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How do overdue invoices affect Aussie businesses?
Cashflow can be a significant stressor for many small and mid-sized business owners. No matter your industry, it’s important to know how to ask for payment when an invoice is overdue and what to do if your customer ignores your request.
How to tell a client their invoice is overdue
Follow-up with a phone call
You might like to start with a phone call to ask about the invoice’s status. Mistakes happen, with key stroke errors on either side a leading cause of late payments.
Alternatively, take advantage of MYOB’s automatic reminders that can be sent out at intervals that suit your business.
It’s best to set up the first automated payment reminder to email out as soon as the invoice reaches its due date, if it has not already been paid.
Send a final notice
If you’re still awaiting payment following your initial phone call and a follow-up overdue invoice reminder, send a final notice.
Send a formal letter of demand
Hopefully, you won’t have to issue a demand letter. But if you do, explain how you’ve attempted to collect the debt, when the final due date is, and what the consequences are for continued non-payment.
When to consider a debt collection agency or legal action
If a customer fails to make payment arrangements, you could enlist the help of a collection agency or solicitor.
Bringing in a third party to pursue payment will damage your relationship with your customer, but that may be an acceptable loss if it means recouping the money they owe you. You’ll also have to consider how the collection agency or solicitor charges for their service, and whether this is suitable for your situation.
Another option is to claim a tax deduction for “unrecoverable income”. You can deduct the full amount of the debt for the income year in which it became a “bad” debt. You’ll need proof that you tried to collect the debt, and that the customer showed no intention of repaying it.
Tips for quick payment:
Confirm contact information
Verify that you have the right contact information for invoices, including name, email and phone number. Make sure that you issue a compliant invoice with all mandatory details filled out.
Create policies for early and late payments
Adding an incentive for early payments may encourage customers to pay you well in advance of the due date.
For example, you may offer 1/10 Net 30 - a 1% discount if the invoice is paid within 10 days or the full amount payable in 30 days. Just be sure to clearly communicate your payment terms before rendering services or sending your first invoice.
Likewise, your late fee policy may also motivate customers to pay on time. Just be sure you explain your late fee policy in your initial statement of work and that the fees are reasonable so it doesn’t deter your customer from doing business with you.
Set up automatic payment reminders
With the right invoicing software, you can generate and send invoices, collect and reconcile payments, and automate payment reminders for overdue invoices. This means you can follow up on amounts owing without having to sacrifice time that you could be spending in your business on new sales opportunities.
Provide flexible payment options
Being flexible about payment options can help customers pay you on time in a method that’s most convenient for them. If you make it hard to pay the invoice, your customer won’t prioritise it over all the other things that they need to do each day.
Automate your invoicing with MYOB
With MYOB’s invoicing software, you can create and send invoices from any device. By invoicing accurately and efficiently and offering several payment methods, you can get paid faster. With automated reminders for customers with invoices overdue, you also won’t need to spend so much time chasing late payments.
We help businesses of all sizes in Australia and New Zealand get timely payments, remain compliant and uphold the highest standards of customer service. Find out how much easier invoicing can be with MYOB. Get started with MYOB today.
Frequently asked questions
When is an invoice officially overdue?
An invoice becomes officially overdue the day after its payment due date passes. Many people think an invoice isn’t really overdue until at least a week later, but actually, it’s technically overdue as soon as one day after the specified due date listed on your invoice.
How long should I wait before following up?
Send a friendly reminder on the due date or no later than 1-2 days after it passes. Many late payments happen simply because invoices get overlooked in busy inboxes, not because of cash flow problems or disputes. A polite nudge often resolves the issue quickly.
If you don't receive payment or a response within a week of your first reminder, follow up again with a slightly firmer tone. The key is to act promptly, because the longer you wait, the less likely you are to get paid. Plus, it can also signal to your clients that late payment is acceptable.
How many overdue reminders should I send?
Most businesses send three to four reminders before escalating to more formal action. A typical sequence looks like this: a friendly reminder shortly after the due date, a second reminder after one week, a firmer reminder after two weeks, a final notice stating consequences if payment isn't received, and a Letter of Demand before taking further action.
It’s best to space your reminders about 7 days apart, becoming progressively firmer in tone. If you're still not paid after the letter of demand, it's time to consider formal debt recovery options.
Can I charge late payment fees?
Yes, but only if your original invoice or contract specifically mentioned late payment fees. You can’t retrospectively add fees after an invoice becomes overdue. You must be transparent, timely, and reasonable.
If you want to charge late fees, include clear wording on your invoices, such as “Late payment fee of 2% per month applies to overdue accounts” or "A $20 administration fee applies to invoices overdue by more than 30 days."
Keep your fees reasonable, since excessive charges may not hold up if disputed. Common approaches include a modest admin fee to cover the costs of reminders and processing, or a monthly percentage interest rate charge that broadly reflects what it costs you to chase debts, and the interest on your overdrafts or the time-based value of the outstanding money.
What is a final notice letter?
A final notice letter is the last communication you send before taking or threatening to take formal debt recovery action. It's a clear, professional warning and reminder that states the outstanding amount, how long it's been overdue, previous attempts to collect payment, and the consequences if payment isn't received by a final deadline. A well-written final notice often prompts payment because customers realise you're serious about collecting the debt. It also creates a paper trail that strengthens your position if you do need to pursue legal action.
Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.