Getting Paid on Time and Handling Overdue Invoices

Late payment is one of the most common money problems small businesses face. A job can be finished and invoiced, yet the cash still sits in someone else’s account weeks later. That gap puts pressure on wages, suppliers and tax bills. A few clear habits can make it far less likely to happen.

This guide covers practical steps for setting up invoices and payment terms. It also looks at how to follow up overdue amounts and where to get help in Australia. The information is general and drawn from small business regulators and commissioners.

How common late payment is

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) helps small and family businesses resolve disputes with other businesses and government. In an October 2024 interview on how small businesses can chase money owed, Ombudsman Bruce Billson said getting paid is the most common reason businesses seek help. He put it at nearly two in every five cases. About half of the businesses contacting the Ombudsman about payment disputes were also worried the other party could be at risk of insolvency.

Earlier research points the same way. The Victorian Small Business Commission (VSBC) cites a 2017 inquiry by the Ombudsman that surveyed 2,783 businesses. Around half of them had more than 40 per cent of their invoices paid late. Common problems included unpaid supplier invoices and large businesses trying to extend payment terms.

Set clear payment terms before the work starts

The best time to deal with late payment is before you send the first invoice. Your contract or quote should state when payment is due and how it can be made. The VSBC suggests reviewing your contract terms closely so you understand your own rights and obligations as well as your customer’s. If a dispute does arise later, clear written terms make it much easier to resolve.

Stricter terms can help where the risk is higher. In the same interview, the Ombudsman gave the example of asking for 50 per cent upfront before work starts. He also warned that offering terms such as 30 days carries a risk of not being paid. He also noted that the ATO now lists tax debts on credit reference websites. Checking those sites can help you judge whether to offer credit to a new customer.

Make your invoices easy to pay

An invoice that is unclear or incomplete gives a slow payer an easy excuse. The VSBC recommends contacting your customer’s accounts area to confirm what they need before they can pay. It also suggests using electronic invoices to reduce errors. If you are registered for GST, check that your invoices meet the ATO’s tax invoice rules as well.

Small details add up. A clear due date, an invoice number and simple payment options all remove friction. Sending the invoice as soon as the work is done means the payment clock starts earlier. Keeping records of each invoice and reminder also helps if the matter goes further.

Following up an overdue invoice

Most late payments are sorted with a polite reminder. Start with a friendly note a few days after the due date and keep the tone helpful. If that goes unanswered, a phone call often gets a faster result than another email. According to the VSBC, Business Victoria offers templates and scripts for reminders, final notices and direct contact with the customer.

Escalation should be gradual and recorded. A final notice can set a firm date and explain what will happen next. The ASBFEO website has steps for reminding debtors and a template letter of demand. It also has guidance on escalating action if those steps fail.

Why court is usually a last resort

Going to court can cost far more than the debt itself. The Ombudsman gave the example of a Federal Court case that cost about $250,000 and took two years to reach a hearing. For most small businesses, that is not a practical way to recover an unpaid invoice. Cheaper options are usually worth trying first.

Mediation is one of those options. The VSBC offers free early help with getting paid on time for Victorian businesses and can move a matter to low cost mediation. An independent mediator guides both sides through negotiations to settle the dispute without going to court. The advantages of resolving a commercial dispute using mediation are covered in more detail in a separate article.

Support differs between states and territories. The ASBFEO works as a problem solver for small and family businesses and aims for outcomes both sides can accept. It encourages businesses to try its self help tools first and takes on matters they cannot resolve themselves. Victoria has its own commission in the VSBC, so it is worth checking whether your state or territory has a similar body.

Protecting your cash flow

Late payment hurts most when a business has no buffer. The VSBC notes that prompt payment helps cash flow and reduces financial stress. Keeping a cash reserve gives you room while you follow up an overdue account. It also means one slow customer does not hold up your own bills.

Look at where your money goes each month as well. If you sell physical goods, freight is a regular cost, and understanding how logistics brokers work can help you plan for it. If customers pay through your website, regular work on optimising your WordPress website keeps that payment path working well. Marketing spend deserves the same scrutiny, and avoiding the most common mistakes with SEO means less money spent fixing problems later.

Payment rules for large businesses

There are also rules on how large businesses pay small suppliers. Since 1 January 2021, the Payment Times Reporting Scheme has required large businesses and large government enterprises to report twice a year on small business payment terms and times. The VSBC says the scheme aims to increase transparency and encourage better payment practices. It can also help small businesses choose who to trade with.

Frequently asked questions

What payment terms should a small business use?

There is no single rule for every business. Your terms should be clear, in writing and agreed before work starts. The Ombudsman has pointed to options such as asking for part of the payment before work starts, and warned that terms such as 30 days carry some risk.

When should I send a letter of demand?

A letter of demand usually follows reminders and a final notice that have gone unanswered. The ASBFEO website provides a template letter of demand. It also explains how to escalate if the debt is still not paid.

Is court the best way to recover an unpaid invoice?

For most small debts, court is a last resort. Costs and delays can be high, as the Ombudsman’s example of a $250,000 Federal Court case shows. Free early help and low cost mediation are often better first steps.

Who can help with an unpaid invoice dispute?

The ASBFEO helps small and family businesses with disputes and complaints against other businesses or government. In Victoria, the VSBC offers free early assistance and mediation. Services differ between states and territories, so check which body covers your business.

This article is general information only and is not legal or financial advice. Laws and processes differ between states and territories and can change, so speak with a qualified lawyer or adviser about your situation.