Quick answer
When a customer pays late, escalate in steps: confirm the invoice and terms, call, send a written reminder, issue a letter of demand, then choose between a statutory demand (company debtors, $4,000 or more), a court claim, or writing the debt off. Each step costs more and risks the relationship more, so move up only when the lower one fails. Cover the gap with finance meanwhile.
Key points
- Most overdue invoices are fixed by a phone call; escalate in steps and keep a written record of each one
- A statutory demand is only available against a company, the debt must be at least $4,000, and the debtor has 21 days to respond or apply to set it aside
- A genuine dispute stops most formal recovery routes, so find out early whether the customer is disputing the work
- Sometimes the sensible commercial choice is a payment plan or a partial settlement, not a fight
- While you wait, invoice finance or a short facility can keep your own bills paid; fund against reliable invoices, not doubtful ones
The work is finished. The invoice has been sent, then sent again. The customer’s replies have gone from “it’s in the system” to nothing at all. Meanwhile your own suppliers and staff don’t care whose fault the delay is.
If this is you, you probably want two things: a clear idea of what you can do, and what each step costs. This guide lays out the options from cheapest to most formal, and notes where owners tend to jump ahead or wait too long. If you’re still at the stage of building a better system for the future, our guide to managing slow-paying customers covers prevention. This one is for when you’re already owed.
First: is it late, disputed or unaffordable?
The right move depends on why you haven’t been paid. Ask the customer directly, because the answer decides your route.
| Situation | Sign | Best first move |
|---|---|---|
| Forgotten or misrouted | Vague replies, “didn’t get it” | Resend to the right person, confirm a payment date |
| Slow process | Waiting for approvals or a payment run | Learn the cycle, get a firm date in writing |
| Disputed | “The work wasn’t right” | Understand the objection, fix or negotiate |
| Cash-strapped | Excuses, part-payments | Payment plan, stop further credit, move faster |
| Unwilling or gone quiet | No replies at all | Move up the ladder; consider formal steps |
Your records matter at every stage: the signed quote, the agreed terms, proof of delivery, emails and call notes. A dispute that you can answer with paperwork is a dispute you’re more likely to win.
What are the escalation steps?
1. Call, then confirm in writing
A phone call gets a straighter answer than an email chain. Ask three things: have you received invoice 1042, is there any issue with it, and on what date will it be paid? Then send a two-line email recording what was said. That email is the start of your paper trail.
2. Send a firm written reminder
State the amount, the original due date, the new date you’ve been told, and what happens next if that date is missed. Business.gov.au suggests starting politely, because late payment is often an oversight, and moving to a letter of demand or a debt collection service if that doesn’t work.
3. Pause further supply
If your terms allow, put the account on hold. This limits your exposure and tells the customer you’re serious. Be specific about what restarts it, such as “once invoice 1042 is cleared, we’ll continue the schedule”.
4. Issue a letter of demand
A letter of demand is a formal request: the amount, what it’s for, a final date (commonly 7 to 14 days), and a statement of what you’ll do next. Keep it factual and unemotional. You can write it yourself, or a solicitor or collection agency can, which usually carries more weight and a fee.
5. Choose a formal route
If the letter of demand fails, you have three broad paths.
- Statutory demand (company debtors only). Under the Corporations Act, a creditor can serve a statutory demand on a company for a debt that is due and payable and at least $4,000 (amounts can be combined to reach it). The company has 21 days after service to pay, secure the debt, or apply to a court to set the demand aside. If it does none of these, the law presumes it is insolvent, which can open the way to winding-up proceedings. It’s a powerful lever, but it is also serious, and it fails against a genuine dispute. Our glossary entry on a statutory demand has more.
- Court or tribunal claim. Each state and territory has a small claims process, and most also have a small business commissioner who may offer low-cost mediation. The thresholds, forms and fees differ by state, so check yours. Our guide to small business commissioners in each state lists where to start.
- Write it off or settle. Business.gov.au notes that chasing debts takes time and money and that sometimes writing off the debt is the best option. A settlement for 70 to 80 per cent paid within a week can beat 100 per cent paid in a year, if it is ever paid.
6. Consider a collection agency
Agencies typically charge a percentage of what they recover, or a fee plus a percentage. They can be effective with customers who ignore you but respond to a third party. Check the fee structure and whether they’ll act within the law, as you remain responsible for how your debt is pursued.
Can the customer be a big company or government?
Yes, and the levers differ. Large businesses with annual income above $100 million report their payment times under the Payment Times Reporting Scheme, and you can search the public register to see their stated terms and actual performance. If you are owed by a reporting entity, a polite note quoting their own published terms is hard to ignore. Government agencies have their own payment policies, and ASBFEO can help with disputes involving larger businesses.
How do I protect my own cash while waiting?
Chasing takes weeks, but your payroll, rent and BAS don’t wait. Think about the gap in two parts: how long, and how sure you are of the money.
- Invoice finance advances most of an invoice’s value early. It suits reliable but slow customers, because the funder looks at the customer’s ability to pay. Read how it works on our invoice finance page, and the calculator shows the dollar cost.
- A line of credit or overdraft gives flexible cover if you have one. Banks are often the cheapest option, so check your existing limits first.
- A short-term loan can bridge a defined gap if you can see when cash returns, but be sure repayments don’t start before the money arrives.
- Supplier and ATO conversations. Early calls to your own creditors, with a firm date, are cheaper than defaulting. Our guide on fixing a cash flow problem fast walks through this.
If you’re not sure which fits, send us the details of the gap and we’ll help you work it out.
Funding against a debt that may never be paid is the one to avoid. Most funders won’t advance against doubtful invoices anyway, and a loan to cover a lost debt only delays the loss.
A worked example: the signage maker and the unpaid $18,000
This example is illustrative. A signage maker in Adelaide completes $18,000 of work for a company client. The invoice is 45 days overdue. The client says the invoice “is with accounts”.
Week 1. The owner calls accounts directly and learns the invoice was never lodged because it lacked a purchase order number. Corrected invoice sent; payment promised in ten days. It doesn’t arrive.
Week 3. A firm written reminder, with the signed quote attached. The client now raises a complaint about one sign’s colour. The owner offers to reprint that sign, worth $1,400, at cost and asks for the balance on the rest.
Week 4. The client agrees to pay $16,600 in two instalments, in writing. The first arrives on time; the second is late by a week, but arrives.
Meanwhile, the owner used invoice finance on two other reliable invoices to cover wages. Total cost: some fees, a $1,400 concession, and about five weeks. Had the owner gone straight to a statutory demand, the colour complaint would likely have been called a genuine dispute and the demand set aside, costing legal fees and months.
Mistakes that make late payment worse
- Waiting until you’re desperate before chasing anything.
- Sending angry emails that become the dispute.
- Keeping supply running while the balance grows.
- Serving a statutory demand where there’s an obvious dispute.
- Verbal arrangements with no written record.
- Financing invoices you know are doubtful.
- Forgetting to tell your own bank or suppliers that a payment is delayed.
You’ve done the chasing and the money isn’t there: what next?
Being owed money is a strange sort of stress, because the cash is yours but you can’t spend it. In the meantime your obligations keep arriving. We talk with owners in this exact spot regularly, and there is usually a way to cover the wait that doesn’t cost more than the delay is worth.
Enquiring takes about a minute, and asking doesn’t leave a mark on your credit file. We don’t pass your details to a stack of funders, so your phone stays quiet, and a real person reads your situation and calls you. Tell us who owes what and how overdue it is, as accurately as you can; the sooner we understand it, the sooner the best-fitting option can come up.
Frequently asked questions
What is a letter of demand?
A letter of demand is a formal written request for payment, stating the amount owed, what it's for, and a final date to pay before you take further action. It isn't a court document, but it creates a record and often prompts payment. Keep it factual, attach the invoice, and keep a copy.
Can I send a statutory demand to any customer who owes me money?
No. Statutory demands under the Corporations Act apply to companies, not to sole traders or partnerships. The debt must be due and payable and, at the time of writing, at least $4,000. The company has 21 days after service to pay, reach an arrangement or apply to a court to set the demand aside.
What happens if the customer disputes the invoice?
A genuine dispute changes your route. A statutory demand is usually set aside where the debt is genuinely disputed, so a court claim or negotiation fits better. Ask what exactly is disputed, address that point in writing, and consider whether a partial payment now resolves things.
Should I stop supplying a customer who is overdue?
Usually, yes, for new credit. Pausing new work or deliveries until the account is current is a reasonable step, particularly if your terms say so. Do it in writing, politely, and say what will restart supply. Continuing to extend credit raises the amount you'd have to chase.
Can I charge interest or fees on overdue invoices?
You can if your terms, accepted by the customer before the work, allow it. Adding a charge afterwards with no agreement is hard to enforce. Put it in your quote or terms of trade for future work, and keep it modest so it doesn't become the argument.
How do I keep paying my own bills while I wait?
Options include invoice finance, a line of credit or a short-term facility, depending on how reliable the unpaid invoices are. Talk to your own suppliers early about adjusting dates. Funders generally prefer to advance against customers who pay but slowly, rather than doubtful debts.