Invoice software for Hong Kong

Overdue Invoices in Hong Kong

An invoice is deemed to be overdue if the customer fails to make payment by the agreed due date. This shows that the customer has failed to comply with the payment terms of the invoice, and so this is known as an overdue invoice.

This kind of scenario can be extremely challenging for business survival. However, the approach needs to be taken diligently.

overdue invoice

In this article we will discuss policies, safeguards and controls to collect overdue invoices. The key is to control the situation and ensure that no steps are taken which may not work in your favour in the future.

How to Minimize Delays in Payment Collection

Next will be a discussion on the safeguards and suggestions to minimize delays in payment collection:

  1. Make sure to send the invoice on time

    In certain situations, the collection of payment for the invoice is late due to the fact that the invoice was not sent on time from the supplier to the customer. This could be seen as negligence that must and can be avoided by implementing certain controls. The business can track if there are any dispatches for which no invoice was raised. This is done by comparing daily, the number of goods dispatched notes with the sales invoices sent. By keeping on top of these things and staying organized, there will be no error in sending late invoices.

  2. Make sure to specify the breakdown of products and services delivered

    In order for the customer to send prompt payment, they need to be sure about the total amount payable on the invoice. Since the customer needs to understand why they are being charged for a certain amount, a clarification on the goods ordered and billed for, will make sure that they don’t hold payments due to unclear billing. That is why it is a good idea to state the detailed breakdown of the services and products delivered with the quantity and rate applied to avoid any confusion which might lead to delayed payment.

  3. Offer incentives and discounts for customers to make early payments

    By offering early payment discounts, this gesture has been proven to be effective in payment collections. Early payment discounts can be static, sliding and dynamic depending on the company’s policy and terms of agreement between the seller and customer.

  4. Mention late fees and penalties on the invoice

    Having a late fee or penalty listed on the invoice is considered to be a powerful collection tool. Despite this, it may not always be feasible to charge a late fee. The business needs to understand market position, competition, product demand, seasonality and many other factors before implementing a policy to collect late fees or penalties.

  5. Agree on the payment method well in advance

    Sometimes, the payment of the invoice will be delayed when there is a conflict on the collection method. For instance, the customer may want to pay the invoice using cash however the business would rather a deposit into the bank as they may not feel secure with collecting cash. There is therefore a need to agree on payment methods well in advance in order to avoid any potential conflict. Also, an offer of multiple different payment options can also be effective in securing prompt payment.

  6. Establish an effective system to send timely follow-ups

    The business should have documented policy and procedures to follow up on invoices and send reminders for overdue invoices. If the business has business software implemented, then an automatic reminder can be set up on the system when the invoice is nearing the due date or any other date set. If the business is using a manual system, then it is a good idea to allocate responsibility for tracking and chasing overdue invoices.

Next will be a discussion on how to send an effective reminder for an overdue invoice.

How to Send Overdue Invoice Payment Reminders?

To send an effective payment reminder, there is a need to create balanced content that encourages the customers to make quick payment without having to impair the business relations. There may be times when a customer is experiencing some temporary problems in working capital management which might make them unable to pay during a short period time. So, it is better to be mindful of this fact. If the business takes an excessively assertive approach, this may lead to the chance of losing a valuable customer which may result in a serious loss for the business. Following will be some balanced content to send payment reminders:

Friendly Overdue Invoice Email Letter Sample

Subject: Your invoice is overdue – please send payment ASAP

Dear {Name of the client},

This email intends to remind you that invoice # {XXXX}, with amount {CCCC}, and due date {DATE} has been overdue for {AA} days. Please note that if payment is not made in the next {BB} days, you may be charged late fees or interest.

We have attached an invoice for you to refer to for your ease and use.

We value you as a customer and hope that this situation will be resolved promptly without any further delay. We wish you the best of luck and are eager to serve with high spirit and zeal.

Best regards,
{Your name}
{Your company name}

How to Collect Past-Due Invoices?

Sending payment reminders to late paying customers is one of the most effective tools to collect invoice payments. Combining this with the following strategies with emails can be highly efficient.

  1. Send regular follow-up emails

    Setting the tempo of email reminders gives an impression that you are committed to collecting funds. So in this way, the customer will be encouraged to escalate the matter and make payment.
  2. Make a follow-up call

    If you are still waiting for a reply from the customers even after 3-4 email reminders, a follow-up call is recommended. It is better for the business relationship to make preparations before the call. For instance, you will be able to notify them of the total amount due, the invoice number, number of days that the invoice has been overdue and the number of payment reminders sent to the customer and all other relevant details.
  3. Send overdue statements

    Once a call is finished, it is a good idea to send overdue statements. This brings clarity for the customer. In addition, if there is any mismatch between the customer and your books, then it can be sorted out in a timely fashion.

Next the importance of interest charged on overdue invoices will be discussed:

How Much Interest Can be Charged on Overdue Invoices?

In practice, 1% to 2% monthly interest is charged on overdue invoices. This however, is not a universal rule and can differ between different businesses. It is prudent to include late payment provisions in the contract so that everything will be clear to both seller and buyer. For professionalism, it is also a good idea to outline the late payment penalty on the invoice itself. This allows the payment to be in the eyes of the buyer and will encourage them to make prompt payments.

Formula to Calculate Interest on Overdue Invoices

Interest on overdue invoice = [{Overdue balance x (Monthly interest rate / 30)} x Number of days invoice is late].

The formula works as follows:

  1. In the first step, divide the monthly interest rate by the number of days in a month, which gives the per day interest rate.
  2. In the second step, multiply the total overdue invoice balance by the daily interest rate. This gives us a per-day interest.
  3. In the third step, per day interest is multiplied by the number of days the invoice remains overdue. This then gives the total interest that will be charged to customers.


An invoice is considered overdue when the payment has not been paid by the due date. Late payment has the potential to seriously impact the viability of small businesses as they need to pay suppliers and meet day-to-day expenses.

In these situations there is no need to panic but instead, there should be implementation of policies and controls that work effectively in tracking and collecting invoices. It is important to allocate collection and follow-up responsibility to staff for overdue invoices.

The follow-up for overdue invoices is to be made with effective content that encourages the customers to pay the invoice. Often times, a payment can get delayed simply because of some ambiguity and oversight in the transaction. For instance, the seller does not send an invoice in a timely fashion, timely follow-up is not made, the payment method is not agreed upon in advance, the collection functions need to be more efficient and others. These factors are all able to be controlled by the seller.

In certain circumstances, the customer may need help with payment due to bad economic or business conditions. If this is encountered, it is advisable to remain calm and not impair the working relations with them.

Payment reminders need to be friendly and not confrontational. It should communicate that the specific invoice is overdue. Late fees and interest can be charged on late payments and charging a late fee is an effective tool to expedite the collection processes. Typically the interest rate on an overdue invoice is 1% to 2% per month but this figure can vary for different business.

Frequently Asked Questions

How do accounts receivable aging help with overdue invoice collection?

Accounts receivable aging is a great tool to analyze and understand the extent of delay for specific invoices. Some invoices may be overdue by a few years, and others only for a few days. By utilizing receivable aging, there is the ability to identify the extent of the delay, which then helps plan and apply efforts to make collections. There may be a need to escalate the matter if an invoice has been delayed for many days. On the other hand, simple reminders can be effective when the delay is for a few days.

What are the practices to prevent overdue invoices?

Following are the best practices to prevent overdue invoices:

What are the side effects of charging late fees / interest on overdue invoices?

The greatest problem with charging late fees or interest is that it may impair the working relations with the customer. It is clear that no business would want to pay interest if they cannot pay the invoice on time. It is best to consider the working relations with these customers before charging late fees or interest on overdue invoices.

Invoicing tools for Hong Kong: