How to strategically write and use an outstanding payment letter

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  1. Introduction
  2. What to include in an overdue invoice letter
  3. When to send payment reminders
  4. When to escalate to collections or take legal action
    1. Consider the amount and relationship
    2. Have a timeline in mind
    3. Send a final notice with next steps
    4. Assess the client’s situation and communication
    5. Decide between collections and legal action
    6. Involve legal or financial advisers
    7. Evaluate potential reputation impacts
  5. How to reduce overdue invoices going forward

An outstanding payment letter, or an overdue invoice letter, is a formal reminder that a business sends to a customer who hasn’t paid an invoice by the specified due date. It prompts the customer to pay and provides information about the overdue amount, the original due date, and any applicable late fees or penalties. It often includes payment options and requests for immediate action to resolve the outstanding balance.

Sending an overdue invoice letter allows your business to address unpaid invoices directly. According to a 2024 report, half of all B2B invoices in the US were past due. Below, we’ll explain how to write an outstanding payment letter, when to send payment reminders, and how you can reduce overdue invoices for your company going forward.

What’s in this article?

  • What to include in an overdue invoice letter
  • When to send payment reminders
  • When to escalate to collections or take legal action
  • How to reduce overdue invoices going forward

What to include in an overdue invoice letter

Within an overdue invoice letter, you’ll want to cover the major points that remind the customer of their outstanding payment and show them how to resolve it. Be sure to include:

  • A date, for a record of when the reminder was sent

  • The customer’s name, company (if applicable), and address to personalise the communication

  • Your company name, address, phone number, and email so the customer knows exactly who the sender is and how to make contact if they have questions

  • The invoice number for the overdue invoice, as well as its date, original due date, and outstanding amount

  • A friendly reminder of the overdue status, including the number of days past the original due date

  • Any late fees or penalties that apply, including the amount of the late fee, the interest rate if there’s an accruing charge, or any other penalty details

  • Instructions on how the customer can pay the balance, including accepted payment methods (e.g., bank transfer, check, credit card, digital wallet)

  • A polite, friendly closing statement that encourages timely payment and offers assistance if the customer needs help resolving the issue

When to send payment reminders

Here’s a rundown on the typical timing for sending payment reminders:

  • First reminder: Send a friendly reminder a few days before the due date or on the due date itself. This gentle nudge is a courtesy notification and is often enough to prompt timely payment.

  • Second reminder: If payment hasn’t come in, follow up with a more direct message 7 to 10 days after the due date. Mention that the payment is past due and restate any late fees that might apply. Keep it polite but firm.

  • Final reminder: If there’s still no payment or response, send a final reminder 30 days after the due date. This notice should be more assertive and state potential consequences (such as service suspension or collections) if payment isn’t received promptly.

Escalating to collections or taking legal action is never the first choice; but sometimes, it’s the best way to resolve overdue invoices. However, that decision depends on the situation. Here’s how to decide when to escalate.

Consider the amount and relationship

If the unpaid amount is substantial, you might want to escalate sooner rather than later. For smaller balances, it might be easier to keep following up a bit longer or consider them write-offs if there’s no response.

Similarly, if the customer is a trusted, long-standing client with a rare misstep, you could provide some flexibility – such as a payment plan – before escalating. Providing alternative options can preserve the relationship if it’s a one-off issue.

Have a timeline in mind

A consistent timeline for unpaid invoices simplifies payments for you and the client. Many businesses consider escalation about 60–90 days after the due date, depending on their industry and cash flow needs.

Ninety days is a standard cut-off before collections. That said, timelines can vary; if your business requires cash, you should initiate a bit sooner at about 60 days. Additionally, you should provide more time for larger or slower industries.

Send a final notice with next steps

Before you escalate, send one final letter that explains the stakes in plain language. This typically comes 60 days after the due date. Clarify the deadline and explain what will happen next if payment doesn’t occur. This letter is often enough to prompt payment; sometimes, clients just need a nudge to prioritise their overdue invoice.

Assess the client’s situation and communication

If the client has been responsive and has mentioned cash flow challenges, consider a payment plan. A little flexibility in this scenario can go a long way if the client is up front with you. But if they have gone quiet, missed commitments, or seem evasive, that’s a good signal to consider collections or legal help.

Collections can be the simplest option when the amount justifies it. Typically, the collection agency takes a cut of whatever it collects, but it handles all the follow-ups and negotiations. Collection agencies typically pursue accounts that are 90–120 days past due, with customers who haven’t responded to earlier reminders.

You might want to explore legal action if you’re handling larger invoices and have a strong case for non-payment – especially if the customer has ignored your communications but clearly has the ability to pay. Depending on the situation, legal action could mean small claims or higher courts.

Consult your legal or financial advisers before you go too far with escalation. They can help you weigh the costs and benefits of collections or legal action, and they might suggest alternatives that haven’t crossed your mind.

Evaluate potential reputation impacts

Using collections or legal action can have ripple effects, especially if you’re working with a high-profile or local client who might discuss the situation publicly. Before escalating, ensure you have all your records organised – emails, agreements, invoices – so you can show evidence of a fair, consistent process, if questions arise.

How to reduce overdue invoices going forward

Proactive planning can help decrease overdue invoices. With open communication and consistent reminders, you can encourage customers to make their payments without creating unnecessary friction. Here are some tips for reducing overdue payments.

  • Set payment terms from the start: Specify due dates for payments in your contracts and invoices. Clarifying the due date and any late fees or penalties in advance can help clients know what to expect and adds some urgency to timely payments.

  • Automate invoicing and payment reminders: Use invoicing software to send invoices on time and implement automatic reminders. Most systems allow you to schedule reminders just before, on, and shortly after the due date. Automation saves time and can avoid missed follow-ups.

  • Make it easy to pay: The easier it is for clients to pay, the less likely invoices are to become overdue. If possible, offer multiple payment methods that are relevant to your clients – for example, credit cards; Automated Clearing House (ACH) transfer or Single Euro Payments Area (SEPA) transfer; wire transfer; and digital wallets. Including a “Pay Now” button directly in the invoice (if your software supports it) can also simplify the process and encourage quicker payment.

  • Offer incentives for early payment: A small discount for early payment (e.g., 2% off for payment within 10 days) can be a strong motivator, especially for customers who value saving a little on recurring invoices. If a discount isn’t feasible, consider perks such as waived late fees on future invoices for clients who have a good payment history.

  • Build strong client relationships: Clients are more likely to prioritise timely payment if they feel respected and valued. Having regular check-ins, being accessible for questions, and maintaining good relations can make the difference. When issues arise, be proactive and contact clients with solutions. This can help keep payments on track and build trust.

  • Send friendly reminders before the due date: Sending a reminder a few days before the due date can gently nudge clients and catch any potential issues early. You could write, for example, “Just a quick reminder that your invoice for [amount] is due on [date]. Please contact us if there’s anything you need from us.” This can be all it takes to keep payments timely.

  • Consider deposits or progress payments: For large projects or new clients, asking for an up-front deposit or scheduling progress payments can reduce the risk of non-payment. This way, you’re getting paid as the project progresses, rather than waiting until it’s complete.

  • Follow up quickly on overdue payments: When invoices do become overdue, follow up quickly. A gentle, friendly reminder right after the due date often prompts payment before the invoice is too far past due. Waiting too long to follow up can give the impression that timely payment isn’t a priority, so act sooner rather than later.

  • Adjust terms for chronic late payers: If you have a client who consistently pays late, consider adjusting their terms going forward. You might request shorter payment terms, a stricter late-fee policy, or up-front payment for future work.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accuracy, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent lawyer or accountant licensed to practise in your jurisdiction for advice on your particular situation.

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