Unpaid Invoices: How to Maintain a Good Customer Relationship

Relations between customer and supplier can become strained if payments are late. Such tension is harmful to fruitful dealings between the two parties, posing a threat to the entire business relationship.

To prevent late payments turning into unpaid invoices, culminating in lengthy and expensive legal proceedings, certain mistakes are to be avoided. The situation requires understanding and tact and demonstrates the benefits of using an intermediary to maintain good relations in order to appease the tension between customers and suppliers.

Lack of communication between customer and supplier is the root cause of tension surrounding payments and unpaid invoices. In the vast majority of cases, late payment of an invoice is the result of a customer’s cash flow problems. However, customers will typically adopt an insular stance as they feel something akin to shame. They don’t want their cash flow problems to become common knowledge, so they “play dead” and don’t answer calls or reminders from suppliers. But the opposite stance should really be adopted.

It is never pleasant for management to have debts. It is not something they consciously choose. If they find themselves in such a position, it is often because they have no way of settling an unpaid invoice in compliance with the initial payment terms accompanying the order.

Cash flow problems can have an extremely wide range of causes related to management problems or market conditions, for example. Another cause can be unpaid invoices by one of their own customers.

However, it is also possible that the customer does not want to pay because of a dispute over the order – wrong goods or quality issues, for instance. The dispute might involve an infinitesimal part of the order, yet some customers will refuse to pay for an entire order worth £10,000 because of a dispute over £100, sometimes resulting in an unpaid invoice. Such customers make the dispute a point of principle. Delaying payments for this reason is also a way of retaining cash resources, even when there is not necessarily a need to do so.

Disputing an order is sometimes a legitimate action, delaying payment without informing the supplier about the issue very much less so. This is also a source of tension over payments and outstanding invoices. The role of collectors in this case is to remind the creditor of decent commercial standards to facilitate unpaid invoices recovery.

A general rule is to always invoice as soon as possible and ask your client to acknowledge receipt.

You should of course ensure your invoice is accurate and all the details are correct. Keeping the receipt on file to prove that you delivered the invoice successfully is a good practice.

Then, make a note of the invoice details and follow-up with your client as the due date approaches, rather than waiting until it’s overdue, particularly with invoices for large amounts. If possible, get to know the person responsible for settling invoices at your client’s business as it can facilitate payment. As the payment deadline approaches, follow up with a friendly reminder that you expect prompt payment.

If they miss the payment deadline, chase the outstanding invoice quickly – ideally in writing with a unpaid invoices letter – while keeping up the dialogue and ensuring they understand that you won’t accept non-payment. You can also establish an automated reminder process to remind clients of their payment obligation and maximise your chances of unpaid invoices recovery.

In your unpaid invoices letter, make sure you include the following:

• Details of both companies (name, address)
• Date of your letter
• Key contact at your company
• Payment references, invoice number
• Total owed + interest or charges if you choose to add them (explain these charges)
• Explain clearly that the payment is past due and the customer has breached terms
• Refer to previous communications
• Information about what happens next, including final payment date and the consequences if your customer still won’t pay ( business debt collection, legal proceedings).

You should keep information about your invoices in an accessible format that gives you a clear picture of late payments.

The intermediary has no emotional attachments, and demonstrates openness, listening to the customer to then find an amicable solution. Out-of-court negotiation is preferable, in order to both facilitate unpaid invoices recovery and maintain a commercial relationship. Customers won’t make the same promises to an intermediary as they do to a supplier they know. Once dialogue starts, they usually understand and appreciate the approach.

The ability to listen, educate and instil trust are all factors that smooth dialogue with a late-paying customer. Collectors explain they are there to help find a solution. They therefore explain the position of the supplier who has submitted the outstanding invoice payment for them to collect, that they do not intend to act as their customers’ bank. Customers understand these arguments.

Debt collectors, as a neutral party in the customer’s eyes, can quickly pinpoint the source of the payment problem, and then find a solution that satisfies both sides and contributes to unpaid invoices recovery. If the late payment is the result of a dispute over the order, they collect a description of the shortcomings in question from the customer and the “undisputed” aspects to report this information back to the supplier. If cash flow is the problem, they will suggest rescheduling reasonable proportions.