Outstanding invoice: meaning, follow-ups, and next steps

Published Thursday 26 February 2026

Table of contents

• What is an outstanding invoice?
• Outstanding vs overdue invoices: What's the difference?
• How do unpaid invoices affect your business?
• How to chase late payments
• When you still don't receive payment
• Tips for avoiding late payments
• Streamline your invoicing with Xero
• FAQs on outstanding invoices

Key takeaways

• Implement a systematic follow-up process starting with polite payment request emails, then phone calls for direct communication, as phone conversations get the best results for collecting unpaid invoices.
• Establish clear payment terms upfront that include late payment fees and communicate these policies to new clients before starting work to encourage timely payments.
• Protect your cash flow by requesting partial payment upfront and stopping all work for clients who have outstanding invoices until they clear their balances.
• Use automated invoicing software to track outstanding payments weekly and send reminder emails, allowing you to focus on your business while staying on top of collections.

What is an outstanding invoice?

An outstanding invoice is a bill you've sent to a customer that hasn't been paid yet. It includes any unpaid invoice, whether the payment deadline has passed or not.

For example, if you invoice a client on June 1 with payment due by June 30, that invoice is outstanding from June 1 until payment arrives, even if June 30 hasn't come yet.

Outstanding invoices appear as accounts receivable on your balance sheet. They represent money you've earned but haven't collected.

Outstanding vs overdue invoices: What's the difference?

An outstanding invoice is any invoice that has been sent but not yet paid, regardless of whether the due date has passed.

A past due (or overdue) invoice is an outstanding invoice that has passed its payment deadline. All overdue invoices are outstanding, but not all outstanding invoices are overdue.

The key distinction: outstanding invoices may still be within their payment window, while past due invoices require immediate follow-up.

How do unpaid invoices affect your business?

Unpaid invoices disrupt . When payments arrive late or not at all, you may struggle to cover essential operating costs and plan for growth.

Occasional late payments are normal. But when delays become frequent or stretch too long, the effects compound quickly.

Late payments can trigger a chain reaction across your business:

• Strained supplier relationships: If you haven't been paid, you can't pay your suppliers on time.
• Damaged credit rating: Missed payments to vendors can hurt your business credit score.
• Lost future work: A poor payment history makes it harder to win new clients or contracts.
• Role reversal: You could end up being the one chased for late payments.

Successfully invoicing and managing unpaid invoices is crucial to sustain your business's long-term financial health.

How to chase late payments

When invoices go unpaid, follow these steps to recover what you're owed.

1. Write a payment request letter or email

Send a polite payment request letter or email as soon as you notice a payment is overdue. In most cases, a simple reminder is enough to prompt payment.

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

Why you need a payment request letter

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

Skip the detailed description of products or services. Those details are already on the original invoice.

2. Send an overdue invoice

An overdue invoice is your original invoice marked with an "overdue" stamp to signal urgency. If your payment request letter doesn't get a response, sending this stamped invoice is the next step.

Attach the overdue invoice to a follow-up email as a formal reminder. The visual "overdue" marker often prompts faster action than a plain reminder.

Set up an invoice reminder schedule as part of your accounting routine. This helps you follow up promptly and keeps customers aware of what they owe.

You can send reminders manually or use automated invoicing software to handle follow-ups until payment arrives.

3. Send a statement of accounts

A statement of accounts summarizes all outstanding payments from a single client in one document. This approach streamlines your admin when you're dealing with multiple unpaid invoices from the same customer.

Accounting software can consolidate your unpaid invoices automatically. While a statement alone won't guarantee payment, it lets you chase multiple invoices in one communication. Follow up with a phone call to discuss the statement directly.

4. Make the phone call and prepare to negotiate

Phone calls get the best results for chasing unpaid invoices. It's much harder for a customer to ignore you when you're speaking directly.

If your emails have gone unanswered, pick up the phone. Keep the conversation succinct and productive by following this structure:

1. After greetings, identify the specific unpaid invoices by number or date
2. Politely ask when you can expect payment
3. Wait for their response, even if there's silence, to encourage them to commit to a date
4. Don't end the call until they've provided a payment date

Be prepared to negotiate payment terms. For smaller amounts the client can pay soon, you might agree to extend the deadline but refuse to do more work until payment arrives.

The right negotiation strategy depends on your situation. If you're uncomfortable handling these calls yourself, ask your bookkeeper or accountant to negotiate on your behalf. You can also learn more about payment negotiation strategies to find the right approach for your situation.

5. Charge a late payment fee

A late payment fee encourages clients to pay on time, but you must communicate it upfront in your payment terms. Include your late-fee policy when you agree to work with a new customer.

Keep the fee structure simple. Instead of calculating percentages, use a flat fee that's easy to understand:

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

If a client misses the deadline, notify them that the fee now applies. To preserve goodwill, consider waiving the fee if they pay within 48 hours.

6. Cut them off until outstanding invoices are paid

Stop work for clients who aren't paying or responding. Continuing to deliver services to someone who may never pay puts your business at risk.

Inform the client clearly: no more work until all outstanding invoices are paid in full. You may lose the client, but protecting your cash flow comes first.

7. Hire a debt collector

A debt collection service can recover payments when a customer stops cooperating. While this step may strain the relationship, it's a common last resort after other methods fail.

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

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 collection fails. Consult a lawyer who specializes in recovering unpaid invoices.

The type of legal action depends on the debtor's business structure: whether they're a sole proprietor, partnership, or corporation. Small claims court is another option for recovering smaller amounts.

Your debt collector may have in-house legal expertise or can refer you to a specialist. Ask them before searching for a lawyer independently.

More about legal action in the US.

When you still don't receive payment

Sometimes, despite your best efforts, you won't recover the payment. When collection fails, you have two paths forward: write off the debt or prevent it from happening again.

Write off the unpaid invoice

How you handle an unpaid invoice depends on your accounting method.

Accrual accounting

You report income when it's earned, not when it's received. If you've already paid tax on expected income that never arrived, you'll need to write off the invoice as a bad debt to claim that tax back.

According to the IRS, a bad debt can only be deducted if you have previously included the amount in your income. For tax purposes, a nonbusiness bad debt must be totally worthless to be deductible. You can't claim a deduction for a partially worthless debt.

Keep your correspondence with the client as evidence for your tax authority. Xero can help you track and write off bad debts.

Cash accounting

You only report income when you receive it. If payment never arrives, simply exclude the amount from your income statements. No write-off is needed, as the IRS clarifies that if you use cash accounting, you generally can't take a bad debt deduction for unpaid income.

Perform credit checks on prospective clients

Credit checks help you avoid problem clients before you start working with them. A customer's credit score reveals their payment history and debt repayment behavior.

A positive score suggests they'll pay on time with minimal follow-up. Consider making credit checks a standard part of your client onboarding process.

Tips for avoiding late payments

Prevention beats collection. These strategies help you get paid on time and reduce the need for chasing.

Set time aside to track outstanding invoices

Review your outstanding invoices weekly. Catching overdue payments early and sending prompt reminders speeds up collection and protects your cash flow.

Take partial payment upfront

Requesting partial payment upfront protects you from total loss. Ask for a deposit to cover your core costs or a percentage of the total fee before starting work.

This approach serves two purposes: it tests whether a client intends to pay, and it improves your cash flow by bringing money in earlier.

Offer payment plans to clients

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

Structure payments around project milestones:

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

You can also offer payment plans after the fact if a client is struggling with cash flow. Splitting a completed invoice into three monthly payments is often easier for them to manage and more likely to result in full payment for you.

Use accounting software like Xero

Xero automates invoice reminders so you don't have to chase payments manually. The software sends follow-up emails on your behalf, saving you time and reducing the stress of collections.

Automated reminders also prevent late payments by keeping your invoices visible to clients.

Streamline your invoicing with Xero

Chasing overdue invoices takes time away from running your business. Xero handles the follow-up for you.

With automated invoice reminders and real-time payment tracking, you'll know exactly what's owed and when. Xero's invoicing tools integrate with your accounting system, so you can manage outstanding invoices in one place and step in only when needed.

Get one month free and see how much easier invoice management can be.

FAQs on outstanding invoices

Find answers to common questions about managing outstanding invoices.

How long can an invoice be outstanding?

In the US, you typically have up to six years to pursue payment through legal action, depending on your state's statute of limitations. However, the longer an invoice remains unpaid, the harder it becomes to collect. Follow up within 30 days of the due date for the best chance of recovery.

What should I say when emailing about an outstanding invoice?

Keep it brief and professional. Reference the invoice number, amount owed, and original due date. Politely ask when you can expect payment and remind them of your payment terms. Avoid accusatory language in your first follow-up.

Can I charge interest on outstanding invoices?

Yes, but only if you include this in your payment terms upfront. Many businesses charge 1% to 2% per month on overdue balances. Check your state's usury laws to ensure your rate is legally compliant.

Should I stop working for a client with outstanding invoices?

Generally, yes. Continuing to deliver services while previous invoices remain unpaid increases your risk. Inform the client that work will resume once outstanding balances are cleared.

How does Xero help me track outstanding invoices?

Xero shows all unpaid invoices in one dashboard, sends automated payment reminders, and tracks how long each invoice has been outstanding. You can see your total accounts receivable at a glance and identify which clients need follow-up.