Chasing an unpaid invoice: the escalation ladder that works in Australia

The invoice was for $9,400, the customer was friendly, the work was signed off, and thirty-five days later nothing had arrived. Every owner who sells on credit has lived this moment, and what they do next decides whether they get paid in a fortnight or in a year.

This guide is a practical ladder: start gently, escalate in clear steps, know which rungs carry real teeth, and keep your own conduct clean. It assumes a business-to-business debt in Australia, where you’ve done the work and the customer hasn’t paid.

Why do customers pay late, and why does it matter which reason?

Before choosing tactics, work out what you’re dealing with. Late payment usually falls into one of four buckets, and each needs a different approach.

Reason	What it sounds like	What helps
Admin slip	“We haven’t received it”	Resend the invoice, confirm the accounts email
Process delay	“It’s waiting on sign-off”	Find the approver, ask for a date
Dispute	“The work wasn’t right”	Listen, document, negotiate or fix
Cash shortage	“We’ll pay when we can”	Agree a payment plan quickly, tighten up

Treating a genuine dispute as a refusal to pay is the classic mistake. A debt that is seriously contested changes which tools work, as we’ll see with statutory demands. And treating a cash-strapped customer as a cheat can push them into the arms of a more aggressive creditor who gets paid first.

For the preventive side, see how to get customers to pay faster and managing slow-paying customers.

Step one: what should you do on day one past due?

Contact the customer the day after the due date. Keep it friendly and specific.

• Email the accounts contact, not only your project contact, attaching the invoice and quoting the invoice number, amount and original due date.
• Ask a question that needs an answer: “Can you confirm this is approved for payment and tell me the payment date?”
• Follow with a phone call within a few days. A voice often finds the reason an email never will.
• Write down the date, who you spoke to and what they promised.

A customer who gives a payment date has made a commitment. If that date passes, you already have a record to point to in the next letter.

Step two: how do you write a letter of demand?

If reminders fail, move to a formal letter of demand. It is not an act of aggression. It is the document that every tribunal, court and mediator expects to see.

A good letter of demand:

1. Identifies both parties correctly, using legal entity names and ABNs or ACNs.
2. States the amount owing and attaches the invoice, the quote or contract and proof of delivery.
3. Cites the payment terms the customer agreed to, plus any interest or recovery costs those terms allow.
4. Sets a firm deadline, normally seven or fourteen days from the date of the letter.
5. Says exactly what you’ll do if the deadline passes, such as filing a claim or issuing a statutory demand.
6. Is sent by a method you can prove: email with read receipt, plus registered post to the registered office.

Keep the tone factual. Threats, insults and public shaming undermine your position and may breach consumer or debt collection rules. A short, firm letter beats a long, angry one.

For companies, find the registered office address on the ASIC register, and send a copy there. For sole traders, use the address on the ABN record and the contract.

Step three: which claim route fits the debt?

When the deadline passes unmet, you need an enforcement route. Each state and territory has its own small claims or civil tribunal, with different monetary limits, filing fees and rules about legal representation. The right pathway depends on the size of the debt and whether it’s disputed.

Route	Best for	Notes
Small claims tribunal (state or territory)	Smaller debts, especially disputed ones	Lower cost, informal, limits and rules vary by state
Local or magistrates’ court	Mid-sized debts	More formal, with filing fees and possible cost orders
District or Supreme court	Large debts	Expensive, usually needs lawyers
Statutory demand (companies only)	Undisputed debts above $4,000	Fast, but only if there’s no genuine dispute
Small business commissioner mediation	Disputes with a commercial relationship worth saving	Free or low-cost, voluntary

Check your state’s court or tribunal website for the current claim limit. Our overview of small business commissioners in each state lists the free dispute help available in each jurisdiction, and it’s often worth a call before you spend money on filing.

What happens after you file

The customer is served with the claim and has a set time to respond. If they don’t, you can generally apply for judgment by default. If they dispute it, the matter goes to a hearing or mediation. Even a good claim takes time, so don’t wait until you’re desperate for cash to start.

A judgment is a piece of paper, not payment. To collect, you may need to use enforcement tools such as a garnishee order against the debtor’s bank account or a warrant for seizure of property. Which tools are available differs by state.

How does a statutory demand work against a company?

A statutory demand is a powerful pressure tool, and it only applies to companies, not to sole traders or partnerships. Under the Corporations Act:

• The debt must be more than the statutory minimum, currently $4,000.
• You serve a formal demand, with a supporting affidavit, at the company’s registered office.
• The company has 21 days to pay, to reach an arrangement with you, or to apply to a court to have the demand set aside.
• If it does none of those, the company is presumed insolvent, and you can apply to wind it up.

That presumption is why directors take these notices seriously. But it also explains the risk. The court will set aside a demand where there’s a genuine dispute about the debt or an offsetting claim, and in that case you may be ordered to pay the company’s costs. A statutory demand is a collection shortcut for undisputed money, not a way to win an argument.

For the receiving end, see what a statutory demand means and what to do. Understanding how the other side experiences it makes you more precise when you use it.

What time limits apply?

Claims can’t be brought forever. In most states and territories the limitation period for a contract debt is six years from when the debt fell due, though it’s shorter in some places and can be reset by a written acknowledgement of the debt. Don’t let an old, forgotten invoice run toward the deadline. If a customer promises to pay and doesn’t, a signed payment plan gives you a clearer record.

Short on cash while you wait? Tell us about the gap and we’ll see what could bridge it.

Should you use a debt collector or a lawyer?

Both have a place.

• Debt collection agency. Good for volume and for debts where the customer simply needs a nudge from a third party. Ask about fees: some work on a percentage of recoveries, others charge upfront. You remain responsible for the conduct of anyone you engage, and the ACCC and ASIC’s debt collection guideline applies to creditors as well as collectors. It sets out what counts as misleading, harassing or oppressive behaviour.
• Lawyer. Better for large debts, tricky disputes or where you need a letter on firm letterhead. A solicitor’s letter of demand often produces payment on its own, simply because it signals you’re serious.

Whichever you choose, don’t contact the debtor’s employer, family or customers in a way that amounts to humiliation. Not only is it poor form, it can create liability for you.

What if the customer is in real trouble?

Sometimes the customer isn’t ducking you. They’re running out of money, and you’re one of several creditors in the queue. In that case, the speed of your actions matters, and so does your security.

• Ask for a part-payment now and a written plan for the rest. Money in the bank beats a judgment against an empty company.
• Check whether you hold security. If you supplied goods under a retention of title clause and registered on the PPSR, you may be able to retake them; see retention of title for suppliers and how the PPSR protects your business.
• Watch for warning signs: bounced payments, ATO debts, staff leaving, changes of address, directors resigning.
• Don’t accept a preference-style arrangement without advice. Payments made by an insolvent company shortly before liquidation can sometimes be clawed back by the liquidator.

If the customer has already gone into administration or liquidation, your route is a proof of debt with the practitioner rather than a court claim.

How do you stop it happening again?

The cheapest debt to collect is the one you never create.

• Credit-check new commercial customers and set a limit before you deliver.
• Take a deposit on large jobs, or bill in stages.
• State payment terms on every quote, contract and invoice, and include interest and recovery cost wording where you can.
• Invoice promptly, with clear descriptions, purchase order numbers and bank details.
• Review your aged debtors list weekly. Our glossary entry on debtor days explains the measure to track.
• Consider invoice finance, which advances most of an invoice’s value so you aren’t waiting on your customers’ goodwill.
• Read late payment: your options as a small business for more on pressure you can apply legitimately.

When chasing money is costing you more than the invoice

A stuck invoice isn’t just an accounting problem. It’s wages, rent and GST falling due while someone else holds your cash. If you’re staring at a gap between what you’re owed and what you owe, you don’t have to wait for the debtor to cooperate before dealing with it.

Our enquiry takes a minute and doesn’t touch your credit file. It isn’t sent to a pile of lenders; a real person reads it and calls you to talk through the options. Fill it in with the true figures, including what you’re owed and by when, and the option we raise first is far more likely to be the right one.

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