How to Chase Up Late Payments (and What to Do When They Just Won’t Pay)

Small and medium-sized business owners rely on their customers to conduct trade fairly and make payments when they are due.

If you have a customer who seems to be avoiding making a payment, it’s wise to act quickly to find a resolution before involving debt collectors or the courts.

But sometimes, your clients or customers just won’t pay you – no matter how many times you chase up.

So below, we’ll outline our tips on how you can follow up on late payments – without sounding too pushy – and what you can do when you they just won’t pay.

How to Follow Up on Late Payments

It’s an unfortunate but surprisingly common situation to find yourself in. You’ve completed work or provided goods to a customer, sent your invoice, and kept an eye on your account for payment. The due date of the invoice comes and goes, and yet payment still has not been received. What can you do?

Take a reasonable approach

Although it can be annoying and frustrating, it’s best to be understanding and, wherever possible, to take a practical and measured approach.

In a large majority of cases, you can resolve quickly and simply.

Show understanding

In almost all cases, late payments are attributed to an oversight or error on the customer’s side. Less common is when your customers are experiencing challenges or circumstances beyond their control, such as sickness, family concerns or their own financial difficulties. At times like these, many people fall behind on their paperwork and accounts.

It also could depend on the size of operation your customer has. Sometimes, invoices can get held up in large organisations, or, payments might be scheduled to occur on only certain days of the fortnight. And if you miss that fortnight’s payment run, there could be another two week delay.

While it’s true that some people seek to deliberately avoid making payment, in our experience, most people are keen to fulfill their responsibilities if given a chance.

Double check the arrangements

Before you even contact your customer to notify them of late payment, double-check all of the documentation and information you have about the job. If there was a contract, check the trading terms and conditions. There might have been a payment condition you overlooked or had forgotten about, that explains why payment hasn’t been made.

Review your invoice

Accusing a customer of non-payment when you haven’t actually provided them with an invoice can be embarrassing. Check that you provided the correct due date and were clear about trading terms on the invoice itself.

Then, check your records to ensure the invoice has been sent or provided to the customer. Could it have been caught up as an unsent item in your email account? If you can see it in your sent items, make sure you sent it to the correct and valid email address.

Maintaining an efficient invoicing system helps you keep on top of payments, makes you appear more professional and will help you establish good cash flow routines.

Provide a reminder

In many cases, the customer will have simply forgotten to make payment, or, there are some delays in their ability to carry out the payment. To keep a healthy and positive working relationship, it does pay to be civil and understanding in the first instance.

If you are sure your customer has received your invoice, the best thing to do is to contact them shortly after the due date with a reminder.

You should contact your customer through their preferred communication channels, if known, and in the way you most often communicated with them regarding the work.

Depending on the nature of the work carried out, and how well you know them, you may choose to:

• send a friendly email with a few words about the invoice being overdue
• resend or resupply the original email with the invoice
• contact your customer by phone to let them know
• pop in and see them while you are out and about, if you usually visit them

A friendly reminder can be as simple as:

Dear John,

Hope you’re well.

Just gently following up on the below invoice.

Kindest,

Your Name

Ensure you have put your request in writing

However you choose to get in touch, make sure you have a record of your contact. If you provide a new due date, be clear about the new due date in your correspondence.

Maintaining documentation about when and how you contact your customer is a good idea because you may need to provide evidence about what you have done should the matter go further.

It is best to be civil and courteous and allow them to easily make the payment. If you are discussing the matter in person, see if you can establish a new due date to suit you both. Once you have discussed the matter, follow up your conversation with an email.

At this stage, provide your customer with information about the invoice and amount that is owed, and ask that it be paid by the new due date.

You can decide the new due date, and it may well depend on how urgently you require the payment. Extending the due date by ten days is considered reasonable and fair. It is worth mentioning your willingness to work with the customer to form a payment arrangement, and your intended next steps, along with the consequences of non-payment.

When Your Clients Don’t Pay (Despite Numerous Reminders)

Formalise your request with a letter of demand

If the drags on and on, and you still have not had any payment, or the customer has not contacted you to explain or negotiate a new payment date, you might have to up the ante.

The next step may be to send a formal letter of demand, which you can draft or have someone write for you.

Be polite and professional in your letter, making sure it is neatly presented and clear. Include copies of any relevant documents such as contracts, agreements, signed records and the invoice.

Step back and think

If you send a formal letter of demand and still don’t receive payment or contact from the customer, it is worth taking a moment to decide what you want to do. Consider any known factors, such as any comments or correspondence from the customer, and their current position, along with thinking about the:

• impact of non-payment on your own business
• cash flow challenges
• future business opportunities
• industry reputation
• personal and professional relationships
• time and costs associated with pursuing payment

At this point, it might be worth thinking about your ideal outcome. Consider what you know about the dispute and identify potential outcomes. Think about what you want to achieve and what you can realistically expect to achieve. Consider how this will impact cash flow, time and resources, productivity, future business, and personal relationships.

It is not appropriate or reasonable to harass, intimidate, embarrass or exhaust your customers, or any of their representatives or employees. As annoyed and disappointed as you might be, keep your cool and a clear head if you can.

If your unpaid invoice is worth hardly anything to you, it may be worth writing off the debt and refusing to do any further work for your client until you finally get paid.

Mediation and dispute resolution

If the customer is disputing their responsibility to make payment, you might need to consider dispute resolution or mediation. There are accredited dispute resolution services in every state and territory.

The Australian Small Business and Family Enterprise Ombudsman website has some great resources and an online tool that will help you work out which agency or service would be the most appropriate to contact for support.

Some dispute and mediation services have costs associated with them. Using these services is often quicker and easier than going to court.

Debt collection agencies

Another option might be employing a debt collection agency to recover the money for you. A debt collection agency or service will try and recover the money that is owed to you. When debt collectors are involved, it signals to your customer that you mean business and are pursuing the payment.

Debt collectors will usually issue their own letters of demand, formally contacting your customers with initial, then secondary and final correspondence.

Debt collectors will charge you a fee for their service, typically a portion of the monies owed to you. Other agencies use a different arrangement in which they purchase the debt from you, and then retain any or all recovered money. This is particularly useful if you have already taken the step to write off the debt.

Debt collectors can also pursue legal action in their efforts to obtain unpaid accounts. The Australian Competition and Consumer Commission have produced a very handy and clear resource with lots of relevant case studies.

Take the matter to court

As a last resort, you may want to take legal action regarding the unpaid debt. This is a serious decision that may have repercussions for you and your business, including fees and charges and risks to your reputation or business profile.

Depending on how much money is owed, you may wish to get independent legal advice and representation or lodge a claim with one of the courts in your state or territory. Research which court is the most appropriate for your claim.

The Australian Government has published information for business owners who wish to make contract claims.

As a business owner, during the life of your business, you will probably encounter at least one customer who is unable or unwilling to pay you.

Ultimately, you have the power to decide the actions you will take to recover the monies owed to you.