An overdue invoice refers to billing that a company has not paid at its due date. If your company extends credit to your clients, there is a high possibility where you need to collect payments for overdue invoices. Other than hiring an accounting firm in Johor Bahru to keep proper accounting records, collecting payments for overdue invoices is equally crucial as it plays a significant role in ensuring healthy cash flow in a company.
There are a lot of ways that you can use to collect past due invoices. The process of the collection starts before you issue invoices to your clients. To prevent your company from running into problems associated with collecting payments (Also see Understanding Cash Collection Cycle), you should:
Review the credit granted
You may start by reviewing whether you should have granted credit to your client. If your company has received any request from your clients that ask for trade credits, for those the involve medium to large sums, you should mandate a credit application, let the related department assess the financial statements of your clients and review the credit report that you get from a third party.
Reorganise the payment terms
You may ask your client to pay for part of the amount due before you deliver the goods to them, shorten the payment terms, or tell your clients that you will charge late fees if the invoices become due. These approaches should help in reducing the amount of time needed to collect cash.
Correct mistakes which are done when issuing invoices
You should appoint another person to proofread large or complicated invoices. This is to minimise the possibility of committing errors because if there is an error on the invoice, even it does not affect the amount of that payment, your clients will most probably pay you late.
Look into shipping errors
You need to know whether your staff have delivered wrong or damaged products to your clients. If they did, it could be one of the causes that make it hard for you to collect the payment. You need to take prompt action to solve these problems as this helps to solve a lot of issues in the collection.
After completing the steps above before you issue the invoices, you may consider using the approaches listed below to collect payments for overdue invoices (Also see An Overview of Receivable Turnover).
Sending dunning letters
Dunning letters are the reminder letters that you may send to your clients via email or fax. You may include the invoice number, the date, as well as the amount due for payment.
Making phone calls
If your clients do not give you any response after you send them the dunning letter, you can make phone calls and find out why they did not make the payment.
Accept the return of goods
If the products that you have sold to your clients are still with them, then you may consider accepting those merchandise.
Create a payment schedule
If your clients are unable to pay you now, you may create a payment schedule that lists the payments that they need to make in the future.