6 Strategies for Dealing With Unpaid Invoices That Get You Paid Sooner Would you be worried about cashflow if all the money you're owed on invoices was in the bank right now?

Regardless of the size of your business, unpaid invoices aren't just an inconvenience. You need to have strategies in place so that invoicing won't threaten the very existence of your business.

That may sound a bit overdramatic. But, think about it for moment. Unpaid invoices impact everything which means if cash flow is interrupted you won't have the money to keep your business operational. This situation would mean you can't pay employees, suppliers, or vendors. As a result, you'll be slapped with late fees while damaging your reputation.

So, yeah. Unpaid invoices are a big deal that deserve your immediate attention. But, how can you go about in addressing these unpaid invoices? Try out these six strategies.

1. Make sure you followed procedure and then follow-up politely.

Don't jump to conclusions and start emailing your client nasty or threatening messages. First, make make sure that you followed the correct procedures for getting paid. Did you actually send the invoice? Were payment terms clear? What is the amont due? Did you it send it to the right person? Is your address correct?

It would be extremely embarrassing for you to lose you cool with a client only to find out that it was your fault all along.

Also keep in mind that sometimes unpaid invoices slip through the cracks. A client may be out-of-town or dealing with an emergency. Before getting angry, send a polite follow up email to check in. More often than not a brief, "Just checking in," email can get get the invoice paid.

At this point, you should avoid any "past due" remarks. It will ensure that you'll have a good working relationship with the client in the future is the unpaid invoice was just an oversight.

Special note: make sure you pick a top invoicing company to help you keep track of things. Nothing worse then emailing a client and then realizing that you didn't send them an invoice or it went to spam.

Related: 10 Expert Tips on Managing Cash Flow as a New Business

2. Give discounts and charge a penalty.

If you offer a discount for early payments, customers and clients are encouraged to pay ahead of the due date. It's not uncommon to offer a one percent or two percent discount on the total invoice amount if invoice is paid in full within 10 days.

Unfortunately, not everyone is motivated by incentives. But, they may be motivated if their invoice has penalty fees. Not only will this push clients to pay faster, it will also help you cover the cost of any financing issues that you personally have. You don't want to not be able to pay your own bills that were incurred during that period of time in which your clients were late in paying you.

3. Abandon the stiff business approach.

What if you followed procedure correctly and the the polite follow-up didn't work? I find that sometimes you have to be very stern in following up with them. I really like what Andy Clarke suggests. He says that you "abandon a stiff business approach and instead write one email, carefully worded to express how you personally feel. "After-all, business may be business, but people work with people."

Here's email Andy composed:

A quick note to say that I am really disappointed that you have still not paid me the [..] that I'm owed for the work I did for you. In the grand scheme of things, it's not a lot of money, but actually I think that this is more a matter of respect.

I have always been there at the drop of a hat to sort out any problems you might have. I love working with you and have always taken our relationship as more than just client/supplier. But if I can't rely on you paying promptly or it takes several attempts and reminders to get my money, that's not good business.

I'm not saying that I don't want to work with you, I do. But if I don't receive what I am owed within the next couple of days, I will have to think twice about helping you in the future.

Kind regards

Andy Clarke

Andy claims that this was the most effective debt collecting email he ever sent with every client paying him within two days. I've found as well that this is a very effective method. That being said, it tends to really hurt the relationship. So if you're using this method, I've never found that you end up working with the person in the future.

Related: 5 Ways to Keep Cash Flow Pumping

4. Collections, arbitration, mediation, court.

Is this playing hard ball? Absolutely. But, when you have invoices that over 90 days past due, and you don't think they will be paid, you may be left with no other option. Just be aware that you'll receive pennies on the dollar, but something is better than nothing. However, I would also suggest that you do the following before getting involved with a collections agency.

1. Contact someone else at the office, such as the accounting manager. Only do this after you've made several fruitless attempts at contacting with your contact.
2. If you have a contract, and you really should, review it carefully. The only way to resolve the nonpayment is by going through an arbitration board. Get in touch with the arbitration board to find out what you need to do to file a case.
3. If your client is local, you can use a business mediation service. This process involved a trained, neutral mediator you works with both parties to resolve the dispute.
4. What if the client wants to pay, but is having cash flow problems? Consider offering a short, three-to-six-month payment plan. It could be a risky move if they're going bankrupt, but it's worth a shot.
5. Some deadbeat clients have been hoping for this all along; offering to settle for less than owed. It's not ideal, but sometimes it's better to just get what you can and move on.
6. If you've met your client through an online ad or freelance website, contact the customer service department of the site to report the problem. They won't give the money owed, but they may intervene. If there are too many complaints, they'll stop running the ads for that person.
7. All 50 states have small claims courts that are designed specifically for use by non-lawyers. If you're owed less than your state's small claims court maximum limit, usually between $2,500 to $15,000, you can bypass hiring a lawyer and represent yourself in court. There will be court fees, but you don't have those expensive attorney fees.
8. If the amount you're owed exceeds the small claims court maximum limit, you'll have to go to a regular court to file a lawsuit. You can represent yourself, but it's not advised in this situation. This scenario can get expensive.

Related: The 5 Worst Cash-Flow Mistakes Small-Business Owners Make

5. Contact a Business Reporting Bureau.

If you're dealing with a client who is egregiously late, you can report them to a business reporting bureau and make the complaint public record.

Since this complaint can threaten the client's reputation, and may limit them from getting credit in the future, it's almost a given that you'll be paid immediately.

6. Factor them.

Finally, you can always sell any current outstanding invoices that are less than 90 days old to a factorer. The stipulation is that the clients who owe you the money are businesses or institutions and not individuals.

With invoice factoring, you basically receive a cash advance amount of 80 percent of the total receivable. As the borrower, you'll be responsible for the interest and fees on the advance.

Avoid unpaid invoices in the first place.

If you want to prevent the hassle of unpaid invoices in the first place, make sure that you research new clients to make sure that they're legit and don't have any prior complaints. After that make sure that you have a signed contract, keep detailed records, and ask for a payment upfront.

Also, make the payment process as convenient as possible, set-up recurring invoices, and work on establishing strong client relationships. Most importantly, know when to stop chasing a late payment. It's not worth the time, energy and money to hunt down a $300 invoice.