Outstanding Invoices: What Is It and 5 Key Strategies to Effectively Collect Them

Introduction

Every business needs cash to survive and thrive. To maintain the cash flow, you need to collect your unpaid invoices, also known as outstanding invoices, on time.

However, efficiently managing outstanding invoices manually is not easy especially if there is a high volume. This approach is prone to errors because your collection team may not know which customers to prioritize. As a result, they end up dedicating the majority of their time going after the wrong ones — that aren’t even crucial or at risk.

Imagine dedicating 80% of your collection efforts to a mere 20% of accounts, those that aren’t even crucial. This scenario can harm your business.

So, how can you reverse this situation and allocate 80% of your collection efforts to the crucial 20% of accounts? Well, we will give you the way to do this in the blog. But before we get to that it is important to understand what exactly an outstanding invoice is and why it’s crucial to address them promptly.

What Is an Outstanding Invoice?

An outstanding invoice refers to a bill or payment that is still unpaid by a customer or client. It is an invoice that has been issued to the customer but has not been settled within the agreed-upon payment terms. This can include invoices for products or services rendered by a business.

Outstanding invoices can hurt a business’s cash flow and financial stability, as the payment for these invoices is still pending.They make it difficult for businesses to meet their financial obligations and invest in growth opportunities. Moreover, they can be a source of stress for businesses, causing uncertainty about their financial stability.

What is the difference between outstanding and past-due or overdue invoices? 

When it comes to discussing the payment status of invoices, the terms “outstanding” and “overdue” are commonly used, sometimes interchangeably. However, these two words carry distinct meanings, and there’s more to the difference than just words.

An outstanding invoice simply means that your client has not yet met the payment deadline but hasn’t paid for a service either.

Now, when an invoice becomes past-due, it indicates that your client has failed to honor their agreement to pay for the service within the agreed-upon timeframe. In other words, the deadline for payment has come and gone. This situation is often referred to as an overdue or past-due invoice.

How to Chase Outstanding Invoices?

Manually tracking invoices can be frustrating, especially when dealing with a large number of them. It becomes even more challenging when these outstanding invoices become overdue, as it takes up your time that should be dedicated to essential tasks.

While no business can completely avoid dealing with outstanding invoices, there are a few strategies that can help. Below are 5 such strategies you can implement to make the process of collecting overdue invoices smoother.

1. Incentivize with rewards and penalize for delays

Offer attractive rewards for on-time payments and impose penalties for late payments. People are often motivated by discounts and rebates, so these incentives increase the likelihood of prompt payments. In contrast, late payment penalties, in the form of interest, act as a deterrent for delays.

2. Send timely alerts and reminders

Don’t wait for the due date to pass before taking action. Send timely reminders and alerts to your clients after delivering the invoice. Whether it’s through phone calls, emails, or other communication methods, reminders should be respectful and professional, maintaining trust while nudging clients to pay on time.

3. Offer payment flexibility

Provide clients with various payment methods. When customers have multiple options for payment, it facilitates quicker payments since they can choose the method most convenient for them. The ease of digital payments, such as ACH transfers, can expedite the process further.

4. Consider holding orders for non-payment

When clients consistently delay or miss payments, consider temporarily halting their order fulfillment until their debts are settled. While this approach may seem assertive, it can be highly effective. It conveys the message that your services or products should not be taken for granted and encourages clients to meet their financial obligations.

5. Maintain regular communication

Maintain open lines of communication with your clients throughout the invoicing process. Establishing a rapport and discussing payment expectations in advance can prevent misunderstandings and delays.

By implementing these practical steps, you can navigate the process of chasing outstanding invoices effectively and maintain healthy financial relationships with your clients. In the next section, we’ll explore how to craft an outstanding invoice email or letter to maximize your chances of successful debt recovery.

How To Write an Outstanding Invoice Email or Letter?

One crucial aspect of early payment recovery involves sending reminders to alert your customers about approaching due dates. In today’s digital age, the preferred mode of communication for businesses is often email. 

Additionally, it’s essential to gently inquire and follow up to ensure that everything is on track for the client to pay by the due date. This complements credit control best practices, such as promptly issuing invoices close to the sale date, keeping the invoice fresh in the client’s mind, and reducing the likelihood of them forgetting to pay. Moreover, it helps in establishing and maintaining a strong working relationship.

Here’s a sample template for an outstanding invoice email:

How Automation Can Revolutionize Outstanding Invoice Management

Handling outstanding invoices can be a tough task for businesses in various fields. Even if you have dedicated teams for collections, dealing with late payments can be complicated. Late payments can mess up your cash flow, slow down business growth, and strain your relationships with clients. Plus, in the hustle and bustle of their own schedules, clients might accidentally forget about their unpaid invoices.

So, how can businesses tackle these issues and make managing outstanding payments easier? The solution lies in automation—a tool that simplifies tasks, boosts efficiency, and makes collecting payments more consistent and successful.

Now, let’s look at ways automation can change the game when it comes to managing outstanding invoices. This will make the whole process smoother and reduce the burden on your teams:

This will make the whole process smoother and less of a burden on your teams:

1. AI-based worklist prioritization

Automation can be harnessed to leverage advanced AI algorithms for intelligent customer prioritization. This intelligent system considers factors such as invoice amounts, aging, credit risk, and historical payment behavior, assigning recommended actions to each customer and streamlining decision-making for collections teams.

2. Automated email correspondence

Automation eliminates manual tasks by automatically sending outstanding notices and generating follow-up tasks based on customer responses. Collections teams can use pre-designed templates for proactive reminders. Additionally, it tracks the status of correspondence, offering valuable insights into customer interactions.

3. In-app dialer

Automation enhances collections team efficiency by streamlining calling processes. It assists with both pre and post-call activities, analyzing outstanding invoices and summarizing the call’s purpose. Automation also simplifies call logging, capturing important conversation details.

4. Web portal collections

Robotic process automation (RPA) plays a pivotal role in automating web portal collections. It logs in to A/P portals using customer credentials, allowing organizations to track invoice statuses and record follow-up actions efficiently. Automation identifies and flags missing open invoices, proactively addressing discrepancies.

5. In-app payments

Automation seamlessly integrates digital payment options into correspondence, enabling customers to initiate payments effortlessly. By incorporating payment links within the communication process, it simplifies and accelerates the payment collection process.

With these automated strategies in place, businesses can not only manage outstanding invoices more effectively but also strengthen their financial stability and client relationships.

Conclusion

Effective management of outstanding invoices is crucial for maintaining your business’s financial stability.

Late payments can disrupt cash flow, impede growth, and strain client relationships, making it crucial to find effective solutions.

As businesses strive for efficiency and consistency in managing outstanding invoices, automation emerges as a game-changer. Automation simplifies manual tasks, allowing collections teams to concentrate on strategic recovery efforts, while routine and low-risk tasks are handled automatically. The outcome is a collections process that’s not only more efficient but also more effective, offering advantages to both businesses and their valued clients.

At HighRadius, we bring you the future of collections through our AI-based collections software. Our advanced worklist prioritization, streamlined processes, and automated reminders are designed to speed up recovery and reduce DSO (Days Sales Outstanding). We redefine efficiency, giving you more time to concentrate on your top priorities.

Book a demo with us today to witness the impact of AI-driven collections. Embrace innovation and seize control of your financial future with HighRadius.

FAQs on Outstanding Invoices

1. Is an outstanding invoice overdue?

Yes, an outstanding invoice is typically overdue. An outstanding invoice refers to a bill that remains unpaid, often beyond the agreed-upon payment terms, making it overdue.

2. Are outstanding invoices an asset or liability?

Outstanding invoices are considered assets for a business, as they represent expected future cash inflows. These outstanding invoices can be seen as accounts receivable, reflecting money owed to the business by clients or customers.

3. Can you charge for late invoices?

Yes, you can charge for late invoices. Many businesses include late payment penalties or charges in their invoice terms to incentivize clients to pay on time and compensate for the delay in receiving payment. These charges are typically outlined in the invoice details agreed upon by both parties.

4. How long can an invoice be outstanding?

The duration for an invoice to be outstanding can vary depending on the agreed-upon payment terms between the business and the client. Common payment terms range from 30 to 90 days, but they can be shorter or longer based on the specific agreement.