Outstanding invoices: What they are and how to collect them

Managing outstanding invoices is essential for keeping cash flow steady. When payments slow down, even a few delayed invoices can disrupt operations and make planning harder. The key is understanding what outstanding invoices are, how they differ from overdue invoices, and how to track and collect them before they become a problem.

What is an outstanding invoice?

An outstanding invoice is a bill that has been sent to a customer but remains unpaid within the agreed payment period. It represents revenue that a business expects to collect, but hasn’t yet received.

A typical invoice lifecycle follows this simple sequence:

1. You issue an invoice
2. It remains outstanding until the due date
3. It becomes overdue if payment is not received by that date
4. You follow up, collect, or escalate if needed
5. The invoice is marked paid when the customer sends payment

Invoices can remain outstanding for several reasons, including slow internal processes, unclear payment terms, customer cash flow issues, or simple oversight.

Outstanding vs. overdue invoices: Key differences

Every invoice falls into one of two categories: outstanding or overdue.

• Outstanding invoice: The customer hasn’t paid yet, but the payment deadline hasn’t passed
• Overdue invoice: The invoice is past its due date, and the customer still hasn’t paid

For example, if you send an invoice on March 1 with a due date of April 1, it remains outstanding throughout March. If the customer doesn’t pay by April 1, the invoice becomes overdue and requires follow-up.

To make the difference easy to see at a glance:

How outstanding invoices impact your business

Outstanding invoices create real financial and operational strain, especially when payments are delayed. According to a recent survey of small businesses, 73% of owners have seen late payments become more common in the past year, which makes it harder to budget and maintain cash flow.

Here’s how outstanding invoices can affect your business:

• Strains on cash flow: When revenue is tied up in unpaid invoices, it reduces the working capital you need for payroll, operating expenses, and growth initiatives. For example, if you have $120,000 outstanding and monthly expenses of $80,000, even a one-month delay can leave you $40,000 short and push you toward using credit or deferring planned spending.
• Delayed operations and growth: Without predictable incoming payments, you may delay hiring, freeze purchasing, or slow expansion efforts while funds are pending
• Reduced negotiating power: When cash is locked up in outstanding invoices, you have less flexibility when negotiating with suppliers or vendors, which can lead to less favorable terms
• Risk to client relationships: Chasing late payments can create tension, especially if reminders become frequent or delays drag on

How to track and manage outstanding invoices

Managing outstanding invoices effectively starts with building a consistent tracking process. A clear system helps you see what’s coming due, follow up before issues escalate, and keep your payments predictable.

Setting up an invoice tracking system

Whether you prefer manual tracking through spreadsheets and ledgers or automated systems, consistency is key. Every reliable tracking system should include core details such as:

• Invoice date and payment due date
• Client information
• Amount due
• Payment terms
• Status (outstanding, overdue, paid, in dispute)

Tracking this information makes records easier to retrieve, simplifies auditing invoices for compliance, and supports stronger internal workflows.

Using accounts payable software

While manual tracking might work when you’re just starting out, it’s time-consuming and prone to error. As your business grows, your teams will benefit from automated AP systems or invoice processing software. These systems help you organize, standardize, and automate invoice tracking so nothing slips through the cracks.

When you’re ready to automate, top AP software should include:

• Automatic invoice ingestion: Captures invoice data from PDFs, emails, or uploads
• Approval workflow: Routes invoices to the right people based on rules like amount thresholds or vendor
• Reminder and follow-up automation: Sends clients timely notifications before and after the due date
• Payment scheduling: Plans invoice payments in advance to optimize cash flow
• Integrations with accounting platforms: Syncs with tools like QuickBooks, Xero, or NetSuite to reduce duplicate entry

Invoice management best practices

Effective invoice management depends on consistent routines and clear visibility into invoice status. Strong processes help you spot issues early, prevent cash flow surprises, and keep your collections predictable.

Perform regular reviews

Establish a regular cadence to scan your invoice list. Weekly or bi-weekly reviews work well. During these checks, look for upcoming due dates, follow up on pending payments, and flag invoices that may need attention. Regular reviews help you catch issues early and stay ahead of cash flow gaps.

Organize aging reports

Organize invoices by the number of days past the issue date or due date (0–30 days, 31–60 days, etc.) so you get a clear snapshot of how long invoices have been outstanding. Aging reports help you prioritize collection efforts, anticipate cash flow timing, and identify trends, such as spikes in late payments at specific times of year.

Categorize invoices by status

Group invoices into categories like “awaiting approval,” “pending payment,” or “needs follow-up.” Categorizing invoices gives you a clear sense of what stage each invoice is in and what action is required to move it forward. Status categories also support internal coordination and create helpful documentation if you need to escalate a payment issue.

Strategies for collecting outstanding invoices

Collecting outstanding invoices doesn’t have to feel confrontational. With the right approach, you can encourage timely payments while keeping supplier relationships intact.

Create effective invoice reminders

Invoice reminders work best when they’re timely and professional. A best-practice reminder schedule looks like this:

• 3–5 days before the due date: Friendly reminder
• On the due date: Confirmation that your business expects payment today
• 3–7 days after the due date: First overdue notice
• 10–14 days after the due date: Second reminder with escalation language

Your reminders should be short, polite, and clear about next steps. Use this template as a starting point:

Subject line: Reminder – Invoice #12345 due on [due date]

Hi [client name],

I hope you’re doing well. This is a friendly reminder that invoice #[12345], issued on [issue date] for [amount], is due on [due date]. Please let me know if you need a copy of the invoice or have any questions.

Thank you for your attention and looking forward to receiving payment soon.

Best,

[Your name][Your position] / [Your company]

Escalate when necessary

Sometimes an email isn’t enough. A quick phone call can confirm that the right person has seen the invoice. You might call when an invoice is 3–7 days past due and earlier reminders haven’t received a response.

Here’s a simple script you can adapt:

“Hi [name], this is [your name] from [your company]. I’m calling about invoice #[12345] for [amount], which was due on [due date]. I wanted to confirm you received it and see if anything is needed on your end for payment. If there are no issues, please let me know when we can expect payment. If there’s a problem, I’m happy to help resolve it. Thanks for your help on this.”

When calling, keep a record of:

• Dates and summaries of conversations
• Contact names and titles
• Any promised payment timelines

Documentation is essential if you need to escalate to decision-makers later.

Offer payment plans and incentives

If a client is struggling, offering flexibility can accelerate payment and preserve the relationship. Common options include:

• Early payment discounts such as 2% off if paid within 10 days
• Installment plans for large invoices
• Partial payment arrangements while the client stabilizes cash flow

When negotiating, focus the conversation on shared goals: keeping projects moving and maintaining predictable cash flow.

When outstanding invoices become overdue

Once an outstanding invoice crosses its due date, your approach should shift from routine reminders to more direct action. At this stage, timely follow-up protects your cash flow and reduces the risk of nonpayment.

Late payment fees and penalties

Before you charge late fees, make sure your terms clearly outline the structure:

• The late fee amount or percentage
• When it applies, such as 1.5% per month after 30 days
• Whether the fee compounds monthly

For example, for an overdue invoice totaling $5,000, you charge a 1.5% late fee per month and receive payment 15 days late. To calculate the late invoice fee:

1. Convert the monthly rate to a daily rate: 1.5% / 30 days = 0.05% per day
2. Multiply the daily rate by the number of late days: 0.05% * 15 days = 0.75% late fee
3. Apply it to the invoice amount: $5,000 * 0.0075 = $37.50 late fee
4. Add the late fee to the original total: $5,000 + $37.50 = $5,037.50

Late fees must comply with local regulations, so check state or country requirements before including them.

Invoice financing options

If overdue invoices are blocking cash flow, invoice financing can provide a short-term solution. With invoice financing, you borrow money using those invoices as collateral while retaining responsibility for collecting payment.

You can also choose invoice factoring as an alternative. Factoring companies purchase your outstanding invoices for a fee and advance you most of the value upfront.

Advantages include:

• Immediate cash flow
• Reduced collection workload

Disadvantages include:

• Fees reduce net revenue
• Potential impact on client relationships

Use financing options sparingly, ideally when overdue payments threaten essential business operations.

Legal actions and collection agencies

When all other methods fail, you may need to involve collection agencies or pursue legal action. Common steps to escalate include:

1. Sending a final demand letter
2. Handing the case to a collection agency
3. Filing legal action in small claims or civil court

Escalation is typically considered when invoices are severely overdue, such as 90 days or more. You’ll need documentation such as the vendor contract, invoice, and a record of communications. If a collection agency cannot recover payment, legal action may be your final option.

Because these routes can be costly and time-intensive, weigh the customer relationship, invoice value, and likelihood of recovery before moving forward.

How to prevent outstanding invoices

The best way to avoid overdue payments is to establish clear expectations upfront and streamline every step of your invoicing workflow. Strong processes reduce confusion, cut delays, and help clients pay on time.

Identify clear payment terms

Every contract should include:

• Payment terms, such as net 15, net 30, or net 60
• Accepted payment methods, including online payments or bank transfers
• Late fee policies
• Billing schedules for long or ongoing projects

Clear terms reduce misunderstandings and help clients plan for upcoming payments. Common examples include:

• Net 30: Payment is due 30 days after the invoice date
• Net 60: Payment is due 60 days after the invoice date
• 2/10 net 30: The customer receives a 2% discount if they pay within 10 days; otherwise, the full amount is due in 30 days

If you want to formalize expectations, you can include language like:

“Invoices are issued upon delivery of services and are due within 30 days of the invoice date (Net 30). We accept ACH transfers, checks, or major credit cards. A late fee of 1.5% per month may be applied to balances more than 30 days past due.”

Perform credit checks and client vetting

Not every customer should receive the same payment terms. For large or recurring clients, consider running credit checks, reviewing their financial history, and checking references.

You may choose to request deposits or limit outstanding credit for higher-risk clients. Warning signs include inconsistent communication, unclear business structure, or pushback on standard terms.

Streamline your invoicing process

The faster and more accurate your invoices are, the faster you get paid. Best practices include:

• Sending invoices immediately after you complete the work
• Ensuring all line items are detailed and accurate
• Offering flexible payment options such as ACH, credit card, or check
• Avoiding unclear descriptions or lump-sum charges

A smooth invoice-to-pay process reduces friction for clients and minimizes opportunities for delay.

How Ramp Bill Pay processes invoices faster than legacy AP software

Ramp Bill Pay is an autonomous AP platform that prevents invoices from piling up. Four AI agents manage transaction coding, fraud detection, approval summaries, and card-based payments—moving invoices from open to paid without manual bottlenecks. With up to 99% accurate OCR capturing every line item instantly, Ramp processes invoices 2.4x faster than legacy AP software¹.

Deploy Ramp as a standalone AP solution or connect it with corporate cards, expenses, and procurement for unified visibility into every open invoice. Teams using Ramp also report up to 95% improvement in financial visibility².

Open invoices stack up when approvals stall, coding takes too long, or payments get delayed. Ramp's touchless, autonomous automation clears the backlog:

• Real-time invoice tracking: Monitor every invoice from receipt through payment
• Real-time ERP sync: Connect bidirectionally with NetSuite, QuickBooks, Xero, Sage Intacct, and more for audit-ready books
• Approval orchestration: Reduces clicks, improves visibility, and accelerates processing across reviewers
• Custom approval workflows: Build multi-level approval chains with role-based routing tailored to your org structure
• Approval agent: Generates comprehensive summaries with vendor history, contract details, PO matching, and pricing comparisons—then recommends approval or rejection
• Intelligent invoice capture: Extracts data across every line item with 99% OCR accuracy
• Auto-coding agent: Analyzes historical coding patterns and invoice details like product IDs, descriptions, and shipping addresses to map expenses to the correct GL codes instantly
• Automated PO matching: Verifies invoices against purchase orders with 2-way and 3-way matching to catch overbilling before payment
• Batch payments: Process multiple vendor payments in a single batch
• Payment methods: Pay vendors via ACH, corporate card, check, or wire transfer
• Recurring bills: Automate regular payments with recurring bill templates
• International payments: Send wires to 185+ countries with global spend management support
• Vendor Portal: Let vendors securely update payment details, view payment status, and communicate with your AP team

Why finance teams choose Ramp to manage invoices

Ramp sets the standard for touchless AP—accurate capture, fast approvals, and on-time payments that keep outstanding invoices to a minimum. Use it as a dedicated invoice management tool or integrate it across your spend stack for complete oversight.

Over 2,100 finance professionals on G2 rate Ramp 4.8 out of 5 stars, ranking it the easiest AP software to use. Ramp's free tier includes core AP automation. Ramp Plus unlocks advanced tracking and payment features at $15 per user per month, with enterprise pricing available on request.

Outstanding invoices slow your business down. Ramp keeps them moving. Learn more about Ramp's invoice management software.

1. Based on Ramp’s customer survey collected in May’25

2. Based on Ramp's customer survey collected in May’25