What to do when a customer won't pay

The job is done, the invoice has gone out, the due date has passed and the money hasn't arrived. Most of the time it is not a dispute. The invoice got buried, the person who pays the bills is away, or the customer is waiting for a reminder. A calm, steady process gets most of those paid without anyone falling out. This guide sets out that process, from the first friendly nudge to the formal steps.

First, check your own paperwork

Before you chase, make sure there is nothing on your side for the customer to point at:

• Did the invoice reach the right person, at the right email address?
• Does it show the due date, your payment details and a reference to quote?
• Does it match the quote, plus any variations the customer approved in writing?
• Is it a valid tax invoice if they need one to claim the GST? See what the ATO expects on a tax invoice.

A surprising number of late payments are invoices the customer has a genuine question about and hasn't got round to asking.

Step 1: a friendly reminder

Send it the day after the due date, not three weeks later. Keep it short and assume good faith: the invoice number, the amount, the due date, how to pay, and an offer to resend it. A reminder that arrives on time and sounds routine gets paid; one that arrives a month late and sounds hurt gets a reply.

Step 2: a second reminder and a phone call

About a week later, send a firmer reminder and call. A phone call surfaces the real reason. If it is cash flow, agree a payment plan in writing: two or three dated payments are better than a promise of "soon". If it is a complaint about the work, deal with the complaint. Unpaid money and an unresolved complaint are one problem, not two.

Step 3: a letter of demand

If reminders and calls go nowhere, the next step is a letter of demand. The government's small business site, business.gov.au, suggests sending one when a customer doesn't respond to your reminders. It is a formal letter that sets out:

• who owes what, for which job and which invoice;
• what you've already done to ask for payment;
• a final date to pay; and
• what you will do if they don't, such as starting a claim.

Only state a next step you are actually prepared to take. Send it in a way you can prove it arrived. A lawyer can send one for you, and a letter on a law firm's letterhead often gets a faster response.

Stay inside the rules for collecting debts

Pressure has limits. You can't threaten action you have no right to take, contact someone at unreasonable times or too often, mislead them about the consequences of not paying, or discuss their debt with other people. The ACCC and ASIC publish a debt collection guideline that applies to businesses collecting their own debts, not only to collection agencies.

Can you charge a late payment fee in Australia?

Only if the customer agreed to it before the work started. A late fee or interest that first appears on an overdue invoice isn't something you can insist on: the customer never agreed to it. The government's guidance on letters of demand makes the same point: include a late payment interest rate only if it was in the contract.

If you want the option, put it in your terms now, for future jobs:

• Say it on the quote and in your terms, so it is part of what the customer accepts. Our guide to what to put on a quote covers the rest of the terms.
• Keep it proportionate. Interest at a stated rate on the overdue amount, or a modest fixed fee that reflects the real cost of chasing, is easier to defend than a large flat penalty.
• Make it fair both ways. If you use the same terms for every customer, they are likely a standard form contract. Unfair terms in those are banned, with penalties, since 9 November 2023, and the ACCC lists terms that penalise one party but not the other among the examples that may be unfair. Its contracts guidance sets out the test.

In practice, a late fee is mostly a nudge. Its value is that it is written down, and the customer knows paying late is not free. Waiving it for someone who pays once you call is often worth more than collecting it.

Payment claim or invoice?

If you work in building and construction, the document you send can matter as much as the amount. Security of payment laws give contractors and subcontractors a fast way to be paid for progress claims, but the process starts with a payment claim, which has to meet your state's requirements and deadlines. An ordinary invoice may or may not count, depending on the state and what it says. Our guide to payment claim vs invoice explains the difference and when it is worth using the formal route.

Step 4: the formal options

• Small claims. Each state and territory has a tribunal or a small claims division of its local court for modest debts. Amount limits, fees and time limits differ by state, so check your state's court or tribunal website.
• A small business commissioner. Several states have one who can help resolve business disputes, often through mediation, before anything reaches a court.
• Security of payment laws. If you're a contractor or subcontractor in building and construction, every state and territory has security of payment legislation that gives you a fast adjudication process for progress payments. It has strict time limits and forms, so read your state's rules or get advice early.
• A debt collection agency. They charge a fee or a share of what they recover, which can still be worth it for a debt you would otherwise write off.

Make the next one less likely

Chasing money is the worst-paid work a trade business does. The cheapest fix is upstream: a clear written quote, a deposit for larger jobs, an invoice sent the day the job is finished, payment details that make paying easy, and reminders that go out on a schedule rather than when you remember. Cutting the time it takes to get paid covers each of those in more detail.

How BizzMate helps

In BizzMate, a finished job drafts its own invoice from the labour and materials that were logged on it, so it can go out the day the work is done. The invoices list shows what is overdue and the total owed, you record payments as they come in, and you can switch on automatic payment reminders, which go to the customer at 7, 14 and 30 days overdue. Try it free for 14 days.

This guide is general information, not legal or financial advice. For a disputed debt, especially a large one, talk to a lawyer or your state's small business commissioner.