Invoice Collection

How to Collect Overdue Invoices: The Complete Guide

Nov 25, 2025

14 mins read

"I didn't start my business to become a debt collector"

I've watched business owners lose sleep over unpaid invoices for 15 years.

Wondering if they'll make payroll, waiting on that one big invoice to feel alive again.

Back when my housemates were running small service based businesses (lawyer and engineer) I saw this up close.

They'd complete genuinely valuable work that their clients loved.

They'd send the invoice. And then... nothing.

Radio silence. Weeks would go by.

They'd craft these incredibly polite follow-up emails.

They didn't want to seem pushy or desperate (even though they felt both).

They'd spend hours chasing payments instead of doing actual billable work.

One of them told me:

"I feel like I'm begging for money I already earned." That stuck with me.

15 years later, the problem hasn't gone away. If anything, it's gotten worse.

For example, small businesses in Australia are currently owed over:

$1.1 billion in unpaid invoices (& even more globally)

That's not a typo - billion with a B.

Business owners are working their asses off, delivering real value.

But then wait weeks or months to get paid for work they've already completed.

If you're reading this, you're probably dealing with overdue invoices right now.

Maybe you've got one that's 30 days past due and you're debating whether to send another email or just wait a bit longer.

You've got several pushing 60 or 90 days and you're starting to think they might be dead.

Getting tired of chasing payments that writing them off is starting to feel like the easier option.

Chasing money is uncomfortable. It feels awkward.

But here's what I need you to understand: you're not the problem.

And this guide is going to show you how to collect what you're owed without feeling like a debt collector or ruining relationships.

Why This Actually Matters (Beyond the Obvious)

Let's talk about the math nobody does.

When an invoice goes unpaid for 30 days, you're not just missing that invoice amount. You're missing:

The cash flow to pay your own suppliers, staff, or contractors
The growth capital you could be investing in your business (new hire, marketing campaign)
The time spent chasing payments instead of doing billable work (this is honestly the biggest one)
The mental energy this eats up (seriously, the psychological weight of unpaid invoices is exhausting)
The opportunity cost of not taking on new projects because you literally can't afford to front more work (you're leaving money on the table because of money you're owed)

Let me give you a real example.

One of our first users had $18,179 in overdue invoices.

11 invoices sitting there like dead weight.

Some for 70+ days.

They were basically relying on Xero automated invoice reminders.

But within 7 days of implementing a proper automated system…

They collected 64% of the entire amount.

That wasn't magic.

That wasn't luck.

That was just... having an automated system instead of hoping for the best.

And here's what really got me - this user told me afterward:

"I had convinced myself those invoices were probably uncollectible. I'd already written them off mentally. Getting that money felt like finding cash I'd forgotten about."

Except it wasn't forgotten cash.

It was money they earned.

They just didn't have a system to collect it.

Why Clients Actually Pay Late (This Might Surprise You)

Before we get into collection strategies, you need to understand something important.

Something that changed how I think about this entire problem.

Most clients who pay late aren't trying to screw you over.

I know. When you're staring at a 60-day overdue invoice wondering if you can make payroll, it feels personal.

It feels like they don't value you or your work.

Like they're deliberately avoiding payment.

But I've talked to dozens of business owners about their unpaid invoices, and in most cases?

It's not personal at all.

The invoice got lost. It went to spam or got buried under 147 other emails. They genuinely didn't see it. This accounts for maybe 20% of late payments.
They forgot. Your client is busy running their own business, dealing with their own fires, probably chasing their own unpaid invoices. This is another 30-40% of cases.
Cash flow issues. They want to pay you and are planning to pay you. They're waiting to get paid themselves so they can pay you. This is the honest reality for about 20-30% of late payers.
Dispute or dissatisfaction. Something about the work or the invoice doesn't sit right with them, but will deal with it later. This is maybe 10% of cases.
They're deliberately stalling. The actual bad actors who are trying to avoid payment. This is less than 10% in my experience.

Why does this matter?

Because your collection approach should match the reason for non-payment.

You don't need to threaten legal action on someone who genuinely forgot (which you should never do in my opinion).

You also don't need to be overly polite with someone who's deliberately stalling.

The best collection systems adapt to the situation, escalate appropriately.

They give people the benefit of the doubt initially but get firmer when needed.

The Strategies That Actually Work (I'm Going to Be Specific Here)

Let me show you what's worked for real businesses collecting real money.

Not theory and not "best practices" from some consultant who's never chased an invoice in their life.

This is what actually moves money from their account to yours.

Strategy 1: Set Clear Payment Terms Before You Start Work

I know - this isn't about collecting overdue invoices. This is prevention.

But stay with me, because this might be the most important thing in this entire guide.

I learned this watching my housemates get burned over and over.

They'd do the work first and then act surprised when clients took forever to pay.

If your payment terms aren't crystal clear before you deliver anything, you're setting yourself up for pain.

Your payment terms should include:

When payment is due - and be specific. "Net 30" sounds professional but it's vague. "Payment due within 30 days of invoice date" is clearer. "Payment due on receipt" is even clearer if that's what you mean.
What happens if payment is late - late fees, interest charges, work stoppage. Whatever your consequences are, state them upfront. You can't spring them on people later.
Your preferred payment methods - bank transfer, credit card, payment link, cash. Make it obvious how to pay you.

Include these terms in your proposal, your contract, and on every single invoice.

When a client agrees to work with you, they're agreeing to your payment terms.

This single change can do wonders.

Just having clear terms that clients acknowledge upfront changes everything.

Strategy 2: Make Payment Ridiculously Easy

Want to know why clients don't pay you?

Sometimes it's because paying you is genuinely difficult.

Think about what you're asking them to do:

Log into their bank
Find your bank details
Type in a reference number
Remember to send you a remittance advice

That's 4 different steps across two different systems.

And if they're paying you from their phone while they're out somewhere?

They'll do it later (yeah they won't do it later)

Compare that to:

Click the payment link in your email
Enter card details (or use saved payment info)
Done

The easier you make it to pay you, the faster you get paid.

Add payment links to every invoice.

Xero and Quickbooks have these options available, fully integrated, so make sure to enable payments.

Also use Stripe, Square, even PayPal if you have to.

Yes, you'll pay processing fees, but those fees are 100% cheaper than spending hours chasing overdue invoices.

I had someone push back on this once:

"But I don't want to pay 2% in processing fees!"

Cool. How much is your time worth?

If you spend 5 hours a month chasing invoices manually, and your time is worth $100/hour, you're spending $500 to avoid $20 in fees.

That's not business strategy, that's just... being stubborn.

Strategy 3: Follow Up Before the Invoice is Even Due (Optional)

This is going to sound counterintuitive, but it does work.

Most businesses wait until an invoice is overdue to follow up. By then, you're already behind.

The invoice has been sitting in their system for 30 days.

They've mentally deprioritised it.

Instead, you can send a friendly reminder 3-5 days before the due date:

"Hi [Name], just a quick reminder that invoice #12345 for $2,500 is due on Friday. The payment link is below if that's easier. Let me know if you have any questions!"

I find that this works best for those clients that maybe aren't as good with their accounts, forgetful or historically slow to pay.

You're reminding them before they forget, which means you're way more likely to get paid on time.

You're making their life easier by putting the invoice back on their radar before it becomes a problem.

This strategy really needs your oversight, and decision making to ensure you don't annoy the wrong client.

Strategy 4: Use the Progressive Follow-Up System (This is the Big One)

Once an invoice goes overdue, you need a systematic approach.

Not random emails whenever you remember.

A progressive system that escalates appropriately, going from gentle nudge to firm request.

Here's the inconvenient truth:

You need to actually write the emails yourself, coming from your email address.

Sounds time consuming doesn't it?

And no, you can't do this via Xero/Quickbooks reminders (noreply@xero.com)

I've got an automated solution for you later

But keep reading about what works below:

Day 1-7 Overdue: The Gentle Reminder

Assume they forgot. Keep it friendly and helpful. Give them the benefit of the doubt.

"Hi [Name], I noticed invoice #12345 for $2,500 is now past due. Just wanted to make sure you received it! Let me know if you need me to resend it or if you have any questions. Payment link is below."

Just checking in.

Day 8-14 Overdue: The Professional Check-In

Still polite, but more direct. Acknowledge that time has passed. Start asking if there's an issue.

"Hi [Name], following up on invoice #12345 for $2,500, which is now two weeks overdue. Is there anything preventing payment? I'm happy to discuss if there are any issues with the invoice. Otherwise, I'd appreciate payment this week."

Notice the shift? You're still professional, but you're being clearer about what you need.

Day 15-21 Overdue: The Firm Request

Time to be direct.

"Hi [Name], invoice #12345 for $2,500 is now three weeks overdue. Are there any issues? Please let me know what's happening with this."

This isn't mean but it's firm.

Day 22-28 Overdue: The Final Notice

This is basically as much as you'll tolerate.

"Hi [Name], regarding invoice #12345 for $2,500, which is now heavily overdue. Please contact me immediately to resolve this."

Day 29-35 Overdue: Time for Direct Action

At this point, email follow-up isn't working.

You need to pick up the phone and have an actual conversation, at a human level.

If that doesn't work; you can move to debt collection, lawyers, small claims court, or write it off and learn from it.

The key to this system (and I cannot stress this enough) is consistency.

Every overdue invoice goes through this process.

Every single one. No exceptions.

The system works because it's consistent and it escalates appropriately.

Clients learn that you mean what you say.

Strategy 5: Hire Admin Staff

This one feels like break glass in case of emergency.

Hiring employees is very costly to a business

That's why layoffs are usually the first lever big business pulls to cut costs.

But admin staff have the distinct advantage of being able to pick up the phone and call.

However, is it really an advantage to have someone else chasing your invoices?

There are just too many pitfalls when admin staff call clients:

Clients know you, like you and want to speak with you only - there is no familiarity or rapport with this random admin person, so why would they take action on anything they say?
The admin person may damage your client relationship - humans are emotional and sometimes make the wrong decisions. You spent years cultivating your client list and relationships. There is just too much risk with offloading this to other people.
Half the time they're trying to just get a hold of clients - so many calls that will end up going to voicemail. Just constant chasing and time wasting. Meanwhile this new employee is costing you every hour, every day, every week.

Like I said, this option feels more like an emergency option, or if you can comfortably afford this person.

Strategy 6: Offer a Payment Plan (When It Makes Sense)

Sometimes clients genuinely can't pay the full amount right now.

They just don't have the cash.

This is where a payment plan can save the relationship and get you at least some of your money.

"I understand cash flow is tight right now. How about we break this into three payments over the next 60 days? $1,000 now, $1,000 in 30 days, $1,000 in 60 days?"

Is it ideal? No.

But it's better than not getting paid at all right?

The key rules for payment plans:

Get the first payment immediately. This proves they're serious. If they can't or won't make the first payment, they're not going to make the others either.
Put the plan in writing. Email works. Just make sure there's a record of what you agreed to.
Charge a small fee for the payment plan. 5-10% of the total is fair. You're extending credit, and credit has a cost.
Make it clear that if they miss a payment, the full amount becomes due immediately. No second chances on payment plans.

Payment plans work well for genuine cases in my experience.

The clients who don't even make the first payment?

Those are the ones you escalate or try to cut loose if you're in the financial position to do so.

Strategy 7: Automate the Entire Thing (The Best Solution)

Here's the uncomfortable truth:

You won't do manual follow-up consistently.

You'll remember to chase some invoices and forget others.

You'll feel awkward about following up with certain clients so you'll let it slide.

You'll be busy with other work and think "I'll do it tomorrow."

Tomorrow becomes next week. Next week becomes next month.

This is exactly what happened to my housemates 15 years ago.

And it's what kills most businesses' collection rates today.

The solution? Automate it.

This automated solution needs to:

Monitor your accounting software for overdue invoices automatically
Craft high converting emails that get firmer the later the invoice gets
Escalate appropriately without you having to remember
Create drafts for you to review before sending (so you stay in control and can add personal touches)
Track which invoices are getting paid and which need human escalation
Give you back 10-20 hours per month of your life

So I built this solution. Say hello to Invoice Nudge.

I watched early users go from collecting around 5% of overdue invoices via Xero/Quickbooks reminders to…

Collecting up to 64% of overdue invoices

Just by implementing a systematic follow-up process.

Same invoices. Same clients.

Just consistent follow-up instead of whenever they remembered.

The invoices got paid an average of 14.7 days earlier.

The best part, it only took about 10 seconds to review each follow-up draft and hit send.

Instead of crafting emails from scratch every single time or trying to remember which invoices needed chasing.

It connects to Xero or QuickBooks, monitors your overdue invoices, and:

Creates intelligent follow-up drafts that appear directly in your Gmail or Outlook

Not in some separate dashboard you need to log into.

That's right..

There is no login, no steep learning curve, no new software platforms.

The system checks your email history to make sure you haven't already discussed the invoice recently.

You review the drafts in your email, adjust if needed, and send from your actual email address.

It works where you do, inside your inbox.

No generic reminder emails from "noreply@xero.com" that clients ignore.

Start Your Free 14-Day Trial

But whether you use Invoice Nudge or another tool or even just set up a manual system with calendar reminders, the key point is this:

Systematic follow-up is the difference between collecting 5% of overdue invoices and collecting up to 64%.

Consistency beats perfection every single time.

When to Actually Write Off an Invoice (The Hard Conversation)

Let's be honest about something nobody wants to talk about.

Not every invoice will get paid.

At some point, you need to decide whether it's worth continuing to chase them.

Here's when to consider writing off an invoice:

The amount is too small to justify legal action. If the invoice is under $1,000 and you've already spent considerable time and energy, sometimes you need to cut your losses.
The client has gone out of business. If they've shut down completely and have no assets, you're not getting paid. Move on, they've got bigger things happening.
The collection process is damaging your mental health. Sometimes the stress of chasing an invoice isn't worth it even if you're legally entitled to the money. Your wellbeing is more valuable than dollars and cents.
You've tried everything for 90+ days. At some point, you need to cut your losses and focus on clients who actually pay.

Just so you're aware of all your options, you can also:

Engaging a debt collection agency. They work on commission (typically 25-40% of what they collect), so it costs you nothing upfront.
Small claims court. Relatively inexpensive ($100-$300 filing fee in US/AU) and straightforward for amounts under $10,000. You don't need a lawyer.
Reporting them to credit bureaus. This won't get you paid, but it can damage their credit rating and make it harder for them to screw over the next person.

But sometimes, the healthiest thing you can do is write it off, learn from it, tighten your payment terms for future clients, and move on with your life.

I watched someone spend 6 months chasing a $800 invoice.

The mental energy they spent on it - the anger, the frustration, the sense of injustice, was eating them alive.

Finally I asked them:

"If I offered to give you $100 right now to just forget about this and move on, would you take it?"

They said yes immediately.

That's when they realized the invoice had become about principle, not money.

And principle is expensive.

The Templates That Actually Get Responses

You don't need to reinvent the wheel every time you chase an invoice.

Here are the email templates that have proven response rates.

I'm going to give these to you word-for-word, but be advised, these are quite firm.

Don't just copy and paste.

Soften it to your own style and voice.

First Follow-Up (1-7 Days Overdue)

Subject: Invoice #[NUMBER] - Checking In

Hi [Name],

Just a quick reminder that invoice #[NUMBER] for $[AMOUNT] was due on [DATE] and is now [X] days overdue.

I know things get busy - just wanted to make sure this didn't slip through the cracks! The payment link is below if that's easier.

[PAYMENT LINK]

Thanks, [Your Name]

Second Follow-Up (8-14 Days Overdue)

Subject: Following Up: Invoice #[NUMBER]

Hi [Name],

I'm following up on invoice #[NUMBER] for $[AMOUNT], which is now two weeks overdue.

Is everything okay with this invoice?

[PAYMENT LINK]

Thanks, [Your Name]

Third Follow-Up (15-21 Days Overdue)

Subject: Urgent: Invoice #[NUMBER]

Hi [Name],

Invoice #[NUMBER] for $[AMOUNT] is now quite overdue.

I'm open to discussing a payment plan if that helps but I need to hear from you please.

[PAYMENT LINK]

[Your Name] [Phone Number]

Final Notice (22-28 Days Overdue)

Subject: Invoice #[NUMBER] - Is Everything Ok?

Hi [Name],

Regarding invoice #[NUMBER] for $[AMOUNT], this is now heavily overdue.

At this stage, is everything ok on your side? Do I need to call you?

Please let me know ASAP.

[PAYMENT LINK]

[Your Name] [Phone Number]

What About Xero and QuickBooks Reminders?

If you're using Xero or QuickBooks, you might be thinking:

"Don't they have invoice reminder features built in?"

The problem is, everyone ignores them.

How do I know?

I actually asked 22 business owners directly in conversation over the past 3 months.

Here are some of the responses:

"Are you kidding me? I just delete"
"Haha those don't work"
"I've made it so they so straight to spam"
"If someone wants me to pay an invoice, I'll only do it if the person contacts me"
"I've got an AI monitoring my inbox, it filters out those Xero generic emails"

And the list goes on…

They need to come from you, the actual person the client works with.

When you see an email from "noreply@xero.com," what do you do with it?

You ignore it. You delete it. You don't even open it.

Half the time it goes straight to spam.

But when you see an email from Sarah, your account manager?

From John, the business owner you've been working with?

You open it. You read it. You respond.

That's the difference.

The built-in reminders are also generic and inflexible.

They don't adapt. They don't escalate appropriately.

They don't use any context about your relationship with that client.

Most importantly, they don't check whether you've already discussed the invoice recently.

They just... send generic reminders on a schedule.

But if you want something that actually gets responses?

Follow-ups that come from your real email address

The good news is that Invoice Nudge automates all of this for you.

Learn More About Invoice Nudge

You'll find it's probably the best solution for your busy work life.

Legal Stuff You Need to Know (It Should Never Come To This)

Before you start threatening legal action (and I think this should be an absolute last resort) you need to understand your actual legal rights.

I'm not a lawyer, so this isn't legal advice.

It's just what I've learned from working with business owners and talking to commercial lawyers.

Can you charge late payment fees?

Yes, but only if:

The fee is clearly stated in your original terms and conditions
The client agreed to those terms before you did the work
The fee is reasonable (typically 1-2% per month)

You can't just spring a late fee on someone.

It needs to be in your terms upfront.

Can you charge interest on overdue invoices?

Yes, under the same conditions as late fees.

The maximum interest rate varies by country, but generally it's around 10% per annum.

Check your country/state's specific rules.

When can you engage a debt collector?

Anytime.

However, debt collectors typically won't take cases under $500-$1,000 because the commission isn't worth their time.

When should you go to court?

For amounts between $1,000-$10,000, small claims court is your best option in most countries and/or states.

It's relatively inexpensive ($100-$300 filing fee depending on your location) and you don't need a lawyer.

The process is designed for regular people to use.

For amounts over $10,000, you'll probably want legal advice before proceeding.

Can you stop work if they don't pay?

Yes. If you have ongoing work with a client and they haven't paid previous invoices, you have every right to stop work until they pay.

Put it in your terms upfront so they know this is your policy.

Again, I'm not a lawyer; what I'm giving you here is general information, not legal advice.

Invoice Nudge: Real Case Study - $11,635 Collected in One Week

Let me show you exactly how Invoice Nudge works in practice. Real numbers. Real timeline.

Client came to me with 11 overdue invoices totaling $18,179.

Some had been sitting for 30 days. Others for 70+ days.

They'd sent a few follow-up emails here and there when they remembered, but nothing consistent. Nothing systematic.

Here's exactly what we did:

Day 1:

Set up Invoice Nudge

Connected to their Xero/Outlook accounts (took 3 mins)

Day 3:

The system automatically created draft emails for each overdue invoice

The business owner reviewed each draft (took about 10-15 seconds per email)

Adjusted a couple of them to add personal touches, and sent them all

Same Day:

Voila! Received a number of responses straight away.

Two of the clients literally responded with "Oh my god, I completely forgot about this, paying now."

One had lost the original invoice in their email (good thing each nudge has an invoice link).

Day 8:

7/11 invoices paid!

Next round of invoice nudges sent (for remaining 4 invoices + new overdue invoices)

Total collected in first 7 days:

$11,635.81

The ROI?

Let's just say Invoice Nudge costs $199 per month (it's probably lower at this time).

You can do the math. Ok, I'll do the math haha!

That's 58x in the first week alone!

But more importantly - and this is what actually mattered to them, they got those hours of their life back.

They're not manually tracking overdue invoices anymore.

They don't need to hire a $70k per year admin person

They're collecting $70k per year instead.

Invoice Nudge handles everything automatically, creates the drafts, and they just review and send.

30 seconds per invoice instead of 30 minutes.

How to Prevent This Problem in the First Place

Everything I've covered so far is about collecting overdue invoices.

But the best collection strategy is to prevent them from going overdue in the first place.

Here's what actually works:

Get a deposit upfront
Invoice regularly
Send invoices immediately
Make your payment terms shorter
Build relationships with accounts payable
Use recurring billing for ongoing work
Screen new clients

The businesses that implement these seven strategies typically see their overdue invoices drop by 40-60% within 90 days.

Prevention is cheaper than collection every single time.

Your Action Plan: What to Do Right Now

Okay. You've read this entire guide. You understand the strategies. You know what works.

Now what?

Here's exactly what to do if you've got overdue invoices sitting in your accounting software right now:

Today (literally today, before you close this tab):

Pull a report of all overdue invoices from your accounting system
Categorise them by days overdue (7, 14, 21, 28, 35+)
Send the appropriate follow-up email to each one based on the templates I gave you
For any invoices over 35 days, pick up the phone and call

This Week:

Review your payment terms - are they clear and on every invoice?
Add payment links to all your invoices if you don't have them already
Implement Invoice Nudge in your business - automate your follow ups properly

This Month:

Analyse which clients consistently pay late and make a decision
Tighten your payment terms for new clients (shorter payment terms?)
Consider requiring deposits for new projects
Review your collection rate - track this number.

Long Term:

Build relationships with accounts payable contacts at your major clients (if applicable)
Screen new clients more carefully before taking them on
Automate as much of the follow-up process as possible
Measure and track your days outstanding.

The difference between businesses that consistently get paid and businesses that struggle with cash flow isn't the quality of their work. It's having a system!

The Bottom Line

Collecting overdue invoices isn't complicated.

It's just uncomfortable.

We didn't get into business to become debt collectors for our own work.

As I've outlined above, you just need to tighten up your systems to ensure cashflow for your business.

Most business owners treat invoice collection as something they'll "get to later."

They send an invoice and hope for the best.

When it doesn't get paid, they send a random follow-up email whenever they remember.

Eventually, they either get lucky or they write it off.

That's not a system. That's just chaos.

The businesses that consistently get paid have a system.

They follow up progressively. They automate what they can. They stay professional but firm.

You can implement everything in this guide today.

The templates are right there - scroll back up and grab them.

The strategies are proven - I've watched them work for many businesses.

Because here's what I know after 15 years of watching business owners struggle with this:

The pain of not getting paid is worse than the discomfort of asking for payment.

The awkwardness of sending a follow-up email?

That lasts 30 seconds.

The stress of having $10,000 in overdue invoices while you're trying to make payroll?

That stays with you.

One of those problems you can solve today.

The other one just gets worse the longer you wait.

Build the system. Follow the process. Get paid.

You earned that money. Go collect it.

Related Resources

Want to dive deeper into specific aspects of invoice collection? I've written detailed guides on each of these topics:

Need help collecting your overdue invoices?

Again, I built Invoice Nudge specifically because I was tired of watching business owners struggle with this.

It connects directly to your Xero or QuickBooks account
Monitors your overdue invoices automatically
Creates intelligent follow-up drafts in your Gmail or Outlook.

Start Your Free 14-Day Trial

Not in a separate dashboard and not in some tool you need to log into.

Right in your normal email where you already work.

The system checks your email history with each client to make sure you haven't already discussed the invoice recently.

If you have, it skips creating a draft entirely.

If you haven't, it creates a contextual follow-up based on how overdue the invoice is (Day 7, 14, 21, or 28).

You review the drafts in your normal email inbox (takes 10 seconds per invoice nudge), adjust if you want to add a personal touch, and send from your own email address - not some generic "noreply@xero.com" that clients ignore.

You stay in complete control.

Nothing sends automatically.

But you're not starting from scratch every single time or trying to remember which invoices need following up.

Our users are seeing collection rates up to 64% on overdue invoices, getting paid an average of 14.7 days earlier than they were the previous year.