How to chase unpaid invoices and avoid late payments

Published Friday 27 March 2026

Table of contents

• How do unpaid invoices affect your business?
• What's the difference between outstanding and past due invoices?
• When is an invoice overdue?
• Why customers pay late
• How to chase late payments
• When you still don't receive payment
• How to prevent late payments
• Streamline your invoicing with Xero
• FAQs on unpaid invoices

Key takeaways

• Identify why a client hasn't paid before chasing them: a forgotten invoice needs a quick reminder, a dispute needs a conversation, and a cash flow problem might call for a payment plan.
• Escalate unpaid invoices in stages: start with a polite email reminder, then send a stamped overdue invoice, follow up by phone, and only move to debt collection or legal action after earlier steps have failed.
• Protect your cash flow upfront by setting clear written payment terms, requiring a deposit before starting work, and running credit checks on new clients taking on large projects.
• Write off a genuinely irrecoverable invoice rather than leaving it in your accounts receivable; if you use accrual accounting, this prevents you from paying tax on money you never received.

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. When payments don't arrive on time, the effects ripple through your entire business.

Here's how late payments can affect you:

• Cash flow disruption: You can't pay your own bills or invest in growth opportunities
• Strained supplier relationships: If you can't pay suppliers on time, you risk damaging those partnerships
• Credit rating impact: Missed payments to your suppliers can hurt your business credit score
• Lost future work: A damaged reputation makes it harder to win new clients

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

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

Outstanding invoices are all invoices you've sent that haven't been paid yet, 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. These require immediate follow-up.

The key difference: an invoice becomes past due only after the agreed payment date. Before that date, it's simply outstanding.

When is an invoice overdue?

An invoice becomes overdue the day after its payment due date passes. Most businesses set payment terms of 30, 60, or 90 days from the invoice date.

Here are the most common payment term standards:

• Net 30: Payment due within 30 days of invoice date (most common)
• Net 60: Payment due within 60 days
• Net 90: Payment due within 90 days
• Due on receipt: Payment expected immediately

In South Africa, the statute of limitations for collecting unpaid invoices is typically three years from the due date. After this period, legal recovery becomes significantly harder.

If an invoice is more than 90 days overdue, it's generally considered seriously delinquent and may require escalation to debt collection or legal action.

Why customers pay late

Before chasing a late payment, it helps to understand why your customer hasn't paid. The reason shapes which collection approach works best.

Common reasons customers pay late:

• Cash flow problems: They're waiting on their own payments before they can pay you
• Invoice errors: Wrong amount, missing details, or sent to the wrong person
• Disputes: They're unhappy with the work or have questions about charges
• Forgotten invoices: Your invoice got lost in their inbox or filing system
• Disorganised processes: They lack a system for tracking what's due
• Deliberate delay: Some clients stretch payment as long as possible to manage their own cash flow

Knowing the reason helps you respond appropriately. A forgotten invoice needs a simple reminder. A dispute needs a conversation. Cash flow problems might call for a payment plan.

How to chase late payments

When a payment goes overdue, acting quickly and professionally gives you the best chance of getting paid without damaging the relationship. Here are eight steps to follow, from a polite first reminder through to legal action.

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. Most late payments are simply forgotten, and a brief, professional reminder is often all it takes to get paid.

Acting quickly matters. The sooner you follow up, the more likely you are to collect.

Include these elements in your payment request:

1. Reference the specific invoice number and due date
2. State the amount owed
3. Ask when you can expect payment
4. Remind them of your payment terms
5. Keep the tone friendly and professional

You don't need to re-explain what the work was for. 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. Send this as your second follow-up if your initial reminder goes unanswered.

Attach the stamped 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. You can do this manually or use automated invoicing software to send reminders on your behalf until payment arrives.

3. Send a statement of accounts

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

This approach streamlines your admin by addressing several overdue payments at once. Accounting software can generate these statements automatically.

Follow up with a phone call after sending the statement. This combination of written record and direct conversation often gets results.

4. Make the phone call and prepare to negotiate

Phone calls get better results than emails when chasing late payments. It's much harder for a customer to ignore you when speaking directly.

Have a structure ready for the conversation:

1. Greet them, then mention the unpaid invoice by number and date
2. Ask when you can expect payment
3. Stay silent and wait for their response, even if it feels uncomfortable
4. Don't end the call until they've committed to a payment date

You may need to negotiate. If the amount is small and they can pay soon, you might agree to extend the deadline but pause further work until payment arrives.

If you're uncomfortable with these conversations, ask your bookkeeper or accountant to handle them on your behalf.

5. Charge a late payment fee

Late payment fees give clients a financial incentive to pay on time. You must communicate your late-fee policy upfront in your payment terms before starting work.

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

• Before due date: R100
• After due date: R110

When a payment becomes overdue, notify the customer that the late fee now applies. To maintain goodwill, offer to waive the fee if they pay within 48 hours.

6. Cut them off until outstanding invoices are paid

Stop work for any client who isn't paying or responding to your messages. Continuing to work for someone who may never pay puts your business at risk.

Inform the client clearly: no further 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

Debt collectors specialise in recovering unpaid invoices when your own efforts haven't worked. Consider this step when a customer stops cooperating entirely.

Debt collection fees typically range from 5% to 25% of the recovered amount. In some cases, you may be able to pass these costs onto the debtor, depending on your contract terms and local regulations.

Using a debt collector may strain the customer relationship, but it's a common step when other methods have failed. You can find debt collection apps that integrate with Xero through the Xero App Store.

8. Call in the lawyers

Legal action is your last resort when debt collection fails. Consult a lawyer before taking this step, as the process varies depending on whether the debtor is a sole trader, partnership, or company.

Your options may include:

• Small claims court: For smaller amounts, this is often faster and less expensive
• Civil litigation: For larger debts, you may need formal legal proceedings

A specialist lawyer with experience in debt recovery can advise on the best approach. Your debt collector may also have in-house legal expertise or can refer you to someone.

Check the disputes register in your region for more information on your legal options.

When you still don't receive payment

Sometimes, even after following every step, payment still doesn't come through. Here's what you can do when collection efforts haven't worked.

Write off the unpaid invoice

Writing off an unpaid invoice removes it from your accounts receivable when you've determined it won't be collected. Whether you need to do this depends on your accounting method.

If you use accrual accounting: You've already recorded the income, so you need to write off the bad debt to avoid paying tax on money you never received. Keep your correspondence with the client as evidence for your local tax authority. Xero can help you track and write off bad debts in your accounting.

If you use cash accounting: You only record income when it's received, so there's nothing to write off. Just don't include the unpaid amount in your income statements.

Perform credit checks on prospective clients

Credit checks reveal a prospective client's payment history before you agree to work with them. A positive credit score suggests they pay bills on time and honour their debts.

Consider running credit checks when:

• taking on a new client for a large project
• a potential client wants extended payment terms
• you're unsure about a company's financial stability

This simple step can help you avoid problem payers from the start.

How to prevent late payments

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

Set clear payment terms and contracts

Clear payment terms set expectations from the start and give you leverage if payment issues arise. Put your terms in writing before you begin any work.

Include these elements in your contract or terms:

• Payment due date: Specify when payment is expected (for example, Net 30)
• Accepted payment methods: List how clients can pay you
• Late payment fees: State any penalties for overdue payments
• Deposit requirements: Specify any upfront payment needed
• Dispute process: Explain how to raise concerns about invoices

Have clients sign or acknowledge your terms before starting work. This creates a clear record you can reference if payment becomes an issue.

Take partial payment upfront

Upfront payments reduce your risk by securing part of the fee before you start work. This also tests whether a client is serious about paying.

Common approaches:

• Deposit: A fixed amount to cover your core costs
• Percentage: A portion of the total fee (for example, 25% or 50%)

Upfront payments improve your cash flow and help you identify clients who may not intend to pay. If someone refuses a reasonable deposit, that's a warning sign.

Offer payment plans to clients

Payment plans let clients pay in instalments rather than one lump sum. This approach works well for large projects or clients facing temporary cash flow challenges.

For ongoing projects: Structure payments around milestones, such as 25% upfront, 25% at the halfway point, and 50% on completion.

For overdue invoices: If a client can't pay the full amount, offer to split it into monthly instalments over two to three months.

Payment plans help you maintain client relationships while protecting your cash flow. You're more likely to collect the full amount than if you demand immediate payment from someone who can't afford it.

Set time aside to track outstanding invoices

Regular invoice tracking helps you spot overdue payments early, before they become serious problems.

Set a specific time each week to:

• review which invoices are outstanding
• send reminders for any approaching or passed due dates
• follow up on invoices that haven't received responses

The earlier you act, the more likely you are to collect.

Use accounting software like Xero

Accounting software like Xero automates invoice reminders so you don't have to chase payments manually. This saves time and helps prevent late payments before they happen.

Key features that help:

• Automated reminders: Send payment prompts automatically before and after due dates
• Invoice tracking: See which invoices are outstanding at a glance
• Payment status updates: Know instantly when a payment arrives
• Online payment options: Let clients pay directly from the invoice

Download Xero's free invoice template

Xero's free invoice template helps you create professional invoices quickly. Set earlier payment dates to encourage faster payment, and use Xero's live payment tracking to see how long each client takes to pay. Download Xero's free invoice template to get started.

Streamline your invoicing with Xero

Chasing unpaid invoices takes time and energy you'd rather spend on your business. Xero's automated invoicing handles reminders and tracking for you, so you only get involved when necessary.

With Xero, you can:

• send automatic payment reminders before and after due dates
• track all outstanding invoices in one place
• see real-time payment status updates
• accept online payments directly from invoices

Spend less time chasing payments. Get one month free and see how Xero can help you get paid faster.

FAQs on unpaid invoices

Here are answers to common questions about managing unpaid invoices.

What is an unpaid invoice?

An unpaid invoice is a bill you've sent to a customer that hasn't been paid yet. It may be within the payment window (outstanding) or past the due date (overdue).

How long can an invoice go unpaid?

In South Africa, you typically have three years from the due date to legally pursue an unpaid invoice. The longer an invoice remains unpaid, the harder it becomes to collect. Act early.

What should I do if someone doesn't pay my invoice?

Start with a polite payment reminder, then escalate through overdue notices, phone calls, and late fees. If these don't work, consider debt collection or legal action as final steps.

Can I charge interest on unpaid invoices?

Yes, if you've included interest terms in your original contract or payment terms. You must communicate any interest charges upfront before starting work.

When should I write off an unpaid invoice?

Write off an invoice when you've exhausted all collection efforts and the cost of pursuing payment outweighs what you're likely to recover. Keep records of your collection attempts, as your tax authority may require evidence that the debt is genuinely irrecoverable.