Reading time: 6 minutes

Keen to begin the new year with healthy cash flow? Here’s how four small business owners are thinking outside the box when it comes to getting what their customers owe to them. This article provides a snapshot of advice from business owners about creative ways to chase unpaid invoices. You should consider:

  • changing your invoice payment terms to prompt customers to settle their accounts early;
  • combining invoice-chasing with an outcome report to remind customers what they are paying for; and
  • offering incentives to settle old invoices.

Chasing Unpaid Invoices

When you are a small business owner, chasing up unpaid invoices is par for the course. But if your business is facing low liquidity and mounting costs in the wake of COVID-19, it might be time to think outside the box to recover what your customers owe to you.

We spoke with four business owners who shared some creative ways of getting paid while maintaining good working relationships with their clients.

Create a ‘Finance Manager’ for the Task

As a business, it is important to get paid on time. However, you might not want to risk losing future revenue by damaging client relationships. This can occur with a hardline approach to invoice chasing.

Stacey Price is the founder of Healthy Business Finances, helping business owners achieve their financial goals. She has an innovative strategy to chase invoices.

If you do not have a dedicated finance team, “create an email address for a ‘finance manager’ and use that to chase up your clients. It functions to both escalate the situation and keep your own working relationship with the client intact,” Price says.

“Providing an incentive is the best way to get really old invoices paid.”

Stacey Price, founder of Healthy Business Finances.

Make It Fun

Copywriter and marketing strategist, Eve John, uses a fun and light-hearted approach to invoice chasing. It involves a sequence of letters sent via Express Post along with a copy of the unpaid invoice. Most importantly, John includes a piece of red string.

The first letter informs the client that they are past their payment date. Likewise, it requests they tie a string around their finger as a reminder. The sign-off requests the payer return the string in haste so another account can also use the string as a reminder. If they do not respond, John sends a follow-up letter using more direct language. However, she still keeps it fun by including another piece of string.

If this does not work, a third letter is sent. This more serious letter informs the client that if they neglect to pay or explain their circumstances, the debt will be turned over to a collection agency.

“Both I and everyone I’ve taught this to always receive payment by letter two,” says John.

“It’s a quirky method that allows you to maintain client relationships without being pushy. By asking the client to return the string, you’re letting them know they’re not the only ones who are late to pay.”

Eve John, copywriter and marketing strategist.

In the last few weeks of the year, John recommends a more urgent strategy. John uses the ‘Hail Mary’ approach. This is where a personal email is sent to clients expressing disappointment that they have not paid their bill.

“I’ll emphasise that I love working with them and value our relationship, but that I feel disrespected,” says John. “People tend to apologise profusely and it has a 100% strike rate.”

Update Your Invoice Payment Terms

One way to avoid scrambling for cash at the year’s end is to give your customers less opportunities to be late with payments.

Paula Glynn is the co-owner of digital marketing agency, Pixelstorm. She decided to invoice early for end-of-year work to keep cash flow liquid for the year ahead.

“We have lots of recurring revenue and there are always a few clients who have outstanding payments. This year, I’m bringing December’s invoices forward to November, so all payments that would come in mid-to-late January will be settled before we cut off our accounts [for 2020].”

Glynn has personally emailed each client well in advance to inform them of this change. The invoice details what client’s owe and when they need to settle their account by.

“We’re seeking agreement to these terms and giving our clients a chance to tell us if they’re going to be late and why. If we don’t hear from them, we’ll chase up a response rather than the money itself which softens the blow.”

Prove Your Worth and Be Proactive

Shirlaine Tse is the owner of TSE Tuition, a small business that teaches secondary English. She believes that when customers know they are getting value for money, they are more inclined to pay up.

Experience has taught her that standard emails, texts and calls chasing payments only get results about half the time.

“When I combine it with a feedback call about the student’s progress, around 90% of outstanding invoices are paid within the week,” she says. This is an approach that your business can take proactively to avoid late payments in the future.

“We send out our reports by the 5th of the month and invoice on the 5th, which functions as a little reminder of what we’ve achieved for our clients.”

Incentivise People to Pay Early

As the year draws to a close, Price recommends sweetening the deal to reach those clients who are really late in paying.

“Providing an incentive is the best way to get old invoices paid,” says Price.

“In my experience, invoices overdue by more than 120 days are likely to be paid in less than 50% of cases. But any money in the door helps. You could offer those clients [an incentive]. For example, if they agree to pay by 23 December, give them a 15% discount.”

Key Takeaways

It can be a tricky balance between chasing up on unpaid invoices and potentially losing clients. However, there are creative ways to get what is owed to your business, like:

  • encouraging customers to settle their accounts early;
  • sending invoices in a create and fun way; 
  • updating your invoice payment terms; and
  • offering incentives to settle old invoices.

Our partner, Prospa, are passionate about helping small business owners access the money they need to grow or manage their cash flow. Find out how Prospa could help your business access the much-needed funds.

Webinars

Australia’s Global Talent Visa: How to Attract Top Talent

Thursday 7 October | 11:00 - 11:45am

Online
Understand how to navigate Australia’s complex migration system to attract top overseas talent with our free webinar.
Register Now

5 Essential Contracts for your Online Business

Thursday 14 October | 11:00 - 11:45am

Online
Learn which key contracts will best protect your online business with our free webinar.
Register Now

Key Considerations When Buying a Business

Thursday 11 November | 11:00 - 11:45am

Online
Learn which questions to ask when buying a business to avoid legal and operational pitfalls, so you can hit the ground running. Join our free webinar.
Register Now

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

Our Awards

  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer