Outstanding invoices: how to track, chase and prevent

Published Thursday 2 April 2026

Table of contents

• What are outstanding invoices?
• How do unpaid invoices affect your business?
• How to track outstanding invoices
• How to chase late payments
• How to prevent outstanding invoices
• Manage outstanding invoices with Xero
• FAQs on outstanding invoices

Key takeaways

• Set up an accounts receivable aging report and use accounting software to automatically track which invoices are outstanding, overdue, and require immediate follow-up action.
• Implement a structured payment chase process that starts with polite email reminders, escalates to phone calls for direct negotiation, and includes late payment fees to encourage timely payment.
• Prevent outstanding invoices by establishing clear payment terms upfront, requesting partial payments or deposits before starting work, and performing credit checks on new clients for larger projects.
• Use automated invoicing software to send payment reminders before and after due dates, which saves time and reduces the likelihood of invoices becoming overdue.

What are outstanding invoices?

When you understand the difference between outstanding, overdue, and unpaid invoices, you know when and how to take action.

Outstanding vs overdue invoices

Outstanding invoices are bills you've sent that haven't been paid yet, regardless of whether the due date has passed.

Overdue invoices (also called past due invoices) are outstanding invoices where the payment deadline has passed. These require immediate follow-up.

All overdue invoices are outstanding, but not all outstanding invoices are overdue. An invoice sent yesterday with a 30-day payment term is outstanding but not yet overdue.

Outstanding vs unpaid invoices

The terms 'outstanding' and 'unpaid' are often used to mean the same thing. Both refer to an invoice that a client has not yet paid. The key is to know whether the invoice is simply outstanding (within its payment terms) or if it's overdue (past its due date).

How do unpaid invoices affect your business?

Unpaid invoices disrupt your cash flow and make it harder to cover operating costs or plan for growth. Late payments create a ripple effect across your business.

Here's how outstanding invoices affect your business:

• Cash flow gaps: paying suppliers, staff, and yourself depends on clients paying you on time
• Supplier relationships: timely payments to your vendors help maintain supply schedules and strong partnerships
• Credit rating impact: consistent payments to creditors help maintain your business credit score
• Future work: a strong payment reputation makes it easier to win new clients and contracts

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

How to track outstanding invoices

Before you can chase late payments, you need a system to identify which invoices are outstanding and when they're due. Setting time aside to regularly track your invoices helps you spot overdue payments early.

Set up an aging report

An accounts receivable aging report helps you do this. It lists all your outstanding invoices and groups them by how long they've been unpaid, for example, 1–30 days, 31–60 days, and so on. This report gives you a clear picture of who owes you money and which payments need your attention first.

Use accounting software to track invoices automatically

Manual tracking can be time-consuming. Accounting software like Xero automates this process for you. You can see the status of all your invoices on a single dashboard, so you always know what's been paid, what's due, and what's overdue.

Create a payment reminder schedule

A consistent schedule for sending reminders can help you get paid faster. You can set up automated reminders to go out a few days before an invoice is due, on the due date, and at set intervals after it becomes overdue. This keeps the payment top of mind for your clients without extra work for you.

How to chase late payments

When an invoice becomes overdue, you can take several actions to recover payment. Start with gentle reminders and escalate if needed.

Write a payment request letter or email

A payment request letter is a polite reminder sent when you first notice an invoice is overdue. In most cases, this simple follow-up prompts payment. If the late payment is intentional, the letter creates a paper trail for further action.

Act quickly and professionally to check if the delay was made in good faith and to get paid faster.

Structure your payment request letter like this:

1. open with a friendly greeting
2. reference the specific invoice number, due date, and amount owed
3. politely ask when you can expect payment
4. include a brief reminder of your payment terms

Keep it short. The payment details are already on the original invoice.

Send an overdue invoice

An overdue invoice is your original invoice with an "overdue" stamp added to create urgency. If your payment request letter gets no response, send this stamped invoice as a formal follow-up.

Attach the overdue invoice to a follow-up email to remind your customer of the outstanding payment.

Set up an invoice reminder schedule as part of your accounting routine. You can track reminders manually or use automated invoicing software to send payment reminders on your behalf until payment is received.

Send a statement of accounts

A statement of accounts summarises all outstanding payments from a single client in one document. Send this when you have multiple unpaid invoices with the same customer.

This approach streamlines your admin by chasing multiple invoices in one go. Accounting software can consolidate your unpaid invoices automatically. Follow up with a phone call to make sure your client received the statement.

Make the phone call and prepare to negotiate

Phone calls get better results than emails when chasing late payments. Clients find it harder to ignore you when speaking directly.

Follow this structure to keep the conversation productive:

1. greet the client, then reference the specific invoice numbers and dates
2. ask when you can expect payment
3. stay silent and wait for their response, even if they hesitate
4. stay on the call until they commit to a payment date

Be prepared to negotiate. If the amount is small and they can pay soon, you might agree to extend the deadline. You might also pause new work until the outstanding balance is cleared.

Learn which payment negotiation strategy suits your situation. If you prefer not to handle overdue invoices on the phone yourself, ask your bookkeeper or accountant to manage it on your behalf.

Charge a late payment fee

Late payment fees encourage clients to pay on time and compensate you for delayed cash flow. Include your late fee policy in your payment terms before starting work.

Keep the fee structure simple. A flat fee is easier for clients to understand than a percentage. For example:

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

If a client misses the deadline, notify them that the fee now applies. To maintain goodwill, offer to waive the fee if they pay within 48 hours.

Cut them off until outstanding invoices are paid

Stop work if a client isn't paying or responding to your messages. Continuing to deliver services to someone who won't pay puts your business at risk.

Tell the client clearly that you won't resume work until all outstanding invoices are paid in full. Protecting your cash flow takes priority.

Hire a debt collector

Debt collection services recover payments from clients who haven't responded to your collection efforts. Use this option after other collection methods have failed.

Debt collection fees typically range from 5% to 25% of the invoice amount. In some regions, you can pass these costs onto the debtor.

Find approved debt collection service providers directly through the Xero App Store.

Explore legal options

Legal action is your final option after debt collectors have been unsuccessful. The right approach depends on the debtor's business structure, whether they're a sole trader, partnership, or company.

Your options may include:

• Small claims court: suitable for lower-value invoices with straightforward disputes
• Civil litigation: for larger amounts or complex cases requiring legal representation

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

Check the disputes register in your region to understand your legal options.

When to write off an unpaid invoice

When payment remains uncollected, you may need to write off the invoice as a bad debt. This matters for tax purposes.

Accrual accounting: If you've already reported the income and paid tax on it, write off the invoice to claim the tax back. You'll need to prove to your tax authority that the debt is uncollectable. Keep your correspondence with the client as evidence.

Cash accounting: If you only count revenue when collected, you can skip writing off the invoice. Just exclude the amount from your income statements.

Xero's software can help you track, manage, and write off bad debts in your accounting.

How to prevent outstanding invoices

When you prevent late payments, you save time and protect your cash flow. Set up these systems to encourage on-time payment from the start.

Set clear payment terms upfront

Your payment terms should be clear on every invoice. Include the due date, the payment methods you accept, and any fees for late payments. Discuss these terms with your client before you start work to make sure you both understand them.

Set time aside to track outstanding invoices

Track regularly to spot overdue invoices early and send reminders before payments slip further. Schedule weekly time to review your accounts receivable and follow up on anything past due.

Prompt action leads to faster payments and stronger client relationships.

Take partial payment upfront

Upfront deposits reduce your risk of non-payment and improve cash flow. Request a deposit before starting work, either a fixed amount to cover core costs or a percentage of the total fee.

Partial payments help you:

• cover your costs before delivering the full service
• identify clients who may not intend to pay
• receive payments throughout the project

Offer payment plans to clients

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

Structure payments around project milestones. For example:

• 25% upfront before work begins
• 25% at the halfway point
• 50% on completion

If a client struggles to pay after completion, offer to split the balance into monthly instalments. Payment plans strengthen client relationships, improve cash flow for both parties, and help you collect before invoices become overdue.

Perform credit checks on prospective clients

Credit checks reveal whether a potential client pays bills on time and honours their debts. Run a check before agreeing to large projects or ongoing work.

A positive credit score suggests the client will pay promptly and you won't need to chase them. A low score suggests you should take extra precautions. Consider requiring upfront payment or choosing not to take on the work.

Use accounting software to automate reminders

Automated invoicing software sends payment reminders without manual effort. Xero can prompt customers to pay on your behalf, saving you time and reducing late payments.

Key automation features include:

• Automatic payment reminders: scheduled emails sent before and after due dates
• Real-time tracking: see which invoices are outstanding at a glance
• Online payment options: let clients pay directly from the invoice

Manage outstanding invoices with Xero

Managing outstanding invoices can be straightforward. Xero's accounting software automates payment reminders, tracks aging invoices, and helps you stay on top of your cash flow.

With Xero, you can:

• Send automatic reminders: schedule payment prompts before and after due dates
• Track outstanding invoices: see what's owed at a glance with real-time dashboards
• Accept online payments: let clients pay directly from invoices to speed up collection
• Integrate with your workflow: connect invoicing to your broader accounting system

Get one month free and see how Xero simplifies invoice management.

FAQs on outstanding invoices

Here are answers to common questions about managing and collecting outstanding invoices.

What are outstanding invoices?

An outstanding invoice is a bill you've sent that hasn't been paid yet. The term applies whether the payment is still within the due date or already overdue.

What is the difference between outstanding and overdue invoices?

Outstanding invoices are any unpaid bills, while overdue invoices are outstanding invoices where the payment deadline has passed. All overdue invoices are outstanding, but not all outstanding invoices are overdue.

Is an outstanding invoice the same as an unpaid invoice?

Yes. Outstanding invoice and unpaid invoice mean the same thing: a bill that has been issued but not yet paid.

How long should I wait before chasing an outstanding invoice?

Send a polite reminder the day after the due date passes. If you haven't received a response within a week, follow up with a phone call. Acting quickly increases your chances of getting paid.

Can I charge interest or late fees on outstanding invoices?

Yes, if you include late fee terms in your original payment agreement. Communicate your late fee policy before starting work so clients know what to expect if they pay late.