Unpaid Invoice

An unpaid invoice is a bill that has been issued but not yet settled by the customer. It represents money owed to a business for products or services already delivered. Track and follow up on unpaid invoices to maintain healthy cash flow and ensure timely payments.

How to Handle Unpaid Invoices

Handling unpaid invoices requires a structured and professional approach to maintain healthy cash flow and client relationships. Here’s how to handle unpaid invoices:

1. Send a Friendly Payment Reminder

Start with a gentle nudge. Many unpaid invoices are simply the result of oversight, so your first step should be a polite reminder.

• When to send: 1–3 days after the due date.
• What to include: Invoice number, issue and due date, amount owed, payment method, and a copy of the original invoice.
• Tone: Keep it courteous and non-confrontational.

Example: “Hi [Client Name], I hope you're well. Just a quick reminder that invoice #123, due on [date], appears to still be outstanding. Please let me know if you need me to resend it or if there’s anything I can help with.”

2. Follow Up With a Formal Notice

If the invoice is still unpaid a week or more later, send a more direct and formal follow-up.

• When to send: 7–10 days after the first reminder.
• What to include: Same info as before, plus mention that this is a second reminder and include any applicable late fees (if stated in your contract).
• Tone: Polite but firmer than the first reminder.

“This is a second notice regarding invoice #123. As of today, it remains unpaid. Please process the payment by [new deadline] to avoid late fees.”

3. Make a Phone Call

A personal call can clear up confusion or convey urgency better than emails.

• When to do this: 10–14 days after the due date or if emails go unanswered.
• What to say: Ask if there were any issues with the invoice, if they need help processing it, and when you can expect payment.
• Tone: Calm, professional, and open to dialogue.

“Hi [Name], I’m calling about invoice #123. I wanted to check if everything is in order on your side. Is there anything preventing the payment from being processed?”

4. Offer Payment Plans

Sometimes clients fall behind due to cash flow issues. Offering flexibility shows goodwill and may speed up partial recovery.

• When to offer: If the client explains they’re unable to pay in full.
• Structure: Propose a clear, written plan—e.g., 3 monthly payments.
• Tip: Always confirm revised terms in writing.

“I understand things might be tight right now. I’m happy to offer a payment plan—perhaps splitting the total over the next 3 months?”

5. Stop Future Work or Deliverables

If invoices remain unpaid despite repeated attempts, it’s reasonable to halt current or future services.

• When to do this: After 2+ failed reminders and one final communication.
• How to communicate: Clearly state that your terms require payment before proceeding.

“As per our agreement, we must pause work until invoice #123 is resolved. I hope we can resume once payment is received.”

6. Send a Final Demand Letter

A final notice communicates seriousness and is often the last step before formal action.

• When to send: 30+ days overdue, with no communication from the client.
• What to include: Summary of all previous reminders, final deadline, total amount, late fees, and intention to escalate if ignored.
• Tone: Firm, professional, and factual.

“This is a final demand for payment of invoice #123. If full payment is not received by [date], we may refer the matter to a collections agency or take legal action.”

7. Consider Collection Agencies or Legal Action

As a last resort, especially for large unpaid amounts, it may be time to escalate.

• When to act: 45–90 days after the due date, depending on the amount and your own cash flow needs.
• Options:
  
  
  • Collection agency: They take a percentage of recovered funds.
  • Small claims court: If the amount is within limits.
  • Legal counsel: For serious or high-value invoices.

Note: This should be clearly stated in your original service contract to avoid disputes later.

How to Prevent Unpaid Invoices

Preventing unpaid invoices starts with clear communication, solid agreements, and efficient invoicing practices. Here’s how to minimize the risk of non-payment:

1. Use Clear, Detailed Contracts

Before beginning any work, have a written agreement that outlines:

• Payment terms (amounts, due dates, penalties)
• Milestones (if partial payments apply)
• Deliverables and timelines

2. Run a Background or Credit Check

For new or high-value clients, especially in B2B, consider researching their payment history. Look for online reviews, ask for references, or request a credit report if applicable.

3. Set Clear Payment Terms Upfront

Avoid vague language like "net terms" without explanation. Instead, be specific:

• “Payment due within 7 days of invoice”
• “Late fee of 2% per month after due date”

4. Ask for a Deposit or Partial Upfront Payment

Requiring 30–50% before starting a project ensures the client is committed and provides some protection in case of non-payment later.

5. Invoice Promptly and Accurately

Send invoices as soon as the work is complete, or based on the agreed billing schedule. Include:

• Your business name and contact info
• A clear breakdown of services or products
• Payment methods
• Due date

6. Offer Easy Payment Options

Make paying as easy as possible. Accept credit cards, PayPal, ACH payments, or other digital methods. The fewer barriers, the faster clients pay.

7. Automate Reminders and Follow-Ups

Use invoicing software to send automatic reminders before and after the due date. This helps clients stay on track without manual effort from your side.

8. Build Relationships and Communicate Regularly

When clients feel respected and heard, they're more likely to pay on time. Keep lines of communication open and check in periodically—not just when there's a problem.

9. Penalize Late Payments (and Reward Early Ones)

Include late fees in your agreement, and enforce them if necessary. Alternatively, offer a small discount for early payment to incentivize timely action.

10. Be Selective With Clients

If a potential client raises red flags, such as vague expectations, haggling on price, or poor communication, it might be a sign to pass.