Dealing with unpaid invoices is one of the biggest challenges a small business encounters. According to Xero, approximately 53% of small business invoices are paid late in Australia, owed an average of $38,000 each.

Aside from the stress and time that comes with chasing unpaid invoices, many SMBs may also become unable to:

• Maintain healthy cash flow management
• Pay their suppliers and employees
• Keep up with day-to-day operational expenses
• Grow or unlock future opportunities

Now that we understand how unpaid invoices can impact a small business, let’s explore how you can ensure you get paid on-time.

1. Send an overdue invoice notice

For many SMBs, this is typically the first step when chasing late invoices. Think of it as a little push that gets your customer to pay up. It could also serve as a helpful reminder, as more often than not, they may have just forgotten!

Sending an overdue invoice is a quick and easy way to let your customer know their balance is overdue — an overdue invoice is the original invoice with ‘overdue’ stamped on it. Depending on your current method of communication, sending an email for unpaid invoices may have more of an impact than a physical copy.

2. Warn customers about late fees on invoices

No one wants to pay more than they need to, so warning your customers about being charged a late fee or adding interest to unpaid invoices on top of the outstanding balance may prompt them to get on top of the payment. Keep in mind that your late payment policy must be outlined to your client before they sign the contract. Put simply, you cannot demand extra money out of the blue.

If you issue a late fee on your invoice, state it clearly to ensure your message gets across. Many businesses may quote their late fees as a percentage, but your customer may appreciate a more straightforward approach. For instance, quoting the current balance and the new balance once the due date has passed.

3. Incentivise clients to pay missing invoices

If your business can afford to do so, consider incentivising a client to pay up. This could be receiving a small discount on their current or next invoice. While this isn’t an ideal solution, if you’re in a pinch and need access to cash, it can get you the funding you need more quickly.

Ensure you don’t make this a regular occurrence to prevent customers from becoming comfortable with this idea, as it could make you lose out on long-term profit.

4. Hire a debt collector

While debt collection for unpaid invoices isn’t a foreign concept and has been used for many years across different industries, it should still be used as a last resort as it can impact your customer relationships. Debt collection agencies are responsible for contacting and pursuing debtors, sending a letter of demand or taking court action.

Remember that these agencies typically take a large portion of the invoices they collect (generally around 25%), which could leave you out of pocket. It can also leave a bad taste in your client's mouth and may hamper future business dealings.

5. Consider technology enabled invoice payments

When chasing unpaid invoices, many SMBs have had to sell unpaid invoices to invoice financing lenders. While it can be a viable option, you may not be able to recover the full invoice amount until the customer pays the lender in full, slowing down your business’s cash flow and leaving you with potential fees you didn’t see coming.

Marmalade puts an end to the headache of chasing unpaid invoices by allowing SMBs to get paid instantly for invoices they issue, no matter the payment terms they offer customers. The unique and simple to use platform also provides automatic reconciliation for invoices and issues automatic customer payment reminders, saving you time and money from having to allocate additional resourcing.