What is a Past Due Invoice? Guide for Contractors on How to Handle Late Payments
As a construction business owner, you handle multiple responsibilities every day. However, late customer payments can disrupt your smooth operations. In fact, it may be leading to cash flow problems that may jeopardize your success. A QuickBooks study found that 61% of small businesses face regular cash flow struggles due to late payments. One of the primary culprits behind these issues is the notorious past due invoice.
In this guide, we'll break down what a past-due invoice is. You also get our best tips on handling late payments and how CCA's Accounts Receivable Services can help you get back on track.
What is a Past Due Invoice?
A past-due invoice happens when a customer doesn't pay on time. This can cause late payments, delays, and a growing number of unpaid invoices.
A National Federation of Independent Business (NFIB) study discovered a significant issue. It found that 64% of small businesses, including construction companies, deal with unpaid invoices for 60 days or longer. This highlights the prevalence of overdue invoices. Therefore, it is important for construction owners to deal with late payments to keep their cash flow healthy and ensure success.
Outstanding vs. Overdue: What's the Difference?
Distinguishing between "outstanding" and "overdue" invoices is crucial. They represent different stages in the payment process:
Outstanding Invoice: This type of invoice has been sent to the client but remains unpaid. It doesn't mean it's past due. It simply shows the invoice is open and waiting for payment.
Overdue Invoice: Also called a past due invoice, an overdue invoice hasn't been paid by the due date. These invoices are a red flag. They can cause cash flow issues and impact your construction business's financial health.
Knowing the difference helps you decide which invoices need urgent attention and follow-up. Understanding this difference can help you prioritize which invoices need immediate attention and follow-up.
6 Actionable Tips for Handling Late Payments
1. Establish Clear Payment Terms:
Prevent late payments by agreeing on a preferred payment method with clients before starting a project. Make the invoice crystal clear, including all essential information about what the customer is paying for. Set a specific invoice due date or payment deadline to avoid confusion.