Written by Alice Ko, CPA, CA
This is the ultimate guide on how to set up accounts receivable payment reminders that work for B2B businesses. If the last few weeks amidst the banking crisis have reminded us of anything, it's that cash flow is vital. And having accounts receivables on hand impacts the cash flow statement. Companies everywhere (not just startups) need essential tips to keep business cash flow running and that includes making sure you are paid on time.
As a B2B business owner, one of the most frustrating things you will face (on top of rising interest rates, inflation, supply chain challenges, and a downtown - of course) are customers who are late with their payments.
- Perhaps you offered your customers net terms because it was a standard in your industry.
- Perhaps you needed to offer payment terms because you were trying to win business with new customers (like GoMaterials).
- Or perhaps you offered payment terms because your existing customers needed more time to pay off their invoices - and they asked you for it.
Whatever the case, late payments equal late payments.
And this will cause you a multitude of challenges, including:
- Cash flow problems
- Ability to pay your employees and suppliers
- Affecting your business's overall financial stability
Hopefully, a few late payments here and there won’t destroy your business. And all businesses have learned a thing or two from recent liquidity concerns with the recent banking crisis (at least we hope you are paying attention to your liquidity strength!).
However, consistent late payments, in aggregate, will eventually lead to losses. Financial losses (say hello to bad debts), losses in time spent following up with customers, and potential losses in your business relationships.
Don't let late overdue invoice payments from your customers derail your business. With an effective payment reminder strategy, you can easily prompt your clients to pay on time without damaging your business relationship with them and without putting strain on your own resources.
As a former business owner myself, I know a thing or two about following up on late payments. I once had to follow up with a customer on an invoice past due for six months! Needesslesstosay, the constant barraging and requests for payment ended up damaging our business relationship. Let’s make sure that doesn’t happen to you.
Set clear payment expectations
As I like to say: “clarity creates calm”! Let’s start with the basics. You must be clear with your communications and expectations with your customer upfront.
If you are offering net terms financing, the payment terms should be clearly set, stated, and agreed upon during the sales process.
Make sure all your sales agreements have clear terms of service indicating your shipment terms, invoice terms, and B2B payment terms. If you happen to sign sales agreements with your customers, make sure to include a signature field right under the payment term clause.
I would require my customers to sign their name under the payment term clause in my initial sales contracts. This would help me ensure they read the terms and conditions upfront.
If you don’t sign a sales agreement, I recommend you clearly state the invoice and payment terms on any purchase order document and on the issuing invoice so there is no room for misinterpretation.
Specify the due date, payment method, and late payment fees in all your agreements, contracts, and document.
Be upfront with your customers about the consequences of late payments to avoid any confusion down the line.
Automate your reminders
Life and business get busy. Automated accounts receivables reminders make a difference.
If your customers forgot to pay, maybe it was an honest mistake!
This is why AR automation like integrated receivables solutions is so important.
There are plenty of receivables management tools and software on the market that can help you send automated payment reminders a few days before the invoice is due.
AR automation saves you time and reduces the risk of human error (the last thing you want is for your team to be sending out a reminder to the risk client - oops!)
This is why I recommend using accounting software or another fintech tool to help you set up automated payment reminders that will be sent out to customers at specific intervals that you define.
Automating reminders will help reduce the amount of time and effort you spend on follow-ups while still ensuring that customers receive timely reminders. This also helps your clients remember that the payment is coming up soon and gives them time to get their business in order!
Think about the vendor invoices you are responsible for paying. How many times have you breathed a sigh of relief every time you receive a reminder email in your inbox? I know I have!
The other benefit of using an automated AR platform? Your customers will know the reminder is coming from a software system - not you. The email reminder can be direct and straightforward. No offense taken.
Use a payment-chasing software
Take automation to the next level. Why not outsource alltext in italic your payment reminders and payment chasing? Accounts receivables automation software and all types of apps exist now to take the work off your hands.
One of the most popular and reliable solutions on the market is Resolve. Better known as the B2B spinout of Affirm, Resolve is a B2B invoicing and payments solution that manages everything from credit checks, credit decisioning, automated AR reminders, payment chasing, and even cash advances.
Companies everywhere use Resolve to automate the otherwise manual task of managing invoices. Everything is automated while invoices are paid faster through tech-enabled reminders, friendly human-focused payment chasing, and upfront cash payments—all while maintaining a world-class customer experience.
- Tern Bicycles outsources all accounts receivable management to Resolve while trusting them to manage their customer relationships in a professional way.
- DocShop Pro used Resolve to manage their payment reminders - while increasing order sizes by 15%.
- Archipelago Lighting’s finance and accounting team saved approximately 20 hours a week after using Resolve for managing their invoices, AR, and payments (while growing tripling revenue!)
Send friendly reminders within one week of the due date
Hey, sometimes we all forget things.
At Resolve, we have a value called “Assume Positive Intent.” This helps us remember to put ourselves in other people’s footsteps so we can imagine ourselves in their situation. Also known as empathy.
If a payment hasn’t been received after the invoice is due, it’s possible that your customer may have just forgotten! Maybe they had personal issues to deal with, or they might have been fighting a fire at work.
This is why I emphasize the importance of sending a friendly payment reminder at first.
Sending friendly overdue payment reminders early is an excellent way to nip late payments before it gets too late. Sending a friendly message will also demonstrate your professionalism and punctuality and de-risk any negative stigma around aggressive collections.
Here is a standard invoice reminder template that may work for you. We recommend you send this one day after the due date.
Subject line: First reminder – You have an unpaid invoice
Hello [insert client name]!
[Your company name] would like to remind you to pay invoice [insert invoice number].
Please find a copy of the invoice due attached to this email.
Amount due: $50,000 USD
Payment due date: Month, date, year.
If you have any questions, please contact [contact information and phone number].
[Company name] has many payment options including online payments for credit card and [include all payment options]. A friendly reminder that all invoices past due are subject to late fees.
The template above is a good example of what to send for the first email. However, if one of your customers has a number of outstanding invoices that are one week overdue (or even a month overdue!) I recommend a different type of notification.
Subject line: Late overdue invoice reminder
Hello [insert client name],
We have yet to receive payment from [client name] of [dollar amount] for invoice [insert invoice number] which was due for payment on [invoice date due].
Could you kindly provide an update on the expected payment timeline at your earliest convenience? Please note that late payments are subject late fees.
The invoice is attached for your reference.
[Company name] has many payment options for online payments including credit card and [include all payment options].
When sending a manual payment reminder email, always remember to maintain a polite and professional tone. Your message should be personal, firm, but courteous, and avoid any accusatory language. The goal is to remind clients of their payment obligation without damaging the business relationship.
Get creative and use different communication channels
At Resolve, every new team member is required to complete a “README” that acts like a personal operating manual. In their “manual”, eaach person is required to tell others how they like to be communicated with.
Everybody has a different preference for being communicated with.
The same is true for your customers. Not all customers will respond to the same communication channels. Some will be glued to their email. Some prefer emails, while others prefer phone calls or SMS text messages! Resolve once had a customer that could only communicate with us while they were driving in their car!
Try to connect with your customer through different channels. Don’t just try email. Phone them (try calling during different times of the day), text them, or try getting in touch with somebody else from the office.
By doing this, you’ll also learn your client’s preferred method of communication, which is ultimately beneficial for you in the long run.
Be flexible (sometimes)
It’s been a tough few years. Your clients may be facing business challenges that make it difficult for them to make payments on time - or they may be going through personal challenges.
In such cases, it's important to be flexible and understanding. Consider offering payment plans or extensions if necessary.
This is why wholesale “buy now pay later” options have become a popular option for companies to offer their customers. Otherwise known as offering net terms online, offering your customers the option to defer payments for 30 days or 60 days (or even 90 days!) can build trust and shows that you value your business relationship. For you, flexible payment plans can be considered a short-term pain for potential long-term gain for your business.
Escalate if necessary
If a client fails to respond to your automated emails, manual payment reminders, or phone calls - and you've exhausted all your options, you may need to (unfortunately) escalate the matter.
This may involve involving a debt collection agency, using debt collection software, or taking legal action yourself. However, this should always be a last resort, and you should seek legal advice before taking any drastic action.
The bottom line: Maximizing payment collections and payment reminders
Reminding your customers to pay you isn’t fun - but sending payment reminders is an essential part of any B2B business's financial management strategy. By setting clear payment terms upfront, sending friendly reminders early, being professional and flexible, automating reminders, and even using an invoicing and collections platform like Resolve, you can increase the likelihood of timely payments without damaging your business relationship with your customers. Hopefully, these tangible tips will help you say goodbye to late payments. Don’t let late payments hurt your business. Take control of your cash flow and use these tips to perfect your payment collections. If you need a fast and effective way of collecting invoices now, try Resolve’s free trial and experience how automated payment accounts receivables reminders can transform your business for good. Learn more.