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.

2. Automate Invoicing:

Using accounting software can streamline the invoicing process and automate payment reminders. This helps you stay on top of outstanding invoices and reduces the chance of unpaid invoices slipping through the cracks.

3. Send Friendly Payment Reminders:

Establish a process for following up on past-due invoices. Payment reminder templates can help you craft professional and friendly reminders. Send payment reminder emails at specific intervals, such as on the payment due date, two weeks late, one month late, and two months late. Studies show that consistent follow-ups can increase the likelihood of payment by up to 80%.

4. Communicate Clearly:

To increase your chances of getting paid, use clear communication and polite follow-ups. Set payment terms upfront. Actively address late payments and implement systems for efficient accounts receivable management.

5. Consider Halting Work:

If invoices are long overdue, think about stopping work on current and future projects. Wait until the client pays the outstanding balance. This approach can push clients to prioritize their payments.

6. Explore Mediation and Legal Action:

If all else fails, consider mediation or other dispute resolution methods. As a last resort, you may need to initiate debt recovery procedures or file a lawsuit for unpaid invoices.

Risks Construction Businesses Face by Ignoring or Not Handling Unpaid Invoices

Ignoring unpaid invoices or not handling them effectively can put your construction business at risk in several ways:

1. Cash Flow Problems:

Unpaid invoices create cash flow challenges, making it tough to cover expenses, pay employees, and invest in growth.

2. Damaged Business Relationships:

Consistently late payments can strain relationships with clients and subcontractors. This may damage your reputation and make it harder to secure future projects.

3. Increased Administrative Burden:

Ineffective management of unpaid invoices can lead to a heavy administrative burden. This burden includes the time and effort required to track and follow up on these payments. It is overwhelming to consume valuable time and resources that could be better utilized for other important tasks.

4. Missed Growth Opportunity:

The time and effort spent on chasing unpaid invoices could be better spent on other tasks, such as marketing, or project management. Ignoring unpaid invoices may result in lost opportunities for growth. By promptly addressing unpaid invoices, you can free up resources. This opens doors to seize new opportunities and thrive in the construction industry.

5. Potential Legal Issues:

When unpaid invoices are ignored or mishandled, it can lead to legal problems. If the issue gets worse and you have to go to court to get the due bills paid, it takes time and costs money. So, it is important to take care of unpaid bills right away to avoid these court problems.

How CCA's Accounts Receivable Services Can Help

We understand the challenges construction owners face when dealing with past-due invoices and late payments. Our Accounts Receivable Services are here to help you. By partnering with CCA, you can benefit from our expertise to manage your invoices and follow up smarter. This will help you maintain a healthy cash flow and foster the growth of your business.

Ready to take control of your past-due invoices and late payments? Schedule a free consultation with our team to learn more about how CCA can help you effectively handle late payments and streamline your invoicing process.

In Conclusion

Dealing with past-due invoices and late payments is a challenge many construction business owners face. Implementing proactive strategies can help improve payment timelines, such as automating invoicing, setting clear payment terms, and sending timely reminders. Partnering with CCA for our Accounts Receivable Services can aid in effective invoice management, freeing up your time to focus on business growth.

Don't let past-due invoices and late payments hold your business back. Take control of your cash flow today with CCA. Contact us today to get your construction business the financial stability it needs to succeed.