Some companies are hesitant to send out late payment letters because they see them as undignified, as begging a customer to pay them.
However, late payment letters are essential for your business, since letting late payments accumulate would spell disaster for your business.
Think of it like this: where would your company be if you didn’t make sure the customers gave you the money you’ve rightfully earned? You’d be drowning in debt.
This type of debt is not something you can afford, especially not if your business is relatively small. Therefore, you’ll have to get familiar with the process of sending overdue invoice letters from start to finish. Our article is here to help.
If you want to increase your chances of getting paid as soon as possible, keep reading!
Choose the Right Time to Send the Letter
Knowing when to send the late payment letter is half of the work.
Clearly, an overdue payment letter implies that the customer is already behind with the payment, which means you’re in an unfavorable position.
Everything you send before the due date is a reminder email in which you prompt the customer to pay you before their time runs out.
Most frequently, you will also send an email on the due date itself as one final reminder. The customer is not behind with payment at this stage.
However, anything you send after the due date is an outstanding invoice letter, which informs your customer they are already behind with meeting their obligations.
It’s common practice to send such a notification right after the due date to increase your chances of getting paid.
Research shows that the best time to send business emails is at either 10 AM or 1 PM, as that’s when most people have time to read them. So, consider the time and date before pressing ‘send’.
Source: Regpack
After that first late payment letter, companies usually send similar notifications every thirty days until the client pays. Of course, there isn’t one rule that fits all when it comes to the period of wait time between outstanding payment emails.
Of course, you should edit the payment letter based on how late the payment actually is.
The easiest way to pull this off seamlessly with every customer is to use invoicing software to send these overdue payment reminders automatically.
That way, your employees won’t have to keep up with every single settlement, especially if the customer doesn’t pay on time and the employees have to remind them every 30 days.
In other words, software will not only take a lot of worry off your hands but will also save you time and money, which you can then invest in other, non-automatable processes.
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Include All Necessary Data
When sending a late payment letter, remember to include all the relevant purchase information to increase your chances of getting paid.
If you received an overdue invoice notification that simply said you owe some company a certain amount of money, with no specifics, you probably wouldn’t look at it twice. So, why would you expect your customers to pay after receiving that kind of email?
The outstanding payment notification should include the same information as your invoice, such as:
- Customer details
- Company details
- Purchase reference number
- Data about products/services, including quantity, size, and amount
- Total purchase amount
- Due date
- Payment terms
On top of that, if you’re informing someone of their overdue payment, you should remind them of the original due date as well, and urge them to pay ASAP.
Source: Regpack
The payment terms represent one of the most critical aspects of the late payment reminder.
They provide an overview of all the rules and regulations the customer has accepted to follow when deciding to do business with you.
In other words, the terms are the customer’s obligations. So, if the terms list that the payment is due in 30 days, but the client hasn’t paid within that time frame, you have every right to remind them of that.
Before sending the overdue invoice reminder, ensure that it contains all this information.
In other words, your email should address every aspect of the purchase and payment, so the customer can instantly recognize what they bought from you, how much they owe you, and how they can pay.
Adapt Your Language to the Situation
Be mindful of the language and tone you use when reminding customers of an outstanding invoice.
We all know that kind words will unlock an iron door, so you should be polite when addressing the customers who are behind on their payment.
After all, you don’t know why they were unable to pay you, so it would be wrong to assume or imply that they had bad intentions.
A kind, gentle reminder of an unpaid invoice will go a long way, much longer than a stern email meant to reprimand.
If you are unsure of what exactly to write, try to use a professional template as the basis.
Of course, you should keep track of customers and all their purchases to spot patterns in payment behavior. If a client who usually pays on time misses a payment, you should adapt your tone and the message to this new situation.
On the other hand, if a customer has a long history of defaulting, your email doesn’t have to be as gentle and polite as in the former case.
In the first late payment email, you should simply explain that no payment has been made yet about the purchase in question. Then, ask the customer to pay using the available payment methods and encourage them to contact you in case of a misunderstanding.
If you don’t process payments electronically, the mistake might be on your end. One of your employees might have overlooked the payment or failed to enter it into the system correctly.
Either way, it’s better not to assume the customer is at fault and offer them a way to contact you and clear up the issue.
Describe the Course of Action
Your late payment letter should be unambiguous in describing the steps you intend to take to get your money.
In other words, you should leave no room for interpretation. After reading your outstanding invoice reminder, the customer should know precisely what you will do next if they decide not to pay.
This email should serve as a reminder of the late payment but also any late payment fees you will be charging. For example, most companies don’t start with extra costs for late payments the day after the due date. They give the customer some leeway to pay.
However, after the period set in the payment terms, the business should start charging the late payment fee and adding it to the total amount owed. Sadly, this type of “punishment” is often a better source of motivation than a kind email reminder.
So, ensure that your outstanding invoice payment email lists:
- Which late fees you will add to the total amount
- The due date for payment reconciliation
- Available payment methods
- Instructions in case of a dispute
- The date of transferring the invoice to a collection agency
In the case of the customers who are months behind in their payments, you have three options: write off the debt entirely, keep pushing for settlement, or let a debt collection company take it over.
If you choose the first option, you’re giving up on your rightfully earned money.
If you opt for the second, you’re being proactive, but there is still no guarantee that you’ll ever get paid.
Finally, if you choose the latter, you will get paid by the agency taking the debt off your hands.
Of course, suing the customer or letting a debt collection agency take over should be the very last resort. However, your email should clearly state the steps you are willing to take if your clients keep avoiding payment.
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Make Sure Your Late Fees Are Correct
When mentioning the late fees, ensure that they are clear and correct.
Firstly, if you decide to charge fees for overdue payments, you should clearly state this in the invoice’s terms and conditions. That way, the customer is familiar with the consequence of late payment and knows what to expect.
If you don’t mention these overdue payment fees, you cannot charge them.
Not every country allows sellers to charge extra for unpaid invoices, as unfair as that sounds.
If your business sells products or services online, your payers can be from anywhere in the world, depending on the available shipping options. Even if you’re within your rights to implement late fees, you might be putting off clients.
Glen Collins from the Association of Chartered Certified Accountants says that fees of this sort “could have implications for ongoing business relations.”
Also, you need to think about what amount is reasonable to charge for an overdue payment fee. Keep in mind that the average US household wastes $132 a year on late fees, and the majority of them were late on at least one payment.
Source: Regpack
Considering that the world is still going through a pandemic, not everyone will deal with all their invoices and bills on time. Some might pay you a couple of days or weeks late.
Does that mean you should charge them a 10% outstanding payment fee? Doing so might get you paid, but it could also cost you future business with that same customer.
Keeper Tax recommends using a standard $15 fee for payments under $200. In other cases, you can use the percentage rate of the monthly debt, for example, 3%.
Of course, you can also think about whether you will choose to enforce the late payment fee in all cases. Let’s say you have a loyal customer who usually pays on time.
If they miss their payment once, will you charge them extra for being late, or would it be better to come up with an alternative solution? It’s best to assess these considerations on a case-to-case basis.
Suggest Alternative Ways to Pay
When you remind customers they owe you money, don’t forget to state all the payment methods available once again.
The more of them you list, the higher your chances of getting paid. You can stick to some of the old-fashioned methods, such as cash, but you should also look into allowing people to settle their debts using digital wallets.
After all, 41% of people in the US had and used one in 2020, and the number is only rising.
That’s not exactly surprising. With digital payment methods, the data is already saved, so there’s no manual entry, no mistakes, and lower chances of someone stealing the customer’s payment information.
Therefore, it would be wise to offer as many payment methods as possible, including credit and debit cards, cash, PayPal, GooglePay, and anything else you think your customers might be using.
Some companies offer recurring billing to their customers, which ensures they get paid on time, every time.
Source: Regpack
However, some clients just won’t be able to pay off the entire debt at once, primarily if they’ve incurred late fees. In that case, you can always offer them a payment plan, and, for instance, allow them to pay in installments.
This way, even if you don’t get all your money at once, you will still get it eventually, and that beats completely losing out. With time, the client will pay off their debt, and you might not lose them as a customer further down the road.
The bottom line is that you will be more successful in getting paid if you offer as many options as you can. You’re bound to find one that suits both you and the customers, thus increasing the chance of paying ASAP.
Send the Late Payment Letter
Once you’ve tailored your outstanding invoice notification to perfection, it’s time to deliver it to the customer.
Companies used to send invoices and late payment letters via snail mail, but those days are gone.
If you’re still relying on the post office to deliver your financial documents, days late, and with a chance of getting lost or ruined in transport and delivery, no wonder your payments are late.
In this day and age, you should use software to send out your invoices and any later communication, such as reminders and outstanding payment emails in this day and age.
When you rely on technology to do this job for you, you don’t even have to lift a finger to get paid. All you should do is adjust settings to tell the software when to send late payment emails.
Source: Regpack
However, if you see that emails, for example, are not working as the customer simply ignores them, you can always send the letter through the post, deliver it personally, or contact the customer via phone.
Technology can ensure that the emails get sent precisely on schedule.
Still, someone who’s avoiding opening the email will continue to do so.
Nowadays, email providers have made it easy for you to get notified whenever someone opens an email, instantly sending you a read receipt. Therefore, you’ll be able to tell if your messages are reaching the recipients.
When customers ignore your emails, don’t be afraid to bring out the big guns and change the contact method. If the original one doesn’t bring in the desired results, a new one just might.
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Conclusion
Your late payment letter’s primary purpose is to notify the customer of the outstanding debt towards you and all the available methods for settling that debt.
When sending the outstanding payment email, include the same data your invoice contains to remind the customer what kind of service they’ve received from you, and adapt the tone based on your relationship with the customer.
Describe everything you will do from that point on to ensure you get paid, remind them of any agreed late payment fees, and suggest available payment methods.
Finally, the best way to send the invoice and all related emails is through software that does it for you. But, if you notice that a customer is avoiding your emails, you can find a different way to get in contact with them, such as calling them or sending a letter by post.
