How to Limit Unpaid Invoices


If you own a business that requires you to bill clients for your services, you may be wondering how you can limit your unpaid invoices. Customer non-payment for services rendered is a pressing issue for many small business owners, and limiting those unpaid invoices will save you a lot of grief later down the road. Timely payments will also help maintain a steady cash flow for your business. Following are a few different techniques for limiting unpaid invoices, or avoiding them altogether:

Offer a Discount

If you are able to accept payments up front, you might consider giving a small discount for customers who pay the full amount in advance. This works particularly well for small business owners who create items for clients, such as dressmakers, sign shops and the like. In this way, you obtain the entire amount due for the project before you begin work, meaning you are never out for the cost of the materials or your time.

Offer Several Payment Options

Try to make payments as convenient as possible for your clients. If you have a website for your business, consider accepting credit card payments online. Accept as many forms of payments as you can reasonably handle in person: credit cards, checks and cash. When you bill clients, include a pre-addressed envelope for payments.

Charge Late Fees

Set up a policy for overdue invoices and charge late fees for anything over a certain number of days old, such as over 30 days or over 60 days. Don't charge an outrageous amount; just a percentage of the overall bill (usually between 3%-5%) is enough to make people take notice. Make sure this fee notice is visible to your clients, either on the bills you send or on the contracts they sign (or both).

Hire Someone to Collect

If you are uncomfortable collecting unpaid invoices from your clients (and many people are), then consider outsourcing them to a collection agency. Professional collection agencies usually charge a fee per each account collected and can also assist with NSF check returns. If a professional agency seems too over-the-top, consider hiring a receptionist who can track the unpaid invoices for you, and follow up with clients on your behalf.

Stop Services

This one almost goes without saying, but you would be surprised at how many businesses continue to offer services to clients who do not pay their bills. If you have a business in which the client obtains service on a certain basis, such as a lawn care service, discontinue the service until the bill is paid. If you are creating something for a client, be it a webpage or a wedding gown; discontinue work until the account is brought current.

Small business owners have enough difficulty maintaining a good cash flow without adding the headaches of managing unpaid invoices. Using these tips, try to limit or avoid unpaid invoices altogether; it's best for your bottom line, and makes for happier clients too.

Sarah Baker is a documentary filmmaker and writer currently living in New Bern, NC. Her first book, Lucky Stars: Janet Gaynor and Charles Farrell, will be published December 2009. Read more about her.

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