Managing outstanding invoices is a critical part of running a business. Late or unpaid invoices can disrupt cash flow, impact supplier relationships, and create financial strain. This guide will explain what an outstanding invoice is, how to handle it, and how invoice automation software can streamline the management and tracking of outstanding invoices.
What is an Outstanding Invoice?
An outstanding invoice refers to any invoice that has been issued by a business but has not yet been paid by the client or customer. This unpaid invoice remains exceptional until the payment is received. While it’s common for companies to have outstanding invoices, it’s important to monitor and manage them effectively to avoid overdue payments that can negatively affect cash flow.
Outstanding invoices can be divided into:
- Current outstanding invoices: Invoices that have been issued and are within the payment due date.
- Past-due invoices: Invoices that have surpassed the payment due date without being settled.
How To Handle Outstanding Invoices
Effectively handling outstanding invoices can save your business from cash flow problems and ensure timely payments. Here are several strategies to manage them:
1. Include A Late Payment Fee
Adding a late payment fee clause to your invoicing terms can motivate clients to pay on time. This fee could be a flat amount or a percentage of the invoice total, depending on how long the payment is overdue.
2. Notifications and Regular Reminders
Regularly send out payment reminders to clients once an invoice is approaching its due date. Automated notifications through invoice tracking software can help keep clients on track without the need for manual follow-ups.
3. Send an Overdue Invoice
If a payment becomes overdue, send a formal overdue invoice with clear payment instructions. The language should be firm but polite, reiterating the payment terms and any additional fees that apply.
4. Use Debt Collectors
In cases where payment is significantly overdue and regular reminders aren’t working, consider hiring debt collectors. This should be used as a last resort as it can strain customer relationships, but it may be necessary for recovering unpaid amounts.
Tips For Avoiding Late Payments
Late payments and improper vendor invoice tracking can hinder your business operations. Implementing proactive strategies to prevent them is key:
1. Track Invoices
Use invoice tracking software or automated solutions to monitor outstanding invoices in real time. These tools provide detailed reports on which invoices are paid, overdue, or nearing their due date, helping you act before it’s too late.
2. Establish A Payment Policy
Set clear payment policies with your clients, including specific terms and deadlines for payment. Ensure that these policies are stated in every contract and invoice.
3. Take A Percentage Up Front
One way to safeguard against unpaid invoices is to request a percentage of the payment upfront. This minimizes risk and ensures some income is secured before the project is completed.
4. Allow Recurring Payments or Payment Plans
For long-term clients or larger projects, offering payment plans or recurring payment options can ease the burden on both the client and your cash flow. Automated payment systems can be used to set up recurring invoices.
5. Utilize Accounting Software
AP automation software or accounting software can streamline the invoicing process, automate reminders, and ensure timely payments. Many of these systems also integrate with your existing financial software, making invoice management easier.
The Difference Between An Outstanding Invoice and A Past Due Invoice
While both terms are related to unpaid invoices, there’s a key distinction:
- An outstanding invoice is any invoice that is yet to be paid but may still be within the payment term.
- A past-due invoice refers to an outstanding invoice that has exceeded its payment deadline.
This difference is important as past-due invoices typically require more urgent action to ensure payment is made, including follow-up reminders or applying late fees.
How AP Automation Helps in Managing and Tracking Outstanding Invoices
Automating your accounts payable (AP) process with invoice automation software can significantly improve the management and tracking of outstanding invoices. Here’s how AP automation helps:
1. Real-Time Invoice Tracking
AP automation provides real-time visibility into the status of all invoices, allowing businesses to track outstanding invoices at any point. You can see which invoices are pending approval, due for payment, or overdue.
2. Automated Reminders
With AP automation, businesses can set up automatic payment reminders for outstanding invoices, reducing the likelihood of late payments. These reminders can be sent to clients before the due date, helping to prompt on-time payments.
3. Streamlined Approval Workflow
AP automation helps streamline the invoice approval process, allowing invoices to move quickly through the necessary approvals before payments are made. This ensures invoices don’t get held up in internal delays, reducing the number of outstanding invoices.
4. Reduced Errors
By automating data entry and invoice processing, AP automation minimizes the risk of human errors that could delay payments or result in incorrect billing. Fewer errors mean faster payments and fewer outstanding invoices to chase.
5. Improved Cash Flow Management
With real-time data and better visibility into outstanding invoices, businesses can make more informed decisions regarding their cash flow. You can prioritize which outstanding invoices to focus on based on payment terms and amounts due.
Benefits of Invoice Tracking for Payment of Outstanding Invoices
Tracking invoices effectively is key to ensuring timely payment and reducing the risk of outstanding invoices. Here are some benefits of using an invoice tracking system for managing payments:
1. Timely Payments
A structured invoice tracking system helps ensure that invoices are paid on or before their due date, reducing the number of outstanding or overdue invoices.
2. Better Vendor and Client Relationships
By keeping track of payments and invoices, businesses can maintain positive relationships with vendors and clients, avoiding issues that arise from late or missed payments.
3. Reduced Late Fees
Accurate tracking of outstanding invoices ensures payments are made on time, helping businesses avoid costly late payment fees.
4. Improved Cash Flow
Tracking outstanding invoices allows businesses to monitor cash flow more effectively. With better visibility, you can take action before invoices become overdue, improving overall cash flow management.
5. Fewer Discrepancies
Using invoice tracking software reduces the likelihood of discrepancies between invoices, payments, and purchase orders. This leads to more accurate financial records and fewer disputes over unpaid invoices.
Key Takeaways
- An outstanding invoice is unpaid but may not be overdue, whereas a past-due invoice has exceeded its payment deadline.
- Efficient handling of outstanding invoices through late payment fees, reminders, and automation tools can improve cash flow and reduce financial stress.
- AP automation is a powerful tool for tracking and managing outstanding invoices, providing real-time visibility, automated reminders, and error reduction.
- Tracking invoices effectively helps businesses avoid late payments, maintain healthy cash flow, and strengthen client and vendor relationships.
FAQs on Outstanding Invoices
Do Unpaid Invoices Expire?
Unpaid invoices do not expire, but if left unpaid for a long period, they may need to be written off as bad debt. Legal limitations on how long you can pursue an unpaid invoice vary by region.
How Do I Get Paid for an Outstanding Invoice?
To get paid for an outstanding invoice, follow up with the client regularly, issue reminders, and consider adding a late payment fee. In extreme cases, consider involving debt collectors or legal action.
Can I Sell My Unpaid Invoices?
Yes, you can sell unpaid invoices to factoring companies. This process is called invoice factoring, where the company buys the invoice at a discounted rate and collects payment from the client.
What Happens When An Invoice is Past Due?
When an invoice is past due, you should send an overdue notice and apply any applicable late fees. If payment is still not received, you may need to escalate by using a collection agency or legal means.
