Chasing late invoices: a follow-up plan that works

Prevention first

The cheapest late invoice is the one that never happens:

• Agree terms in writing before you start, including the due date and any late fee.
• Take a deposit on anything with materials or more than a couple of weeks of work.
• Get the details large customers need: PO number, correct legal entity, accounts payable email.
• Invoice immediately on completion, not at month end.
• Make paying easy: bank details on the invoice, a payment link if you have one.

A week of avoidable delay at each of those points adds up to a month.

The reminder ladder

• Day 1 after due: a short, friendly email. Assume it was missed. Attach the invoice again.
• Day 7: a second email, still polite, asking for a payment date. Mention that you will call if you do not hear back.
• Day 14: phone. A call gets a real answer: it is being processed, there is a query, or they are stalling. Note what was said.
• Day 21: email confirming the call and the promised date.
• Day 30: a formal letter of demand: the amount, the invoice number, the original due date, a final date (usually 7 days) and what happens next.

Automated reminders handle the first two steps for you. FlowFi sends them on a schedule you set so you are not writing the same email fifty times a year.

Late fees and interest

You can only charge late fees or interest if they were part of the agreed terms. Adding them afterwards is unenforceable and tends to sour the relationship. If your terms include them, apply them consistently; a fee you waive every time is not a fee. A common approach is a flat administration fee plus interest at a modest annual rate, calculated daily.

When the customer disputes the invoice

Separate the disputed part from the rest. Ask them to pay the undisputed amount now and deal with the query in writing. Provide the evidence you have: the quote, the approved variations, the delivery confirmation. Most disputes are about scope or a misunderstanding, not refusal to pay.

Small claims and tribunals

Each state and territory has a low-cost tribunal or small claims court for unpaid debts: NCAT in New South Wales, VCAT in Victoria, QCAT in Queensland, and equivalents elsewhere. Filing fees are modest, you do not need a lawyer, and the threat of a filing is often enough to produce payment. Limits and processes vary by jurisdiction, so check the tribunal’s website for the current claim limit and steps. Keep your letter of demand; it is usually the first document they ask for.

Debt collectors and the ASBFEO

Debt collection agencies take a percentage of what they recover and are worth it for larger amounts where you have run out of patience. Use a member of a recognised industry body and confirm their fees in writing. The Australian Small Business and Family Enterprise Ombudsman offers a free dispute assistance service that can help before you escalate to a tribunal, particularly with larger businesses.

Writing off a bad debt

If you report income on a cash basis, an unpaid invoice was never income, so there is nothing to write off for tax; you simply do not receive it. If you report on accruals, you can claim a bad debt deduction once you have decided in writing that the debt is bad and made reasonable efforts to recover it, and you can adjust the GST you reported on it. Either way, record the write-off so the invoice stops showing as outstanding.

Protecting the relationship

Firm and polite is the tone throughout. The customer who pays late this month may be a good client for years, and most people are embarrassed rather than hostile when reminded. Escalation is for the few who never intended to pay. When you decide someone falls in that group, stop doing work for them.