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  • Writer's pictureFair Capital

Unpaid - Open Invoice

Updated: Aug 25, 2023

We've all been there. A completed job, a satisfied customer, and then... silence. An unpaid invoice can echo loudly in a small business owner's ear.

What do you do when a client refuses to pay? How do you collect money from customers who won't pay their bills? If these questions sound familiar, you're in the right place. This guide will tackle the world of unpaid open invoices, offer advice on navigating these tricky waters, and share some professional insight into the world of debt collection agencies.

Unpaid  Invoice. open invoices, what is an open invoice

Understanding Open Invoices

Simply put, an open invoice is a bill not yet paid by your customer. In other words, it's an outstanding payment for a service you've provided or a product you've delivered. This invoice will remain "open" until your client pays in full.

An invoice is considered open as soon as the due date passes without being paid, regardless of the reason for this non-payment.

Now, why is an open invoice a problem, you might ask? Well, apart from the obvious fact that it's a debt owed to you, a large number of open invoices can negatively impact your business's financial health. They can disrupt your cash flow, affecting your operations' ability to run smoothly. It could mean struggling to meet your own financial obligations, such as paying suppliers, meeting payroll, or investing in growth opportunities.

Moreover, it's not just about the monetary impact. Chasing unpaid invoices is stressful and can drain your time and resources that could be used for more productive activities.

Understanding the nature of open invoices and how they occur is the first step in managing them effectively. This understanding lays the foundation for strategies to prevent and handle open invoices when they arise. Because let's face it – in the business world, unpaid invoices are almost an occupational hazard. Still, with the right attitude and the right tools in place, your business will run smoothly.

The Impact of Open Invoices on Business

The impact of unpaid invoices stretches far beyond just a late payment. They can profoundly impact your business, causing a ripple effect that can negatively impact growth and stability. Let's examine some of these impacts:

Disrupting Cash Flow

A business's cash flow is its lifeblood, and overdue invoices can lead to its disruption. Without regular cash inflow, your business might find itself struggling to meet its own obligations, affecting your ability to pay your employees and vendors. This could lead to dissatisfaction among your workforce and could strain your business relationships with suppliers. If left unchecked, this might even lead to losing valuable employees or damaging your business's reputation.

Hindering Business Growth

Open invoices tie up your resources, impacting your business's growth potential. Money you could have invested back into your business for expansion or improving services are instead withheld by your client. This could mean missed opportunities and slower business development.

Preventing Open Invoices

If open invoices are a puzzle, then prevention is the first piece you want to place. As the saying goes, "an ounce of prevention is worth a pound of cure" couldn't be more apt here. A strategic approach can mitigate the risk of open invoices and preserve the financial health of your business. Let's walk through some of these preventive measures:

Implementing Clear Payment Terms

Establishing and communicating clear payment terms is of utmost importance. Before starting any work or delivering products, ensure your client understands when and how payment should be made.

Set clear due dates and inform them about late payment penalties, if any. This not only sets the expectation right but also provides a legal foundation if you have to pursue payment later.

Requesting Deposits or Prepayments

Especially for large projects or orders, consider asking for a deposit or prepayment. This reduces your financial risk and also verifies a client's willingness and ability to pay. This upfront payment can cover some of your initial costs, ensuring you're not entirely out-of-pocket if your client fails to pay in full.

Performing Credit Checks on New Clients

Just like banks, before entering into a business agreement, it's wise to check a potential client's credit history. This can help you evaluate their ability to pay on time. Many third-party services provide credit information on businesses. Remember, a client with a bad credit history is more likely to leave you with unpaid invoices.

Utilizing Automated Invoicing Software

The use of automated invoicing software makes it easier to keep track of due dates, send payment reminders, and automate the late payment process. It eliminates a lot of manual labor and ensures nothing falls through the cracks.

Establishing Good Client Relationships

While this isn't a guaranteed way to prevent open invoices, establishing a good relationship with your clients goes a long way. Clients who feel valued and have a good rapport with you are often more likely to prioritize your invoices.

Preventing open invoices isn't always possible, but these strategies can significantly reduce their likelihood. Remember, the goal is not just to avoid unpaid invoices but also to foster a sustainable and financially healthy business. So, remember these strategies as you navigate your entrepreneurial journey and deal with the inevitable challenges.

Tools for Managing Open Invoices

In the era of digitalization, manual tracking of invoices is not just tedious but also prone to errors. Thankfully, there's a plethora of tools designed to help you manage open invoices effectively. Let's explore a few notable ones:


QuickBooks, by Intuit, has long been a popular accounting software globally. It includes invoicing features that can help you track due dates, send automated reminders, and even link directly to payment options. You can also generate insightful reports to analyze your open invoices and devise strategies to manage them better.


FreshBooks is another robust accounting tool that can simplify your invoice management. Alongside creating professional invoices, it allows you to monitor their status, send automated follow-up emails, and view whether a client has viewed an invoice. This added transparency can often motivate clients to settle their debts sooner.


Xero is renowned for its user-friendly interface and wide range of features. It enables you to create custom invoices, schedule automatic reminders, and accept payments in various formats. With its detailed financial performance reports, you can keep a pulse on your business's financial health.

Zoho Books

Zoho Books is a versatile tool that helps you manage your invoices and get real-time updates about your receivables. Its automation features ensure you don't miss out on sending timely reminders to your clients.


NetSuite, a leading cloud-based business software suite, can significantly streamline your invoicing and accounts receivable process. With NetSuite, you can automate your entire invoicing process, thereby reducing manual errors and improving efficiency. It provides a clear view of the outstanding invoices, helping you manage your cash flows better.

Furthermore, NetSuite enables efficient collection management by prioritizing collection activities for high-risk and overdue accounts, leading to reduced days sales outstanding (DSO) and improved cash flow. With real-time visibility and easy access to customer information, NetSuite empowers businesses to make data-driven decisions, increasing overall productivity and profitability.

The choice of tool depends on your business's specific needs and nature. Regardless of your chosen tool, the essence lies in leveraging technology to manage open invoices efficiently to reduce the amount of time and resources needed.

These tools are your allies in maintaining a steady cash flow and keeping your business on the right track. Remember, the goal isn't to eliminate open invoices completely – that's an uphill battle. Instead, it's about managing them effectively to minimize their impact on your business.

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How to Approach a Client about an Open Invoice

When dealing with an open invoice, approaching your client is one of the most sensitive yet crucial tasks. Here are some tips and sample scripts to help you handle this delicate matter professionally:

Start with Communication

Sometimes, a gentle nudge can work wonders. Your client might have forgotten, or there could be an error in their system. Start by sending a friendly reminder, either through an email or a phone call.

Tips for Approaching a Client about an Open Invoice

  • Remain Professional: Always maintain a professional tone. Remember, your goal is to preserve the business relationship while resolving the payment issue.

  • Be Clear and Concise: Clearly state the issue without becoming overly verbose. Your client should easily understand the problem and your expectations.

  • Provide Necessary Details: Include specifics like the invoice number, the total amount due, and the due date to eliminate confusion.

  • Offer a Solution: Don't just highlight the problem; provide a solution too. Suggest a payment plan or discuss possible alternatives.

  • Show Empathy: If your client is going through a difficult time, show understanding. This can foster goodwill and increase the likelihood of getting paid.

Sample Scripts for Approaching a Client about an Open Invoice

Initial Reminder:

Dear [Client's Name],

I am writing to remind you of Invoice #[Invoice Number], which was due on [Due Date]. As of today, we have not received payment.

Please let me know if there's any issue with the payment process, and I'd be happy to assist.

Thank you for your prompt attention to this matter.

Best, [Your Name]

Be Persistent

Don't hesitate to follow up if the initial reminder doesn't work. Consistency and persistence often pay off. Just remember to maintain your professionalism throughout the process.

Follow-up Reminder:

Dear [Client's Name],

I'm writing to bring your attention to the unpaid Invoice #[Invoice Number]. The total due is [Amount], and the payment was due on [Due Date].

I understand that things can fall through the cracks, so consider this a friendly reminder.

If there are any issues or if you need more time, please let me know. I'm more than willing to work out a solution.

I appreciate your immediate attention to this matter.

Best, [Your Name]

Final Reminder Before Taking Further Action:

Hi [Client's Name],

I'm reaching out regarding Invoice #[Invoice Number], which is still unpaid. This invoice was due [time period] ago, and despite multiple reminders, we have yet to receive your payment.

We value your business and would hate for this to impact our working relationship. Therefore, I kindly request you to resolve the issue as soon as possible. If you're facing difficulties in making payments, please let us know so we can discuss a possible payment plan.

Should we not hear from you within [time period], we might need to escalate the matter to our debt collection agency to recover the unpaid invoice.

I appreciate your understanding of this serious matter.

Best, [Your Name]

While these scripts can serve as a good starting point, remember to tailor your approach to suit the specific circumstances and your relationship with the client. Balancing assertiveness with empathy can pave the way for a successful resolution.

Offer Payment Options

Sometimes, a client may be facing financial difficulties. In such a case, offering flexible payment options could help. Break down the bill into installable payments, or offer a slight discount for immediate payment.

Writing an Effective Demand Letter for Unpaid Invoices

Unlike an invoice, a demand letter is a personal and formal document that informs your client about the outstanding debt and requests payment. When you've exhausted your initial attempts to collect an unpaid invoice, and your client still refuses to pay, then you may need to escalate it slightly. One of the most professional means to do this is by writing and sending a demand letter.

When Should You Send a Demand Letter?

A direct pre-collection demand letter should not be your first step. Before sending a demand letter, ensure you've made multiple attempts to collect the payment informally. This could involve sending reminders, making phone calls, or sending emails. If your client still does not pay, that's when a demand letter comes into play.

Pro tip: Saving a copy of your demand letter can serve as legal proof of your efforts to recover the debt should you take the matter to court.

Key Elements of a Demand Letter

An effective demand letter should include the following elements:

  • Your Information: Your name, address, and contact information should be at the top of the letter.

  • Date: Include the current date on the letter.

  • Client's Information: The name and address of the client who owes you money.

  • Detailed Explanation: Clearly state the reason for the letter, including a description of the services or goods provided, date, invoice number, the total amount owed, and any previous attempts to collect the payment.

  • Demand for Payment: Explicitly demand payment of the debt. Also, provide a specific date by which the client should make the payment.

  • Consequences of Non-Payment: Explain what action you will take if the client fails to pay by the stated date. This could range from legal action to reporting to a credit bureau or hiring a debt collection agency.

  • Documentation: Attach any relevant documentation, such as the original invoice, contract, or previous correspondence about the payment.

  • Signature: End the letter with your signature.

Remember, while a demand letter should be firm, it should maintain a professional tone. It's crucial not to threaten or harass the client.

How Can a Demand Letter Help?

A well-written demand letter can serve as a powerful tool for debt recovery. It shows your client that you're serious about collecting the payment and willing to take further steps if necessary. In many cases, receiving a demand letter can prompt a client to settle their debts to avoid potential legal action.

However, suppose a demand letter doesn't lead to a resolution. Then, you might need to consider further steps like hiring a reputable debt collection agency or taking the matter to court.

When Clients Won't Budge: Introducing Debt Collection Agencies

But what to do when someone doesn't pay you for work, even after employing the abovementioned strategies? That's when a debt collection agency might come into play.

You may wonder - what can a debt collector do to collect payment from a customer who simply does not pay? Well, agencies use proven strategies to recover your money. These range from direct communication and negotiation, to, in extreme cases, taking legal action.

Invoice Factoring as an Option

While managing open invoices can be a significant challenge, an innovative solution is gaining popularity among businesses—Invoice Factoring.

Invoice factoring, also known as receivables financing, is a service that enables businesses to sell unpaid invoices to a third party, often referred to as a factor, for immediate cash. Factoring is an effective method for managing cash flow and mitigate the impact of open invoices.

How Does Invoice Factoring Work?

Invoice factoring follows a straightforward process:

  1. A business delivers goods or services to a customer and generates an invoice.

  2. Instead of waiting for the customer to pay, you sell the invoice to a factoring company.

  3. The factoring company then gives you an advance, typically around 80-90% of the invoice value, within a short period—often within 24-48 hours.

  4. When the customer finally pays the invoice, the factoring company will pay you the remaining balance minus their fees.

Benefits of Invoice Factoring

Improved Cash Flow: The most notable advantage of invoice factoring is the prompt release of cash into your business. This can significantly improve your cash flow, allowing you to meet operational expenses, invest in growth opportunities, or even take on more substantial orders.

No Collateral Needed: Unlike traditional loans that require collateral, invoice factoring is based on the creditworthiness of your customers. Thus, it can be a valuable resource for small businesses that might struggle to secure traditional financing.

Risk Mitigation: If the factoring agreement is "non-recourse," then the factoring company assumes the risk of non-payment, providing an additional layer of protection for your business.

Despite its benefits, it's essential to note that invoice factoring does come with costs, typically a percentage of the invoice total. Furthermore, you must rely on your customers to pay the factoring company, which requires a level of trust. Therefore, weighing the pros and cons and considering your business needs and circumstances is crucial before opting for invoice factoring.

When to Write Off an Open Invoice

While chasing after unpaid invoices is a necessary part of business, there comes a time when the effort, time, and resources spent on recovering a debt may outweigh the potential benefits. In such cases, writing off the invoice as bad debt might be more pragmatic. But when should a business decide to take this step?

Evaluate the Costs and Potential Returns

An important aspect to consider when writing off an open invoice is the cost of recovery versus the potential return. If you're spending a lot of time or resources to collect a small debt, it may not be worth the effort. The time you spend pursuing this debt could be better spent elsewhere.

The Age of the Debt

The older a debt, the harder it tends to be to collect. Debtors may move, change their contact information, or even forget about the debt entirely. After a certain point, usually a year or two, depending on your industry and specific circumstances, it might be more beneficial to write off the debt and focus on newer, more collectible accounts.

The Financial Status of the Debtor

If your client is going through bankruptcy or severe financial hardship, the chances of recovering the debt may be slim. In these cases, writing off the debt could make more sense rather than spending resources trying to collect from a client who cannot pay.

When Litigation Is Not An Option

Sometimes, you might consider legal action to collect a large outstanding debt. However, legal proceedings can be costly and time-consuming. If the cost of potential legal action outweighs the owed amount, it could be a signal to write off the invoice instead.

It's important to remember that writing off an invoice doesn't necessarily mean you're giving up on it forever. It's more about acknowledging in your financial records that you don't expect to collect the payment.

Writing off an invoice as bad debt can have tax implications, so it's advisable to consult an accountant or financial advisor before making this decision.

In conclusion, while it's crucial to make every effort to collect outstanding payments, there are situations where writing off an open invoice may be the best business decision. Balancing your efforts to recover debts with the practicality of maintaining your business's profitability is key to managing open invoices effectively.

In conclusion, dealing with open invoices can be challenging. Still, by following the strategies in this article, you can ensure that your hard work gets the compensation it deserves.

Remember, every business deserves to be paid for its services or products. So don't shy away from using the tools at your disposal to make that happen.

At Fair Capital, we have the expertise, resources, and dedication to help businesses effectively navigate the complex landscape of debt collection. Our tried-and-true methods are designed to recover your debts, thereby allowing you to focus on what truly matters – running and growing your business.

As a leading debt collection agency, we value your business as much as you do. We operate with respect, professionalism, and commitment to ensure maximum recovery of your debts. Remember, our success is directly tied to yours, making us the perfect partner in your debt recovery journey.

Don't let unpaid invoices hold your business back any longer. Partner with Fair Capital today, and let's work together to secure the financial health of your business.


Disclaimer: Any and all information is not intended to be, nor is it, legal advice. Please consult your attorney for information concerning allowable rates of interest.

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