How To Collect Overdue Money
Late payments are a significant problem for businesses, as they can lead to financial instability and hinder their own ability to pay bills and plan for the future. That is why it is crucial for companies to know their rights and take action when faced with unpaid invoices.
What Steps Should Companies Follow When Collecting Overdue Money?
There are numerous actions that businesses can take to collect overdue invoices. However, in general, the following steps are the most commonly used:
Identify overdue invoices, which are those that have not been paid by the due date(usually 30 to 90 days after a company sends the invoice)
Send an updated invoice and follow up with a call if the invoice is still not paid by that time
Make a final reminder phone call about 40 days after the invoice is past due
At this point, if you have not heard back about the invoice, it may be time to take other forceful approaches, including:
Charging a late fee
Not taking any more work until the invoice is paid, while ensuring compliance with any fiduciary duty or professional responsibility you may have
Elevating the importance of the issue by contacting a higher-up if there is one
Prepare to send the problem to collections
However, before you take any of these steps, let your clients know you are stopping work or sending the invoice to a collection agency. The communication does not have to be a long, detailed letter. Rather, it should be straightforward and concise. Just be ready to follow through with whatever action you say you will take.
What Is the Collections Process?
Debt collection refers to the process of collecting unpaid debts from a debtor through a collection agency or a third-party debt collector. When these collection agencies get involved, they often begin the process by sending a letter to the debtor and providing them with certain information about the debt that is owed.
If the debtor does not believe the debt is valid, they can send a dispute letter to the collection agency. In response, the collection agency may send a verification of the debt, which can include a copy of the original invoice. From there, the debt collection process will usually involve the debt collector doing whatever is necessary (within the law) to get the debtor's full attention and try to get the money that is owed.
Is Taking Legal Action Necessary When Collecting Overdue Money?
If the amount of overdue funds is significant, some companies may need to consider taking their clients to small claims court or reaching out to an experienced lawyer to review the options they have for getting the money to which they are entitled.
In general, these legal professionals will need to complete a cost analysis and determine whether pursuing a lawsuit is in the company's best interest. However, if a client owes a large sum of money and refuses to pay this amount to the company or the collections agency, a lawsuit may be necessary.
The Time Limitations Involved
One thing to keep in mind when trying to decide if pursuing legal action is necessary against a client for an unpaid invoice is determining whether there are deadlines involved.
According to the statute of limitations, there are specific timelines for how long companies have to pursue legal action against a client who has not paid their invoice. To know what these timelines are and how they can impact your case, consider reviewing your situation with an experienced attorney as soon as possible.
Consider Your Future Working Relationship
Even if your company has successfully collected its overdue payment, it is crucial to take your time and evaluate whether to continue working with the client moving forward. If you decide to proceed, be prepared to establish new rules, such as requiring prepayment or more frequent payment milestones. Also, make sure you have a legal plan in place and communicate it clearly to your client. This will safeguard your business and increase the likelihood of receiving timely payments in the future.