Things to remember :
- An overdue invoice is an invoice for which the payment deadline has passed: it becomes a receivable and can have a direct impact on the company’s cash flow.
- Effective management of overdue invoices helps to limit cash flow pressures and preserve the commercial relationship with the customer.
- A structured dunning process combined with the right tools (e.g. collection software) maximizes the chances of obtaining payment quickly, while maintaining healthy communication.
- Dunning too early can damage the relationship with the customer, so it’s important to get the timing and tone right.
- If an amicable reminder fails, a formal notice of default is the first step before legal proceedings.
- Automation (alerts, reminders, dashboards) and team training are essential levers for optimizing the follow-up and recovery of overdue invoices.
An overdue invoice is an invoice for which the payment term has expired. If the invoice remains unpaid on the due date, it becomes a receivable due and payable. An unpaid invoice that is overdue has a direct impact on a company’s cash flow. In effect, the cash inflow scheduled for a certain date has not taken place, which can lead to cash shortfalls and tensions.
At the same time, managing overdue invoices requires a tactical approach to maintaining customer relations. To combine efficiency in the collection of overdue invoices with the maintenance of the commercial relationship, you need not only to know the levers of good customer reminders, but also to master the best practices and tools for tracking payments.
What is an overdue invoice?
An overdue invoice is an invoice for which the payment due date has passed, and for which payment has not been received.
In practice, companies can issue invoices for cash payment, or negotiate payment terms with their customers ranging from 15 to 60 days maximum. Until this period has elapsed, the invoice is due from the customer, but is not payable. Only when the due date has passed can the company demand payment from the customer. This is when the invoice becomes unpaid.
A distinction is generally made between overdue and overdue invoices. In the case of overdue invoices, the payment date has passed, but a grace period applies. This is a to-hold period of a few days to avoid reminding the customer too soon, when payment may still be in progress. A late invoice, on the other hand, is one that is sufficiently past its due date to warrant a reminder.
In the light of these definitions, it’s easy to see the financial consequences of an increase in the number of outstanding invoices or poor management of trade receivables.
Why is it important to manage overdue invoices?
As part of its financial management, and more specifically its cash flow, the company forecasts cash inflows based on the amounts and payment dates of invoices issued. However, if invoices are paid late, this can lead to cash flow imbalances, which in turn can cause major tensions. The company may then find it difficult to pay its own invoices, due to a lack of liquidity in its accounts. If this phenomenon is repeated for excessive amounts, it can even lead to suspension of payments.
As a result, it’s vital for the company to manage overdue invoices properly, to ensure the most accurate financial visibility possible, and to ensure its financial stability.
On the other hand, managing overdue invoices in the right way helps you to maintain a healthy relationship with your customers. By establishing a clear, mutually-accepted framework, and having a well-managed relaunch process, you can ensure that the commercial relationship is maintained under good conditions, while still obtaining payment.
What’s more, it saves finance and sales teams a great deal of time and efficiency.
How do I collect an overdue invoice?
When you detect an overdue invoice, it’s important to react quickly. The sooner you start the follow-up and dunning process, the greater your chances of obtaining payment. It’s also an excellent way of reducing DSO (Days Sales Outstanding). However, it’s important not to dun the customer too soon, as it’s possible that the transfer is already in progress, for example, and the customer could be offended by being dunned “without reason”. Consequently, it’s important to adopt the right timing, but also the right tone, for effective reminders from both a financial and commercial point of view. That’s why we strongly recommend setting up a structured and prioritized dunning plan based on the customer’s profile, the amount at stake and the number of days overdue. To maximize your chances of success in the customer reminder phase, you can also vary your communication channels. For example, a telephone or e-mail reminder may suffice in the first instance. A postal reminder may be useful if the customer fails to react.
It’s important to note that customer reminders are not required by law as part of an amicable collection procedure. In practice, however, this step is virtually unavoidable. On the one hand, it helps to maintain contact with the customer, and on the other, it avoids incurring unnecessary costs if the customer has simply forgotten to pay, or sent the check awaiting receipt, for example.
If your reminders fail, and you’re considering legal collection proceedings, you’ll need to send a formal notice of default. This is a registered letter with acknowledgement of receipt reminding your customer of his payment obligations. It refers to the unpaid invoice, mentioning its number, amount, initial payment date, etc. The formal notice serves to initiate the calculation of interest and penalties for late payment. The customer must be given a reasonable period of time to rectify the situation. Generally speaking, this period is 15 days.
If the situation is not rectified within the allotted time, the case can be brought before the court by means of various legal procedures, ranging from an injunction to pay to a summons to pay.
In addition, the success of the collection process for overdue invoices depends on the cooperation of the accounting and sales departments.
Best practices for efficiently managing overdue invoices
The first thing to do to manage overdue invoices effectively is to refer to your company’s collection policy. This should include a clear internal process setting out follow-up actions, deadlines, priorities and reminders.
Secondly, it’s important to train both accounting and sales teams in customer dunning and collection procedures. This plays an important part in maintaining communication with the customer, and preserving the relationship, while obtaining payment as quickly as possible.
Another best practice for efficiently managing overdue invoices is to adopt a collection software package that will allow you to :
- centralize information and monitor invoices and overdue payments;
- receive automatic alerts to react at the right time and avoid oversights;
- automate reminders to save time and make the process more reliable;
- access comprehensive dashboards updated in real time for pre-cis management;
- analyze reports to monitor results and adjust financial strategy accordingly.
Conclusion
Managing overdue invoices plays a central role in a company’s financial management. Efficient management of overdue invoices not only optimizes cash flow, but also improves internal organization and maintains healthy customer relations. It’s therefore important to understand all the steps involved, and to adopt the right reflexes, such as anticipation, communication and automation. Implementing the right tools, such as collection software like CashOnTime, is a real plus in terms of efficiency and peace of mind.
FAQ
What is a matured debt?
An overdue debt is a debt that you have to pay because the payment due date has passed. In practice, the bill is due immediately.
What does “unpaid invoices due” mean?
An overdue invoice is an invoice for which the due date has expired or passed, but which has not yet been paid by the customer. In practical terms, it’s an unpaid fac-ture that you can demand payment of, by launching a debt collection procedure if necessary.
What’s the difference between a payment due and a payment to be made?
An installment is a payment made in advance. For example, you pay the rent for the coming month. A payment due is a payment made once the month has elapsed or the service has been provided. For example, you pay your subscription for the past month.
What is the statute of limitations for unpaid invoices?
The statute of limitations for unpaid invoices is 2 years if the customer is a private individual, and 5 years if the customer is a professional.
