Outstanding invoices: what they are and how to get paid

Published Wednesday 1 April 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
• Download Xero's free invoice template
• When you still don't receive payment
• Tips for avoiding late payments
• FAQs on outstanding invoices

Key takeaways

• Follow up on overdue invoices the day after the due date passes with a polite payment request letter that includes the invoice number, amount owed, and a clear request for when you can expect payment.
• Implement a structured escalation process that moves from email reminders to phone calls, late payment fees, and ultimately cutting off services until outstanding invoices are paid in full.
• Protect your cash flow by requiring partial payment upfront (typically 25% before work begins) and setting up payment plans for larger projects to reduce your exposure to unpaid invoices.
• Track your outstanding invoices weekly and perform credit checks on new clients to identify potential payment risks before agreeing to work with them.

What is an outstanding invoice?

An outstanding invoice is one you've sent to a customer that hasn't been paid yet. It's a normal part of doing business, but it's worth knowing the difference between an invoice that's simply waiting for payment and one that's late.

Outstanding vs unpaid: are they the same thing?

Outstanding and unpaid are often used interchangeably, but there's a subtle difference. An outstanding invoice is any invoice that hasn't been paid yet, whether or not it's past due. An unpaid invoice typically refers to one where payment is expected but hasn't arrived.

In practice, both terms describe invoices waiting to be paid. Whether the due date has passed determines if the invoice is also overdue.

When does an invoice become overdue?

An invoice becomes overdue the day after its due date passes. If your payment terms are 30 days and the invoice was issued on 1 June, it becomes overdue on 2 July.

Standard payment terms range from seven to 30 days, though some industries use 60 or 90 days. Whatever terms you set, make sure they're clearly stated on every invoice.

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

Outstanding invoices include all invoices you've sent that remain unpaid, regardless of whether the due date has passed. Past due invoices (also called overdue invoices) are a subset of outstanding invoices where the payment deadline has already passed.

The key distinction: an outstanding invoice becomes past due only after the agreed payment date. Past due invoices require immediate attention and follow-up.

How do unpaid invoices affect your business?

Late payments happen, but when they occur too often or drag on too long, they can seriously affect your business.

Outstanding invoices disrupt your cash flow, making it hard to cover operating costs and plan ahead. For small businesses with a high volume of overdue invoices, 50% reported issues with cash flow, making them 1.4 times more likely to face this problem than businesses with fewer late payments.

Unpaid invoices can create a ripple effect across your business:

• Supplier relationships suffer: If you haven't been paid, you can't pay your suppliers on time.
• Credit rating drops: Late payments to others can damage your business credit score. Research shows that businesses affected by late customer payments are more reliant on credit cards to manage expenses.
• Future work becomes harder: A poor payment history can hurt your professional reputation.
• Role reversal risk: You could end up being the one chased for late payments.

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

How to chase late payments

Here are eight practical steps to collect outstanding payments.

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. In most cases, this simple step prompts customers to pay promptly.

If the late payment is intentional, your request letter creates a paper trail for any further action you may need to take.

A payment request letter serves several important purposes.

Why you need a payment request letter

Act quickly and professionally to avoid delays, check if the error was made in good faith, and get paid.

How to structure your payment request letter

Keep your payment request 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. Politely ask when you can expect payment.
4. Remind them of your payment terms.

You don't need to restate what the payment was for, as those details are already on the original invoice.

2. Send an overdue invoice

If the request letter doesn't get a response, the next step is to send an overdue invoice.

An overdue invoice is essentially the original invoice except it has an 'overdue' stamp to give a greater sense of urgency. You can attach this stamped outstanding invoice to a follow-up email to serve as a formal reminder to your customer.

Setting up an invoice reminder schedule in your accounting routine helps you promptly follow up on late payments and ensures customers know about their outstanding invoices. You could carry this out manually, or use automated invoicing software to send payment reminders on your behalf until payment is received. Some businesses using late fee automation are getting paid 40% faster than before.

3. Send a statement of accounts

If you have multiple unpaid invoices with the same client, you could send them a statement of accounts summarising all outstanding amounts. Accounting software can help to consolidate your unpaid invoices into one document.

This step alone won't reduce your overdue invoices. However, it'll help you streamline your admin by chasing multiple unpaid invoices in one go. Consider following up with a phone call to notify them of the statement of accounts.

4. Make the phone call and prepare to negotiate

If your emails have been ignored, it might be time to give your client a call. Phone calls can be effective because they create direct contact and may prompt faster responses than email alone.

Structure your call to keep it succinct and productive:

1. Open with context: After greetings, identify the unpaid invoices by number or date.
2. Ask directly: Request a specific date when you can expect payment.
3. Use silence strategically: Wait for their response, even if they hesitate, to encourage them to commit.
4. Secure a commitment: Try to agree on a specific payment date before ending the call, if possible.

You may need to negotiate the terms of when you'll receive payment. For instance, if the unpaid invoice is a relatively small amount they can pay soon, you may agree to move the due date but refuse to carry out any more work until they pay.

Find the right approach for your situation. If you're uncomfortable dealing with overdue invoices on the phone and negotiating yourself, you could ask your bookkeeper or accountant to handle it on your behalf. See Citizens Information's guidance on debt collectors for debt-related options.

5. Charge a late payment fee

A late payment fee is an additional charge applied when invoices aren't paid by the due date. A clearly disclosed late-payment fee may encourage some clients to pay on time.

Communicate any late-fee policy upfront in your payment terms before you start work. Some businesses prefer a flat contractual late fee because it may be simpler to communicate, but whether you can enforce it depends on local law and the contract terms. For example, in New York, the maximum late fee is capped at $50 or 5% of the outstanding balance per month, whichever is lower. For example:

• Total due by 1 June: $100
• Total due after 1 June: $110

Keeping it simple motivates customers to pay on time. If they don't pay on time, notify them that the late fee has now been charged. You may choose to waive a contractual late fee as a goodwill gesture if prompt payment is made.

6. Cut them off until outstanding invoices are paid

If a customer isn't paying you or responding to your messages, stop working for them until you know you'll be paid. Protect your business by avoiding clients who show no interest in paying for your services.

Inform the client that you won't continue any work until all outstanding invoices have been paid in full. This decision protects your business, even if it means ending the client relationship.

7. Hire a debt collector

A debt collection service is a professional agency that recovers unpaid invoices on your behalf when customers stop cooperating. This is typically a final step after other collection methods have failed.

Key points to know:

• Typical fees: Debt collection fees vary significantly by provider, debt type, and jurisdiction. Always obtain a written fee schedule before engaging a service.
• Cost recovery: In the UK, for qualifying business-to-business debts, you may be able to claim statutory interest, fixed compensation, and in some cases reasonable recovery costs. Whether collection fees are recoverable depends on the circumstances and the legal basis. See GOV.UK guidance on late commercial payments for more detail.
• Relationship impact: Using a debt collector may strain your customer relationship.

You can search the Credit Services Association website to find regulated UK debt collection agencies.

8. Call in the lawyers

Legal action is your last resort when debt collectors can't recover your outstanding invoices. The correct approach depends on whether the debtor is a sole trader, partnership, or company, and on the jurisdiction and claim value. Small claims court is another option for recovering unpaid invoices, though the time to resolve can vary; a relatively straightforward disputed case may take between four to six weeks to conclude.

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

For guidance on making a money claim, visit GOV.UK or the Courts Service of Ireland small claims procedure.

Download Xero's free invoice template

With Xero's invoice template, you can create and send invoices quickly. Consider setting clear payment due dates and terms, as appropriate terms can help you collect faster depending on your customers and industry.

Download Xero's free invoice template.

When you still don't receive payment

Even with many ways to deal with overdue invoices, some debts remain uncollected. Here's what you can do:

Write off the unpaid invoice

Writing off an invoice means recording an unpaid invoice as a loss in your accounting records. If you use accrual-based accounting, where you report income when it's earned rather than when it's received, you must write off the invoice.

Under some tax systems, a bad-debt write-off may be required before claiming relief for income tax or VAT purposes, but the rules differ by country and tax type. For accounting purposes, businesses generally document why they can't collect a receivable. If claiming tax relief related to a bad debt, the evidence required depends on the jurisdiction and tax involved. Your correspondence with the non-paying client can serve as useful evidence.

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

If you follow a cash method of accounting (where you only count revenue once it's collected), you can skip writing off the unpaid invoice. Simply exclude the amount from your income statements.

Perform credit checks on prospective clients

A credit check reveals whether a prospective client pays their bills on time and honours their debts. Running credit checks before agreeing to work helps you avoid outstanding invoices in the future.

A stronger credit profile may suggest lower payment risk, but it doesn't guarantee on-time payment.

Tips for avoiding late payments

Get paid on time in the first place rather than chase outstanding invoices. Here's some advice:

Set time aside to track outstanding invoices

Tracking outstanding invoices helps you spot late payments early and send prompt reminders. Set aside regular time each week to review your accounts receivable.

Following up early helps you collect payments and manage cash flow.

Take partial payment upfront

Partial upfront payment is a deposit or percentage of the total fee you collect before work begins. This approach protects you from losing out on full payments.

Requiring upfront payment helps you:

• Reduce exposure: A deposit can help identify higher-risk clients before substantial work begins.
• Improve cash flow: You're not waiting for the entire payment to arrive later.
• Cover core costs: The deposit can cover your expenses for completing the work.

Offer payment plans to clients

A payment plan allows clients to pay in instalments rather than all at once. This approach works well for large invoices or projects that span several months.

Structure payment plans around project phases:

• 25% upfront: Before work begins.
• 25% at midpoint: When the project reaches the halfway mark.
• 50% on completion: When you deliver the final work.

FAQs on outstanding invoices

Here are answers to common questions about managing outstanding invoices.

How long should I wait before chasing an outstanding invoice?

Send a payment reminder the day after the due date passes. Early follow-up increases your chances of getting paid.

Can I charge interest on late payments?

Yes, but you must disclose your late-fee policy in your payment terms before starting work. The maximum fee varies by jurisdiction.

What's the difference between outstanding and overdue invoices?

An outstanding invoice is any unpaid invoice, whether or not the due date has passed. An overdue invoice is an outstanding invoice where the payment deadline has already passed.

Should I continue working with clients who don't pay on time?

Stop working for clients who aren't paying you or responding to your messages until you know you'll be paid. Protect your business by setting clear boundaries.

When should I hire a debt collector?

Consider hiring a debt collector when other collection methods have failed and the customer stops cooperating. This is typically a final step before legal action.