How To Prepare for and Address Unpaid Invoices
How To Prepare for and Address Unpaid Invoices, Being paid on time for your work is essential whether you are a sole entrepreneur or small business owner since you depend on that money to cover both your personal and business costs.
However, if a client doesn’t pay on time or, worse yet, disregards your bills and follow-up correspondence, managing your financial responsibilities may prove challenging.
You should think about proactively putting in place specific procedures and processes to safeguard your company and its cash flow in order to address this problem and maybe avoid having to get in touch with collection agencies or set up a date in small claims court.
How To Prepare for Unpaid Invoices
To efficiently manage your business money, preparation is essential. You can take the following specific, preventive measures.
Research Your Clients
It’s thrilling to convince potential clients to collaborate with you because you’ll make money and establish a new business connection, but don’t forget to complete your research first. This is a business partnership, thus both parties must gain from it. Your client is helping you expand your portfolio and putting money in your pocket while you are giving them a solution-based service.
Ask some important questions, such as the following, to prospective clients before presenting a proposal:
- Are they listed on the Better Business Bureau?
- If you are working through a creative marketplace, what are their reviews?
- Do they have a Dun & Bradstreet Number? (This can help you ascertain the financial health and reliability of a prospective client.)
Develop an Invoicing System
Creating a system to organize your invoices is the best method to keep track of them. Discuss your billing procedure with each new client you join. It should include:
Payment due dates: on your invoice to encourage customers to make timely payments.
Payment methods: How can I pay? Do you accept PayPal? Zelle? additional online payment options? Cash, checks, credit cards, and money orders are acceptable means of payment in addition to online payment options. Be specific about the payment options you want.
Late-fee policy: Charge a fee for payments submitted 10 to 15 days after the due date in order to discourage late payments.
Send an invoice with the payment terms and due dates as soon as the client signs the contract.
Tools like Honeybook, Quickbooks, or Kabbage, which automatically email invoices to clients with integrated payment links, are available to business owners. Additionally, these systems will send reminder emails to customers who still owe money, making it simple for the business owner to keep track of their revenue.
Have a Contract Ready
Every client needs to sign a contract, regardless of whether you are working for your next-door neighbor or a small firm. By defining the parameters of your business partnership, the scope of the job, and the methods and terms of payment, a business contract can protect both you and your client.
Follow Up Regularly
Clients may neglect to timely pay invoices for any number of reasons. Send an email, text message, or both as a reminder a few days before the invoice is due to take care of this problem.
Send a second invoice as a follow-up if the first one is not paid on time. Send the client a courteous message informing them that their payment is past due. Reiterate in your email the permitted payment methods and any late fees that are part of your conditions.
It’s time to call or see your client if they aren’t returning your emails and haven’t paid you yet. Be kind throughout your call or visit, and offer advice on how they might settle their account and achieve the agreed-upon payment terms for their outstanding debt.
Take Further Action To Address Unpaid Invoices
There are a few things you may do to try to remedy the problem if your client is still not paying you and disregards your correspondence.
Stop Your Work
You have the right to halt work on a client’s project if payment isn’t arriving. Inform the client that you have halted the project and won’t resume it until the outstanding balance has been paid in your subsequent letter. If a business owner leaves his or her job on a meaningful project, clients may be more proactive in remedying the situation.
Consider Third-Party and Other Options
There are a few steps you can take to recover the money owing to you if your client breaks their contractual obligations and stops communicating.
- Hire a collection agency: If a payment is more than 90 days overdue and you’d like to delegate the collection tasks to another party, hiring a collection agency may be the best alternative. A collection agency often operates on a contingency basis and bills a fixed fee based on the amount owing and the period of time that has gone.
- Factoring financing: If a client isn’t paying and you need money fast, factoring services can be an option to investigate. When a third-party company buys your receivables and advances you cash based on outstanding invoices, this is called factoring invoices after deducting its fees. After that, your client will pay the remaining balance to the factoring provider. Small business owners may find factoring advantageous because it saves time and labor, doesn’t require collateral, and offers potential for expansion. Kabbage is an illustration of a business that offers factoring financing.
- Send an attorney’s letter to: Clients may contact you right away to set up a payment plan if they get formal correspondence from an attorney seeking money. The expense of hiring an attorney can be high, but it is a good way to speed up payment.
- Small claims court: If the debt owed by the client isn’t too significant, filing a lawsuit in small claims court may be a speedy and reasonably priced choice. Each state has its own rules on how much is owed and the steps involved. Jersey, where for example, small claims courts generally handle cases in which someone wants to sue for up to $3,000.
The Bottom Line
Be cautious while working with your client in the future, even if they do pay you in the end. You will discover in business that not all opportunities to make money are worthwhile. However, you can assist maintain effective customer relationships and perhaps avoid any monetary challenges and anomalies that come with them by creating processes to handle your bills so that your income stream runs smoothly.
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