Outstanding Invoice: Meaning, Follow-Ups & Next Steps

Published Thursday 19 March 2026

Table of contents

• What is an outstanding invoice?
• What's the difference between outstanding and past due invoices?
• How do unpaid invoices affect your business?
• How to chase late payments
• When you still don't receive payment
• Tips for avoiding late payments
• Download Xero's free invoice template
• Streamline your invoicing with Xero
• FAQs on outstanding invoices

Key takeaways

• Track your invoices regularly and send polite payment reminders 1-3 days after the due date to catch overdue payments early and maintain healthy cash flow.
• Implement upfront payment strategies like deposits or milestone-based payment plans to reduce risk and improve cash flow before work is completed.
• Escalate collection efforts systematically by progressing from email reminders to phone calls, late fees, and cutting off services until outstanding invoices are paid.
• Use accounting software to automate invoice reminders and tracking, which saves time and helps prevent late payments without constant manual follow-up.

What is an outstanding invoice?

An outstanding invoice is any invoice you've sent to a customer that hasn't been paid yet. It could still be within the payment window or already past due.

Outstanding invoices are a normal part of business. The challenge is making sure they get paid before they affect your cash flow. Tracking them closely and following up promptly helps you collect payment faster and maintain healthy client relationships.

What's the difference between outstanding and past due invoices?

The terms are often confused:

• Outstanding invoices: all unpaid invoices that have been issued, whether still within the payment period or past the due date
• Past due invoices: a subset of outstanding invoices that have passed the agreed payment deadline and require immediate attention

In short, all past due invoices are outstanding, but not all outstanding invoices are past due.

How do unpaid invoices affect your business?

Unpaid invoices directly harm your cash flow, making it harder to cover operating costs and plan for growth. Late payments from time to time are normal, but frequent delays create serious problems.

When clients don't pay on time, the effects ripple through your business:

• Cash shortages: you may struggle to pay suppliers, staff, or rent
• Damaged relationships: late payments to your own vendors can hurt your credit rating
• Lost opportunities: money tied up in receivables can't be invested elsewhere

Successfully invoicing and managing unpaid invoices sustains your business's long-term financial health.

How to chase late payments

When a payment becomes overdue, you have several options for collecting what you're owed. These strategies range from gentle reminders to formal legal action, depending on the situation.

1. Write a payment request letter or email

A payment request letter is a polite reminder sent when you first notice a payment is overdue. Acting quickly and professionally helps you check if the delay was made in good faith and prepares you for any further action if needed.

In most cases, a simple reminder is enough to prompt payment.

How to structure your payment request letter

Keep your letter brief and professional. Include these key elements:

1. Start with a standard greeting
2. Reference the specific invoice number, due date, and amount owed
3. Ask politely when you can expect payment
4. Remind them of your payment terms

You don't need to repeat what the payment was for. Those details are already on the original invoice.

2. Send an overdue invoice

An overdue invoice is your original invoice with an "overdue" stamp added to create urgency. Send one when your initial payment request doesn't get a response.

Attach the stamped invoice to a follow-up email as a formal reminder to your customer.

Setting up a reminder schedule helps you follow up promptly on late payments:

• Manual tracking: add invoice follow-ups to your regular accounting routine
• Automated reminders: use invoicing software to send payment reminders automatically until payment is received

3. Send a statement of accounts

A statement of accounts summarizes all outstanding payments from a single client into one document. This won't reduce overdue invoices on its own, but it streamlines your admin by letting you chase multiple unpaid invoices at once.

Accounting software can consolidate your unpaid invoices automatically. Consider following up with a phone call to discuss the statement.

4. Make the phone call and prepare to negotiate

Phone calls get better results than emails because clients can't ignore you when speaking directly. If your emails have gone unanswered, it's time to pick up the phone.

Follow this structure to keep the conversation productive:

1. Greet them, then reference the specific unpaid invoices by number or date
2. Ask politely when you can expect payment
3. Wait for their response, even if there's silence, to encourage them to name a date
4. Stay on the call until they've committed to a payment date

You may need to negotiate payment terms. Consider these approaches:

• Small amounts: agree to extend the payment date, but refuse further work until paid
• Uncomfortable negotiating: ask your bookkeeper or accountant to handle calls on your behalf

Choose a negotiation strategy that suits your situation to get paid.

5. Charge a late payment fee

A late payment fee gives clients a financial incentive to pay on time. To use one effectively, communicate your late-fee policy upfront in your payment terms before starting work.

Keep the fee simple. Rather than quoting a percentage, state a single amount:

• Due by 1 June: $100
• Due after 1 June: $110

This makes it easy for clients to understand the consequence of paying late.

If a client misses the due date, notify them that the late fee has been applied. For goodwill, consider offering to waive the fee if they pay within 48 hours.

6. Cut them off until outstanding invoices are paid

Stop working for clients who won't pay or respond to your messages. Continuing to deliver services without payment puts your own business at risk.

Inform the client that you won't continue any work until all outstanding invoices are paid in full. You may lose the client, but protecting your cash flow is more important.

7. Hire a debt collector

A debt collection service pursues payment on your behalf when a customer stops cooperating. While using a collector may strain the relationship, it's a common final step after other methods have failed.

Debt collection fees typically range from 5%–25% of the amount recovered. Depending on your contract terms, you may be able to pass these costs onto the debtor.

You can find approved debt collection service providers directly through the Xero App Store.

8. Call in the lawyers

Legal action is your last resort when debt collectors can't recover payment. The type of action depends on whether the debtor is a sole trader, partnership, or company. Small claims court is another option for recovering unpaid invoices.

Consult a lawyer who specializes in debt recovery. Your debt collector may have in-house legal expertise or can refer you to someone.

To find out more about legal action, check the disputes register in Canada.

When you still don't receive payment

You have many ways to deal with overdue invoices, though some situations require additional steps. When other collection methods haven't worked, these options can help you move forward.

Write off the unpaid invoice

Writing off an unpaid invoice removes it from your accounts receivable and may allow you to claim back taxes already paid on expected income.

How you handle write-offs depends on your accounting method:

• Accrual-based accounting: you report income when invoiced, not when received. If an invoice goes unpaid, you'll need to write it off as a "bad debt" to claim back taxes. Keep your correspondence with the client as evidence for the tax authority.
• Cash-based accounting: you only report income when received. Simply exclude the unpaid amount from your income statements.

Track, manage, and write off bad debts in your accounting with Xero.

Perform credit checks on prospective clients

Credit checks reveal whether prospective clients pay their bills on time. Running a check before agreeing to work together helps you avoid outstanding invoices in the future.

A positive credit score indicates the client is likely to pay promptly with little follow-up needed.

Tips for avoiding late payments

Rather than chase outstanding invoices, focus on getting paid on time in the first place.

Set time aside to track outstanding invoices

Track your invoices regularly to spot overdue payments early. Prompt reminders lead to faster payment, better cash flow, and stronger client relationships.

Take partial payment upfront

Requesting partial payment upfront protects you from losing the full amount if a client doesn't pay. This could be a deposit to cover your core costs or a percentage of the overall fee.

Upfront payments offer two key benefits:

• Risk reduction: you can gauge whether a client intends to pay before completing the work
• Better cash flow: you're not waiting for the entire payment to arrive at the end

Offer payment plans to clients

Payment plans let clients pay in instalments rather than all at once. This works well for large invoices or long-term projects.

You can structure payment plans in two ways:

• Milestone-based: 25% upfront, 25% halfway through, 50% on completion
• Time-based: split the total into equal monthly payments (for example, over three months)

Payment plans strengthen client relationships, improve cash flow for both parties, and help you collect money before invoices become overdue.

Use accounting software like Xero

Accounting software automates invoice reminders, prompting customers to pay without your involvement. Xero sends follow-up emails on your behalf, saving you time and helping prevent late payments before they occur.

Download Xero's free invoice template

Create and send professional invoices quickly with Xero's free invoice template. Set early payment dates to encourage faster payment, and use live payment tracking to see how long each client takes to pay.

Download Xero's free invoice template.

Streamline your invoicing with Xero

Collecting overdue invoices is easier when you have the right tools. Automated invoicing in Xero sends payment reminders on your behalf, so you only get involved when it's serious.

Track outstanding invoices and reduce late payments with invoice management tools that integrate with your accounting system. Get one month free to see how automation can simplify your collections.

FAQs on outstanding invoices

Here are answers to common questions about managing outstanding invoices.

Is an outstanding invoice the same as an unpaid invoice?

Yes. Both terms refer to invoices that have been issued but not yet paid. "Outstanding" is the more common term in accounting contexts.

How long should I wait before chasing an outstanding invoice?

Send a polite reminder 1–3 days after the due date. If there's no response within a week, follow up with a phone call or send an overdue invoice.

Can I charge interest on outstanding invoices?

Yes, if you've included interest terms in your original payment agreement. Make sure clients know about potential interest charges before you start working together.

What should I do if a client disputes an outstanding invoice?

Listen to their concerns and review the original agreement. If the dispute is valid, negotiate a resolution. If not, provide documentation supporting the invoice and request payment by a specific date.