How to Bill Your Customers: Invoicing Basics
From Tax Guide.
Tax Guide · Arab, Alabama
Collecting Late Payments From Customers: Past Due Invoices
When customers are not paying, a steady routine for past due invoices helps. Learn how to follow up, track receivables and handle unpaid bills.
The short answer
What should I do when customers are not paying?
Follow up quickly and politely, in writing, keep a record of every contact, and move through a set routine so no past due invoice is forgotten.
Most late payments are not refusals. Bills get lost, buyers get busy, and money can be tight. A friendly reminder that arrives soon after the due date often resolves the problem.
The trouble comes when nobody follows up. Unpaid invoices are called accounts receivable, and they are money you have earned but do not yet have. Watching them is part of good bookkeeping.
A routine
How do I follow up on past due invoices?
Follow up in steps, starting with a gentle reminder and moving to firmer notices only if the customer does not respond.
A written routine makes the work easier, because you decide the steps once and repeat them. Keep the tone professional at every stage.
- Send a friendly reminder shortly after the due date, with a copy of the invoice.
- If there is no reply, call or write again and ask when payment can be expected.
- Offer a way to make it easy to pay, such as a payment link or a short payment schedule you both agree to.
- Send a firmer written notice that states the amount owed and a date by which you expect payment.
- Decide in advance when you will stop doing further work for a customer who is behind.
- Write down each contact, with the date and what was said.
Prevention
How can I prevent customers from paying late in the first place?
Set clear payment terms in writing before you start, bill promptly and consider deposits on larger jobs.
Most of the work happens at the start. Agree on the price, the due date and the way you will be paid. A deposit reduces your risk on bigger jobs, and shorter billing cycles keep balances small.
Keep the tone of every message factual and calm. State the invoice number, the amount, the original due date and what you need from the customer. A customer who feels respected is more likely to reply with a date, and a written record of that reply is useful if the account is disputed later.
Send accurate invoices right away. Errors, missing details or a late invoice all give a customer a reason to wait. Our guide to how to bill your customers covers what a complete invoice includes. It also helps to check new customers' ability to pay before extending credit, if that fits your business.
Keeping track
How do I track accounts receivable?
Keep a list of every unpaid invoice with the customer, amount, invoice date and due date, and review it on a regular schedule.
Many owners group unpaid invoices by how long they have been outstanding, such as current, a little late and very late. This "aging" view shows where to focus. Compare it against your bank deposits when you reconcile the account each month, as described in bank reconciliation made simple.
Record each payment when it arrives and match it to the right invoice. Otherwise you may chase a customer who has already paid, which costs goodwill.
| Invoice status | What it usually means | Typical next step |
|---|---|---|
| Current | Sent, not yet due | No action, watch the due date |
| Slightly late | Past due for a short time | Friendly reminder |
| Very late | Past due for a long time | Firm notice, call, and a payment plan if suitable |
| Unlikely to be paid | The customer may never pay | Talk to us about how to treat it in your books |
A general guide to sorting unpaid invoices.
Taxes
Can I write off a customer bill that never gets paid?
Sometimes. A business that uses the accrual method may be able to deduct a true bad debt, while a cash-method business generally cannot deduct income it never counted.
Under the cash method, you count income only when you receive it, so an unpaid invoice was never included and there is nothing to deduct. Under accrual, you counted the sale when you invoiced it, so a debt that becomes truly uncollectible may be deductible. Our guide to cash basis or accrual accounting explains the difference.
The rules on what qualifies as a bad debt are specific, and you need records showing you tried to collect. This is general information, not advice about your situation, so talk with us before deciding how to record it. Whether you may sue or use a collection agency is a legal question for an attorney.
How we can help
How Melton Tax Services can help with unpaid invoices
Our payroll and bookkeeping service can help you keep receivables organized so you can see who owes what.
We can help with bookkeeping, including tracking invoices and payments, and with how unpaid amounts show up in your records and tax return. See our payroll and bookkeeping page.
To talk about your business, contact us or call 256-586-4635. We serve Arab and the surrounding area. Please do not send Social Security numbers or documents through this website. Bring them by the office or call us.
Answers
Questions about late customer payments
How soon should I follow up on a late invoice?
Following up soon after the due date usually protects the relationship. A quick reminder helps because many late payments are simple oversights.
Should I stop working for a customer who has not paid?
That is your business decision. Many owners set a rule in advance, such as pausing new work until the balance is settled, and tell the customer the rule at the start.
Can I charge interest on late invoices?
Only if it was agreed in advance and is allowed. Put any late terms in writing before the work begins. Legal questions about enforcing them are for an attorney, since we do not give legal advice.
What is accounts receivable?
Accounts receivable is the money customers owe you for sales you have already made. It shows up on your books as an asset until the customer pays.
Do I still report income from an invoice a customer has not paid?
It depends on your accounting method. Cash-method businesses generally count income when they receive it, and accrual-method businesses generally count it when it is earned. We can confirm which applies to you.
When should I treat an invoice as uncollectible?
Only after you have made reasonable efforts to collect and have good reason to believe it will not be paid. Keep notes on what you tried, and ask us how to record it.
Read next
Related reading
Cash vs Accrual Accounting: Which Method Fits?
From Tax Guide.
What Is Bookkeeping? A Small Business Guide
From Tax Guide.
Bank Reconciliation Made Simple
From Tax Guide.
Payroll and Bookkeeping
A service Melton Tax Services provides.
Melton Tax Services
Questions about your taxes or your business?
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