According to Entrepreneur Magazine, 82% of enterprises fail due to unpaid invoices. In the United States, small businesses are owed a total of nearly $825 billion by clients whom they delivered goods and services to. This figure equals 5% of the country's total annual economic production.

Similarly, manufacturers face the same challenges of unpaid invoices. Failure to collect on these due accounts is dangerous to the company's growth, success, and solvency. When these manufacturing companies face debt challenges, they find it hard to take advantage of the opportunities. In some events, the companies will have to write off the defaulted accounts as bad debts. In the manufacturing sector, different reasons contribute to these unpaid accounts receivables. Therefore, the key to successful collection is the knowledge, understanding, and experience to pilot the issue that led to these debts.

Manufacturing is a cost intensive industry with expenses that include suppliers, shipping charges, workforce costs, acquisition of new machinery and raw materials, machinery maintenance, handling inventory shortages, and additional workers’ requirements. Considering these expenses it is necessary for these firms to have a positive cash flow and enough liquidity disregarding whether the company is a startup or an established icon in the industry. Holding the money in unpaid invoices makes the ability to meet these challenges a hard task. Therefore, there is a need in evolving a strategy to reduce outstanding bills and encourage quick responses to these invoices.

Late Payment Issues

Research by the Close Brothers Business Barometer highlights the problems that manufacturing companies face while dealing with unpaid invoices. Their research shows that the manufacturing sector faces investment problems due to these outstanding sums.

A survey in December 2017 showed that 41.4 % of manufacturing companies claimed between 21,000 Euros and 40,000 Euros in late payment. 33.8 % of companies across all industries claimed as much.

With that, the operations of manufacturing firms were restrained by the loss in revenue that would have been realized if they were able to collect. The Barometer also explained that 7.5% of the manufacturing companies claimed that unpaid invoices made the cash flow management a difficult task. The December 2017 survey results revealed that 48.3 % of manufacturing firms spent at least two days a month chasing up the due invoices compared to the overall average of 31.2 %. Unfortunately both sides of the transaction end up losing when manufacturing invoices go unpaid. Failure to timely pay the obligations lead to the following impacts on the side of the customer;
  • Questioned creditworthiness.
  • Negative relationships with different parties.
  • Damaged reputation.
  • Slowed growth.
  • Slashed profits.
  • Increased bankruptcy risks.
  • High rates of workforce turnover.
Reasons for Unpaid Invoices

The problems of unpaid invoices may be from the company's' edge or the vendors' end. As firms grow, the accounts receivables get more complicated. Many of the reasons for failed collections can be attributed to the following key issues.

1. Poor accounting systems

Whether the firm uses traditional processes or modern technology in accounting, the staff must manage them properly. Best practices should be applied to ensure accurate, comprehensive, and legible accounts record keeping. In cases of defaults, weak accounting systems may serve as a base for the bill being not legally binding in a court.

2. Disorganized invoicing

This issue is similar to that of a weak accounting system, but it includes broader issues in payment areas. Insufficient accounting may hinder the payment of an invoice. Dysfunctional bill may result from errors made, which reflect poorly on the business reputation. It may lead to an invoice statement not holding up in a court hearing.

3. Poor communication

Businesses should include detailed written documentation when billing from the outset. Always communicate the payment expectations, including the exact amount, due date, and a brief, accurate noting of charges. Debtors may use this as a pathway to escape obligations.

4. Traditional practices

These account receivables practices may delay payment or even cause unpaid invoices. Even the best structured traditional accounting practices always slow payment. Therefore, the advancement of technology in the accounting area will help improve payments.

A comprehensive business-friendly app can help in sending invoices and receiving payments.

When the problem is the client, the following practices will help in recovering the unpaid bills;
  • Request all or some of the payments in advance.
  • Know when to be diplomatic and when to be forceful.
  • Have diversified customers or client base.
  • Seek legal help.
  • Use invoice factoring services.
  • Use debt collection agencies.
Using Collection Agencies 

Debt collection agencies collect unpaid bills from delinquent clients for a percentage of the money recovered. Some agencies limit their collections fields and amounts. In cases where collection becomes difficult, they negotiate settlements or refer the company to a lawyer who files a lawsuit against the defaulter. When dealing with delinquent invoices collection agencies will typically have resources and deploy tactics that drastically increase recovery rates.