The short answer
Following up late invoices yourself costs two things you can measure and two you usually cannot. The measurable part is your time and the interest on the extra days you are lending each client. The part that rarely gets counted is the discounts you concede to get paid and the sales hours the follow-up pushes out.
For the measurable part:
Monthly cost = (late invoices × hours per invoice × your hourly rate) + (late invoices × invoice value × extra days late ÷ 365 × your borrowing rate)
For the 9-person agency in the worked example below, with 3 late invoices a month, that comes to $1,626 a month before anything that does not show up on a spreadsheet.
The worked example
Take an agency of 9 people. Invoices average $12,000. Terms are net 30, and in practice clients pay at day 58, so each late invoice runs 28 days past due. In an ordinary month 3 invoices are late. The founder does the follow-up and bills clients at $150 an hour. Borrowing to cover the gap costs 10% a year.
Cost | How it is calculated | Per month |
|---|---|---|
Founder time | 3 invoices × 3 hours × $150 | $1,350 |
Extra 28 days of credit | 3 × $12,000 × 28 ÷ 365 × 10% | $276 |
Discounts conceded to get paid | Not counted | — |
Sales hours displaced | Not counted | — |
Measurable total | $1,626 |
Replace every input with your own. The two that move the result most are hours per invoice and your hourly rate, which is worth knowing before you decide the cost of money is the problem.
1. Your time
Three hours per late invoice sounds high until you list what goes into it:
Checking the bank to see whether it has been paid.
Finding the last email in a thread about something else.
Writing the follow-up, then rewriting it so it sounds less annoyed.
Asking your contact who approves invoices, and waiting for the answer.
Doing most of that again at day 45.
None of these steps takes long on its own. They all happen in the gaps of a working day, which is why the total is easy to underestimate and hard to remember at the end of the month.
Use what you bill a client for an hour as the rate, because that is the work those hours would otherwise go to. If you are not billable, use what you would pay someone to take the task off you. The arithmetic does not change.
2. The extra days of credit
A client who pays at day 58 on net 30 terms is borrowing your money for 28 days, without asking and without terms. If an overdraft or credit line covers the gap, the cost is the interest. If nothing covers it, the cost turns up as the payroll week you spend moving money between accounts.
At a 10% borrowing rate this line is smaller than most founders expect: $276 a month in the example. What hurts is the timing, because the shortfall lands in the same week as payroll and rent whatever the annual rate works out to.
To measure it on your own books, work out your days sales outstanding and subtract your stated payment terms. The difference is how many days of credit you are extending on average, to every client, on every project.
3. Discounts and concessions
This is the line that never makes it into a spreadsheet. A founder who has followed up the same invoice 4 times will often offer something to close it: 10% off for payment this week, an extra round of revisions left off the invoice, an agreement to bill the next phase later. Each one feels like relationship management at the time. Added up over a year it can outweigh the time line, and it is the cost you are least likely to track.
Carrying on with work for a client who is already late belongs here as well. Every week you keep delivering, the amount at risk grows. A deposit on the next phase is the usual fix, and how to ask for one is covered separately.
4. The sales hours
The founder is usually also the person selling the next project, often to the same client. Following up an overdue invoice and pitching the next phase in the same week pull in opposite directions, and most founders settle it by softening the follow-up.
That cost is real and cannot be measured cleanly, so it stays out of the formula. Keep it in mind when you read the total. There is more on why the roles conflict in who should follow up your unpaid invoices.
When doing it yourself is cheaper
Run the formula at low volume and the answer changes. One late invoice a quarter, at 3 hours and $150 an hour, is $450 a quarter, or about $150 a month. At that level any process, software or outside owner costs more than the problem it solves.
For most small agencies the crossover sits around 2 or 3 late invoices a month, or the first invoice large enough that its lateness decides whether payroll is comfortable. Below that, keep doing it yourself and put the follow-up dates in your calendar. Above it, compare the total with the cost of handing the thread to someone else.
For reference, Collected42 is $490 a month for up to 10 active payment threads. The cost worth naming: an outside owner removes the time line and most of the concessions, but it does not guarantee the extra days shrink. A client with a broken approval process still takes time to fix, and a handover has to be done properly or it creates its own delays.
How to cut the cost without handing anything over
Keep every open invoice in one sheet with a due date and a stage. Most of the 3 hours is reconstruction, and a sheet removes it.
Set your follow-up days in advance, so the next message goes out on a date rather than when you notice.
Ask for the approver’s name in the first follow-up, not the fourth. Most late invoices are waiting on a person, and the name is what moves them.
Send invoices from a shared billing address. The accounts@ setup takes an afternoon and stops invoices dying in a project contact’s inbox.
Take a deposit on new work, so the amount at risk when a client goes quiet is smaller.
The payment operations wiki documents the whole sequence, including the escalation ladder and 14 templates, for $6.99.
FAQ
How much does it cost to chase unpaid invoices yourself?
Multiply your late invoices per month by the hours each one takes and by your hourly rate, then add the interest on the extra days each invoice runs late. For 3 late invoices of $12,000, at 3 hours each and $150 an hour, running 28 days late at a 10% borrowing rate, that is about $1,626 a month. Discounts conceded and lost sales time come on top.
How many hours does it take to follow up an overdue invoice?
It depends on why the invoice is late. One that needs a single reminder takes minutes. One stuck at approval or purchase order matching can take 3 hours or more across several weeks, and most of that time goes on finding the status and the right person rather than on writing emails.
Is it worth paying someone to follow up invoices?
When the measurable monthly cost of doing it yourself is clearly higher than the fee, and the invoices are large enough that the client relationship matters. At 1 late invoice a quarter it rarely is. At 3 or more a month, on invoices over $5,000, the numbers usually favour it.
What does late payment actually cost a small agency?
The interest on the money is often the smallest part. The larger costs are the owner’s time, the timing of cash around payroll and the concessions made to get paid. Compare your days sales outstanding with your stated terms to see how much credit you are extending.
Does outsourcing invoice follow-up get invoices paid faster?
It can shorten the delay when invoices are late for process reasons, such as a missing approval or purchase order, because someone is working the blocker on a schedule. It cannot speed up a client that is unable to pay, and it will not change delays that are written into your own terms.