstanding, send another email or letter advising that payment has still not been received by the original due date. Clearly and politely state the total overdue amount and the original due date while requesting they submit payment immediately.
Request them to get in touch with you if for some reason they will have an issue paying the outstanding amount.
Send Final Formal Notice
If the previous contacts did not spur payment of the overdue amount, send one last formal notice through a delivery method that can be tracked and verified.
The tone should continue to be polite yet clearly state this is the final warning and full payment must be submitted immediately to avoid potential further action.
Make sure you provide them with a firm yet realistic date that you expect the payment by.
Attempt Direct Personal Contact
If there is still no response or payment after the final written notice, the next step is to try making direct personal contact with the customer by phone.
Having a polite but frank conversation may help uncover any issues the customer is having that prevent payment. A personal connection can also help build rapport to aid future on-time payments.
Send Formal Legal Demand Letter
When all previous attempts to contact the customer directly and receive payment have failed, the next step is to send a formal legal demand letter.
This letter should come from an attorney and give formal notice that full payment must be made by a specific fixed date or legal action will commence. Sending this type of severe demand risks damaging the business relationship permanently.
Engage Professional Debt Collection Agency
If you’re still struggling it’s at this point we recommend engaging our help. Our debt collection agency at JMA Credit Control can help to attempt to recover the unpaid debt through appropriate practices.
While you can get in touch with us earlier, it’s important for any business owner to attempt to recover debt so they too can know the processes that work in their business.
Take Formal Legal Action
If the customer remains completely unresponsive and dispute resolution fails, formally suing the customer in small claims court to recoup the unpaid debt may become the only viable option left. Or, hiring a lawyer to file a collection lawsuit on your company’s behalf may become necessary.
Before engaging the services of a lawyer or pursuing legal action, we highly recommend that you consider the size of the outstanding amount. In some cases, pursuing legal action may not be of any value as it may cost you considerably more.
You can also leave the debt collection efforts in the hands of the debt collection agency as many of us, including JMA offer our services on the basis that unless we recover the amount, you won’t need to pay us a thing, meaning that it is a low risk option for you.
Managing Overdue Payments in Your Business
Throughout the overdue payment collection process, from initial reminders to potential legal filings, be sure to follow all state and federal laws that prohibit certain unethical, deceptive or abusive debt recovery practices.
Acting in an understanding yet persistent manner can help maximise the chances late payments eventually get collected while still preserving customer goodwill and relationships. Avoiding antagonising customers can prevent them from simply disappearing rather than paying.
With patience and gradually escalating efforts, many overdue payments can successfully be recovered. Just be sure to document each attempt and keep detailed records in case legal action becomes unavoidable. Follow this comprehensive step-by-step guide for recovering late customer payments while protecting business relationships.
And if you need help recovering debt for your business in Australia, get in touch with us here at JMA. We have more than 60 years of experience in collecting debts throughout Australia, in all kinds of industries. Give us a call on 1300 664 223 or get in touch with us here.