Chasing Invoices: Smart Tips for Dealing with Late Paying Clients

12Aug '15

Chasing Invoices: Smart Tips for Dealing with Late Paying Clients

Overdue invoices and late paying clients — there are two of the worst headaches that a business can experience. Debt collection isn’t a science, but fortunately there are ways to ease the sting of a late payment. We’ve collected ideas and suggestions from small business owners and experts to help you minimize late payments and finally collect on all those overdue invoices.

Chasing Invoices Warning Signs to Look out For

Spotting the Warning Signs

Of course the most obvious warning sign is the first time it goes late. I’ve found that usually a friendly reminder produces a check, but sometimes I have had to make a call and send a second not-so-friendly reminder.

Perhaps not coincidentally, I’ve found that the most prompt payers are small businesses like mine – usually owner-operated, who value clients who pay promptly. Some bigger businesses and some labor union clients may be generally late, but dependable.

Stuart Marques (@stumarq)
President, Stuart Marques Communications


Late payers seem really friendly at first and tend to bond with you, reassuring you that everything will be okay and that this would be a great collaboration together. That’s not exclusive, but I’ve found it to be a common pattern.

Working with several decision makers or generally large corporations is also an indication of delayed payments. There’s a lot of bureaucracy going on, meetings between decision makers, escalation to other divisions and such.

Small business owners are sometimes too busy with running their own business or not engaged enough with their assignment. It may be a cash problem, or just being picky and trying to get as much done as possible within the initial agreement due to limited funds (as is with all SMB owners).

Mario Peshev
Founder and WordPress Architect, DevriX


Warning signs that someone may become a late payer are: Has not been at their job for more than a year, or has frequent job changes, new bank accounts, moves often, and doesn’t answer phone calls.

The best way to put an end to it is to stop it before it happens and you can do this by having every customer fill out a credit application before you extend credit and then checking that credit information.

Michelle Dunn
Author and columnist, MichelleDunn.com


Warning signs of potential slow-pay/no pay-customer can most easily be determined by obtaining a credit report about a new customer. Better yet, using the seller’s form, ask questions such as:

  • What credit limits do you want?
  • What payment dates do you prefer?
  • Who approves payments, prepares checks, signs checks?
  • Who can approve payment when the primary contact is unavailable?
  • Who supervises the primary contact?

Such questions indicate the importance a seller makes on payment recovery. You should also investigate the legal status of the new customer. Is it a corporation, partnership, or proprietorship?

Jim Herst
CEO, Perceptive Selling Initiative, Inc.

Chasing Invoices Cutting Late Payers a Little Slack

Cutting Late Paying Clients Some Slack

We understand SMB owners with financial problems or one reselling our services and waiting for a payment from their own clients. We don’t cut them too much slack and we always discuss that upfront since it’s a really common problem.

We won’t send a lawyer immediately after a delay, but we would persistently try to reach out and inform them that we’re serious about their business and that it’s somewhat insulting for them not to be responsible both to us as a provider, and to their own business as well.

Mario Peshev
Founder and WordPress Architect, DevriX


If the payer is a large creditworthy payer (like Walmart or a governmental agency) they may just pay slower. A healthcare provider almost always deals with this issue. The payers are insurance companies, medicare, and medicaid. They often wait 60-90 days for the insurers to pay. Healthcare providers don’t have any leverage to make these institutions pay quicker, so they need to manage around it.

Alan Regdos, CPA
Principal, Alpine Capital


Forget “circumstances”, these are but a one way advantages when given a buyer. Instead, ask what terms of payment the customer wants. Then, if acceptable, accept! Better to be surely paid in 45 days than to chase a no-pay situation at 35 days where sales terms are 30 days.

When special terms have been allowed, always make contact five days or so before due date specifically asking for affirmation that payment will issue as agreed. Also consider asking for written affirmation.

Jim Herst
CEO, Perceptive Selling Initiative, Inc.

Chasing Invoices Dealing with Frequent Late Payers

Dealing with Frequent Late Payers

Many business fail to check the creditworthiness of their customers. The first step is to determine the D&B PAYDEX score on them and run them on occasion (i.e. quarterly) to see if there is any deterioration in their creditworthiness.

Should there be deterioration, one could tighten up the credit terms (i.e. ship less, require quicker payment frequency, auto debit payments through ach transfers, COD, etc.). Each circumstance is different.

If the customer is creditworthy like a branch of the government, an investment grade company, etc., often the company’s leverage diminishes rapidly. In circumstances like those, a line of credit or a factoring arrangement solves that problem for the company.

A business could also offer 2/10 net 30, which means if they pay within 10 days of receipt, they will get a 2% discount on the invoice, otherwise all of it is due in 30 days. It incentivizes clients to pay quicker.

Alan Regdos, CPA
Principal, Alpine Capital


Be sure the seller’s billing is timely and accurate. Consider making Special Offers available only to those whose accounts are current. This is a wake up call to a slow payer. Such a practice displayed to all customers serves to both accelerate receivables recovery and to increase sales.

Recovery of Accounts Receivables (A/Rs) can be a procedure, not difficult if a written program exists. Note too that stringent sales terms can hurt sales. A business not experiencing bad debts usually has credit terms that are too tough.

Every business should utilize a Days Sales Outstanding (DSO) overview. Know what is typical for the seller’s industry — an industry trade association can usually supply this information. Here’s a simple DSO formula:

Let’s say your annual sales is $2M. Divide it by 360 to learn the average daily sales volume ($5,555.55). Divide that figure into the present amount of A/Rs. For example, if sales are $2M annually, and A/Rs are $200,000.00, then divide that by 360 and you’ll get 36. The DSO is 36. ($200,000.00 divided by $5,555.00, or 36 days.)

Be aware, however, that DSO variations are possible, such as seasonality of sales, desire to only verify quarterly, seller’s billing terms, and more.

Jim Herst
CEO, Perceptive Selling Initiative, Inc.


We communicate a lot during the initial meetings. Prompt communication and timely payments are two of our main requirements since communication drags everything and interrupts our business workflow and planning, and lack of payments affects our motivation in solving our customers’ problems.

We have several payment clauses in our contracts – acceptable response time for each milestone, upfront payment expectations, as well as consequences if any of those is violated. We may charge extra fees, postpone the rest of the work or close the contract altogether if clients are being unresponsive or generally disinterested, and in extreme situations we can go to court as well.

Mario Peshev
Founder and WordPress Architect, DevriX


For dealing with a client who has become a frequent late-payer, I include a late notice with the following month’s invoice I ask if there is anything I can do in terms of making it easier for them to pay in a timely manner. I don’t think reading them the riot act is particularly helpful since in my experience my clients generally pay eventually.

I have been stiffed just once by a client who refused to pay for the last month of a contract. Dunning notices and threats didn’t work, but every time someone asks me if I know so-and-so, I reply: Oh, that deadbeat?

Stuart Marques
President, Stuart Marques Communications

Effective Prevention and Collection Methods

As founder/president of The Zimmerman Group Marketing/Consulting, coming up on 26 years in business, I’ve had occasion to ponder techniques to collect late payments.

Overall, we’ve been very fortunate with a great history of on-time payments. But, there are times.

The best technique I’ve ever heard is a simple phrase: “When is the invoice scheduled for payment?”

What I love about the phrase is that:

  1. It asks whether it’s actually in the system already – so that you know if someone is holding it.
  2. If the response is yes, you can ask what date it will be paid.
  3. It uses the non-aggressive passive voice. It doesn’t say, When are YOU going to pay? It uses the gentler passive that, in my experience, is more effective.

If the invoice isn’t scheduled, that leads to a different approach. But I like to start with those seven simple words.

Ellen Zimmerman
President, The Zimmerman Group, Inc.


You have to be proactive. For example, have every customer fill out a credit application and check their credit. You should also keep an eye on the account (especially new accounts) and call when payment is due.

For example, if your terms are net 30, call at 28-30 days to make sure the payment has been sent – and if not find out why, do they need a copy of the invoice, is there a dispute or discrepancy, etc. Ask for payment over the phone.

The most effective way I have gotten late payers to pay up is to use a flat rate priority mail envelope from the post office, put a dunning notice inside, and mail that to them with delivery confirmation (included in the postage price).

I have consulting clients who do this when I recommend it and then have a 85-95% success rate. I have done this myself as a credit manager in the past and l always had very good results.

Michelle Dunn
Author and columnist, MichelleDunn.com


A business can use the following strategies:

  • Place the client on a COD basis or limit the amount of goods and services delivered until the past due balance is paid down.
  • Indicate that a portion of the past due balance needs to be paid down with each future shipment or service offered.
  • Offer to term the past due balance out. This means if a company owes a past due balance, in order for you to continue the business relationship, the balance is termed out and paid over time with interest (6, 12, 18 months, etc.). If they miss a payment, the business can shut off future supply.
  • Inform your client of your collection policy, which means amounts past due will be sent to a collection agency or lawyer for collection purposes.
  • Request that payments be auto debited from the customers account through an Automated Clearing House transfer.

Alan Regdos, CPA
Principal, Alpine Capital

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