What Is an Outstanding Invoice & How To Chase Them? (With Template)

Introduction

One problem many businesses face is getting paid on time. Timely payments are crucial for settling bills and maintaining a steady cash flow. However, when open invoices—also known as outstanding invoices—begin to accumulate, they can disrupt the entire cash flow balance.

Businesses understand that the probability of collecting an invoice decreases exponentially as time passes beyond the due date. Therefore, it is essential to chase outstanding invoices before they become past-due invoices.

With that in mind, this blog will explain the concept of outstanding invoices and provide actionable strategies for managing them efficiently.

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.

At first, an open invoice might not seem like a major concern, as businesses expect payment on the due date. However, as the days stretch into weeks, the impact of outstanding invoices on your cash flow can become significant, creating a ripple effect on your overall business operations.

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

When 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 means your client has yet to pay for a service, but the payment deadline has not passed.

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?

While no business can completely avoid dealing with outstanding invoices, there are a few strategies that can help, such as setting clear payment terms, offering flexible payment options, sending timely reminders, etc. Below are 5 such strategies you can implement to make the process smoother.

1. Incentivize with rewards and penalize for delays

To start with, businesses can choose to offer attractive rewards for on-time payments and impose penalties for late payments. Most customers are often motivated by discounts and rebates, so these incentives increase the likelihood of prompt payments. This encourages timely payments and fosters a positive relationship with your customers by adding value to their early settlement.

Conversely, applying late payment penalties in the form of interest acts as a deterrent for delays. This fee compensates you for the inconvenience and potential cash flow issues caused by late payments. However, make sure to clearly communicate these terms in your initial agreements and on your invoices. This will ensure that customers are aware of the consequences of missing the deadline in advance.

2. Send timely alerts and reminders

To ensure that your outstanding invoices don’t turn into overdue invoices, proactively following up with customers is important. 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 through phone calls, emails, or other communication methods, reminders should be respectful and professional, maintaining trust while nudging clients to pay on time.

For this, businesses can utilize collection automation software, which enables them to send automated emails to customers, resulting in enhanced collection efficiency. Moreover, this software also allows businesses to embed smart payment links into emails, enabling a convenient way for customers to make payments.

3. Offer payment flexibility

To ensure timely payments, offer customers several payment options. When customers can choose their preferred payment method, they are more likely to pay quickly. Digital options like ACH transfers can make payments even faster.

Modern payment systems also come with strong security features to protect against fraud. These security measures help build trust and lower the chances of chargebacks and unauthorized transactions.

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. This means if a customer hasn’t settled their bill by the due date, you can pause or delay their new orders until the outstanding payment is received.

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 invoices that are outstanding for payment 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 of the most common and effective ways to chase outstanding invoices for early payment recovery is sending reminders to alert your customers about approaching due dates. The most preferred way of doing so is through email communication. Sending emails is also essential to gently inquire and follow up to ensure everything is on track so the client can 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 establish and maintain a strong working relationship.

Here’s an outstanding invoice email example:

Also, check out other overdue invoice email templates that can help you recover your past dues faster and reduce DSO.

How Automation Can Revolutionize Outstanding Invoice Management?

By now we know how late payments can mess up your cash flow and slow down business growth. However, handling outstanding invoices can be tough for businesses in various fields. Even if you have dedicated teams for collections, dealing with late payments can be complicated. Plus, in the hustle and bustle of their schedules, customers might 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. With automation, businesses can:

Schedule reminders: Automation tools can automatically send reminders to customers about their unpaid invoices. This makes sure customers remember to pay without the company needing to do it manually.

Track Payments: Automation allows businesses to keep a close eye on all invoices and payments. It helps you stay updated on which invoices are still unpaid and how long they’ve been overdue.

Improve Accuracy: Automation solutions reduce the chance of human error by managing manually tasks. This means fewer mistakes in invoices and payment records.

Enhance Customer Experience: Automated systems can provide clear and professional reminders, making it easier for customers to pay on time and feel good about the process.

How HighRadius Can Help?

With automation software like HighRadius collection automation software, businesses can establish a streamlined and personalized process for chasing invoices that saves your team time. Not only does it help collection teams prioritize the right customers to follow up on outstanding invoices but also provides access to intelligent analytics and reporting tools to understand the performance. Let’s understand how.

• AI-based worklist prioritization
  By leveraging advanced AI algorithms for intelligent customer prioritization, the solution allows businesses to proactively follow up with customers regarding invoices that are outstanding for payment. 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.
• In-app dialer
  Our software enhances collections team efficiency by streamlining the calling processes. It assists with both pre-and post-call activities, analyzing outstanding invoices and summarizing the call’s purpose. Besides features like auto-transcription, automated task creation, automated follow-up email, etc., simplifies call logging and captures important conversation details.
• Advanced Dunning
  With advanced dunning features, collectors and managers can create and manage email templates with attachments that can be used in automated correspondence. This streamlines the process, significantly reducing the time spent composing emails. It also allows you to include payment links for customers to pay off balances using online payment options quickly.
• AP portal automation
  Robotic process automation (RPA) plays a pivotal role in automating web portal collections. It logs into A/P portals using customer credentials, allowing organizations to track invoice statuses and record follow-up actions efficiently. It identifies and flags missing open invoices, proactively addressing discrepancies.
• Intelligent email inbox
  The Intelligent email inbox centralizes all collections emails, integrating with your ERP, Collections Cloud, and email software like Outlook and Gmail. It automatically links emails to customers and collectors, displays conversation threads, and allows email actions directly from the application.
• Generative AI via FreedaGPT
  HighRadius’ Generative AI via FreeDA GPT revolutionizes collections management by offering capabilities like email triage, automated responses and attachments, live-call-to-note summary, chat-to-summary, etc. The feature also provides insights to generate reports and summaries, reducing the collection teams’ effort and time consumption.

Nevertheless, our advanced worklist prioritization, streamlined processes, and automated reminders are designed to speed up recovery and reduce DSO (Days Sales Outstanding). Thus, businesses cannot only manage outstanding invoices more effectively but also strengthen their financial stability and client relationships.

FAQs

1. Is an outstanding invoice overdue?

An outstanding invoice is not necessarily overdue. An outstanding invoice simply refers to a bill that has been issued but remains unpaid, whether or not the payment deadline has passed. If the payment due date has not yet arrived, the invoice is still considered outstanding but not 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 and, thus, recorded as assets on the company’s balance sheet.

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, industry, business relationships, etc.

5. What is the Standard Late Fee on an Invoice?

The standard late fee on an invoice typically ranges from 1.5% to 2% per month of the overdue amount. However, the exact rate can vary by business and local regulations, so it’s important to specify it in your payment terms and ensure that your customer is already aware of the same.