There’s nothing most small business owners dread more than an unpaid invoice. Not only can unpaid invoices mean losing out on income you were expecting by a certain date, but they can also mean spending an unknown amount of time and money chasing down non-paying clients.

Unfortunately, almost all entrepreneurs will find themselves in this situation at one point or another. In fact, according to an estimate by FundBox, small businesses in the U.S. have up to $825 billion in unpaid invoices they’re waiting to collect.

While dealing with unpaid invoices is never fun, you can make the ordeal a little less stressful by arming yourself with the knowledge and other tools you need to handle such cases like a professional.

Why Your Clients Aren't Paying in the First Place

At the root of any unpaid invoice is a client who, for whatever reason, is neglecting to pay the amount they owe. While this might seem obvious, understanding why your clients are failing to pay their invoices can be a crucial step toward getting paid.

Here are just a few of the most common reasons why you might encounter unpaid invoices from clients:

They can't afford to pay

No one in the business world likes to talk about it, but funds can become tight for a number of reasons. Whether your client is suddenly facing a family emergency or overstretched their budget, not having the money to pay their invoice is an incredibly common occurrence.

Because this situation can be so embarrassing, most clients probably won’t admit that they’re facing financial hardship. Unfortunately, there’s not much you can do aside from wait or pursue collections.

They forgot to pay

While sending and collecting invoices might be at the front of your mind at all times, you have no way of knowing what else your client has on their plate.

In many cases, your client may have simply forgotten to pay their invoice. It could be that the task slipped their mind, or just that they haven’t realized that the due date has come and gone.

If you’re working with a forgetful client, don’t be afraid to send multiple (polite) reminders after sending your final invoice.

They misplaced your invoice

Depending on your field, you might find yourself working with clients that are actually large companies or other organizations. When this is the case, it’s not uncommon to find yourself communicating with multiple different people throughout the project.

However, this can pose a problem when it comes time to collect payment. Person A might assume that Person B is handling the payment and vice-versa. Or your invoice might be sent around the office for approval and never actually make its way back to you.

If you know you’re working with a larger organization, consider establishing a specific point-of-contact at the start of your project.

In fact, this is something you can even include in your contract for extra clarity and peace-of-mind.

They don't understand the payment terms

Ambiguous or unclear payment terms can cause a client payment to be late without them even realizing it.

While most professionals understand invoicing terms (like “net 30” or “due on receipt”), clients outside of the business world might not.

Your payment terms should always be clear and easy to find, but you should also consider including a specific due date on your invoices. While “net 30” might be all you need to include legally, adding a clear date will help your client keep track of their payment’s due date.

They're unhappy with your services

In some unfortunate cases, clients may express their dissatisfaction with your services by refusing to pay their invoice.

If you provide everything agreed upon in your contract, then this refusal will get them nowhere. But you might need to take the disagreement all the way to court to reach a resolution.

If, however, you breach your contract or don’t provide the services agreed upon, your client might have a case.

They never intended to pay

And, of course, there are some clients who hire your services without ever intending to pay. While you can do your best to avoid these clients from the start, there’s little you can do once you’ve become entangled with one.

Instead, you’ll need to decide between forfeiting the amount due or pursuing legal action (more on this later).

4 Steps to Handle Unpaid Invoices the Right Way

Waiting on a client’s payment can be a stressful time. However, you’ll need to strike the perfect balance if you want to approach your client in a tactful, yet authoritative, way.

On the one hand, you don’t want to fold under the pressure of confrontation and allow your client to walk away without paying for your hard work. But on the other, you also don’t want to come at your clients like a mob boss who will do anything to get their money owed.

Instead, we recommend following these steps when it comes to handling unpaid invoices and the clients they belong to:

1. Allow time for payments to clear

In a time when so many payments are made electronically, it can be easy to forget how long more traditional payment methods can take.

If your client’s due date just passed and you haven’t yet received payment, you may want to allow a day or two for a check to arrive or for a transfer to go through.

Of course, this will also depend on what type of payment methods you accept, and if this wait time is appropriate for any of them.

With that said, you don’t want to wait too long after payment is due before you reach out. Doing so can make an elusive client feel like settling their invoice isn’t a major concern to you, and therefore shouldn’t be a major concern to them.

2. Review your contract and payment terms

Before reaching out to your client, review your contract and payment terms to make sure you haven’t made a mistake.

This doesn’t just mean checking to see if you misremembered their due date, either. Double-check that the payment terms you sent to the client match the ones you have in your own records.

If there’s even a small chance that you may have sent them the wrong date, you want to find out now rather than after you’ve confronted them about a late payment.

3. Contact your client

When it comes time to rip off the bandage and contact your client directly, always assume the best of them.

Yes, some clients are dishonest. But, more often than not, unpaid invoices are the result of a forgetful mind or miscommunication. In these cases, a brief email is often all it takes to get paid.

If, however, you don’t receive a response within 48 hours of reaching out, call your client directly. Be sure to leave a clear, but polite, voicemail is they don’t answer.

If after another three to five days you still don’t hear back, send your client a physical letter detailing the invoice, payment terms, lack of payment, and all past attempts to contact them via certified mail. This will serve as proof of your contact attempts if things escalate further.

4. Follow through with collection

If all else fails, you’ll need to try other means of collecting payment.

Before you jump straight to legal action, though, there are some more approachable collection methods you can try:

Pursue another business contact

In the case that you’re working with a company rather than an individual, your first step should be to contact someone else within the organization.

Perhaps your original contact is out sick, traveling, or may not even work with the company anymore. If you can reach out to someone above your original point-of-contact, this is generally your best option.

Request mediation

With a quick search, you might be able to find business mediation services that can help you sit down and reach a resolution with your client.

If you and your client are located in the same region, you can meet face-to-face. If you operate in different areas of the country, or even the world, then you’ll need to work through mediation online.

Offer a settlement or payment plan

If you know that your client wants to pay but is for some reason unable, offering a lower settlement or payment plan is often the best course of action. While a client might not have the funds to pay their entire invoice at once, they may be able to take on monthly payments or pay a lower amount.

Before moving forward with one of these options, make sure you get everything in writing regarding the payment amount, schedule, and other key information.

When everything else fails, legal action is your only option. Sadly, though, many business owners can’t afford the time or money that legal proceedings require.

If you’re considering taking an unpaid invoice to court, consult with a trusted attorney before moving forward with the proceedings. You might find that, unfortunately, the due amount isn’t worth your trouble.

Protect Yourself From Future Unpaid Invoices

One of the best ways to handle unpaid invoices is to protect yourself from the start.

While there’s only so much you can do about clients that refuse to pay for your services, you can do everything in your power to make the invoicing process as simple as possible for your more honest clients.

With services like invoicely, you can create streamline the invoicing process for both you and your clients.

For forgetful clients or those who tend to procrastinate, this means providing a quick and easy way for them to pay their balance right through the invoice. You can also send out payment reminders and account statements with the click of a button.

Learn more about how invoicely can help protect you from unpaid invoices and make your bookkeeping just a little bit easier.