Overdue Invoices for Australian Businesses - How to Handle Them

Your business has delivered its goods or services, and your customer has received them. Excellent news. It’s now time to send out the invoice to collect payment.

Fast forward a short while, and unfortunately, this particular customer has missed the due date that was clearly stated on your invoice. And they’ve given no indication as to why this is the case. You now have an overdue invoice.

Almost all businesses will experience this at some point. It’s frustrating, and can cause difficulty for your business and put strain on your relationship with the customer.

Fortunately, there are routes to take if a client is not paying an invoice to your Australian business. It could be a simple oversight, in which case, it should be quite straightforward to settle. But there are methods to try if the payment continues to be delayed or ignored.

This article will explore what an overdue invoice is, the impacts it can have on a business, and the steps you can take to retrieve payment. We’ll also provide a breakdown on why Wise is a great solution for clients not paying their invoice.

Table of contents
What is an overdue invoice? How to follow up on an overdue invoice Best practices to avoid late invoice payments Conclusion FAQs

What is an overdue invoice?

Firstly, let’s define what an invoice is, and, more broadly, how to define e-invoicing.

An invoice is a business document that details the key information related to a financial transaction between two parties. The buying party will purchase the goods or services, and the selling party will issue the invoice. It will contain information related to the two businesses, such as addresses and ABN numbers. It’ll have a list of items sold, their quantities, and their prices. It’ll include a grand total, as well as any GST that needs to be added.

And, most notably related to this topic, it will have the due date for payment.

An overdue invoice is sent out when this due date has passed. It’ll clearly state that the invoice is overdue, so there’s no confusion. There won’t usually be an explicit breakdown of what will happen if the invoice continues to go unpaid, though these steps will be covered later.

The impact of overdue invoices on businesses

Not surprisingly, overdue invoices can have a huge impact, particularly on smaller Australian businesses. Companies will factor payments into their cash flows to make sure the business can continue to function smoothly. If the payment doesn’t come in, then certain other areas of the business might be affected.

There is also the possibility that businesses are waiting on those payments to settle their own invoices with their suppliers and manufacturers.

Finally, it puts strain on the trust built between businesses, who enter into agreements banking on mutual benefits. If a customer doesn’t pay a business, they’re less likely to enter into commerce with that customer again, which will result in lost revenue.

What does an overdue invoice template look like?

An overdue invoice should not be confused with a payment reminder letter. Both serve the same purpose, but don’t contain the same features. You’ll usually send the overdue invoice early on in the recovery attempt, with payment reminder letters becoming more escalatory if the payment continues to be delayed.

An overdue invoice has most of the same features that a regular invoice has (many businesses will just duplicate the original invoice) with one notable exception. It should be made clear and explicit on the overdue invoice that the payment is late and that your business is aware of it. Most overdue invoice templates will have something like ‘overdue’ or ‘late payment’ boldly written on the invoice.

You should check to see that all of the below features are included on your overdue invoice:

• ‘Tax Invoice’ clearly stated
• ‘Overdue’ or ‘Late Payment’ clearly stated
• Your business name, address, and Australian Business Number (ABN)
• An itemised list of goods or services sold, the quantities, and pricing
• The payment terms
• The date of issue
• The due date for payment
• The subtotal, the GST amount, and the grand total

If any one of these features are missing on your original invoice, this might give an explanation as to why it’s not been paid.

How to follow up on an overdue invoice

So, you’ve reached the point where your customer has gone past the final due date for the payment.

It’s frustrating, but the most important thing is not to react rashly. You need to follow the necessary steps and do some investigation work before thinking about getting other parties involved.

1. Send a friendly reminder

More often than not, businesses don’t neglect to pay for malicious reasons. It could be that they’ve just overlooked it, or they forgot to add it to their payment schedules. Sending a friendly reminder to let them know that the due date has passed will often result in a settled payment. You could send your overdue invoice template at the same time.

2. Send a second overdue reminder

If the first reminder doesn’t work, send a second one. You could accompany it with a phone call this time - these are often harder to ignore than emails.

3. Send a final notice

At this point, it might start to become apparent that you’re being ignored on purpose. Nevertheless, you should send out a final notice for late payment before escalating to other parties. Stress the immediacy for the payment and perhaps mention that you might need to take further action if the payment is not received. You should be phoning every couple of days at this point.

4. Send a formal letter of demand

Once the final notice has been ignored, you should look to start escalating things. A formal letter of demand should be the first clear indication of initiating legal proceedings or using external collection agencies. Even with a formal letter of demand, you should give a final deadline for payment to give them one last chance to send the money in.

5. Cut off services

This step is likely to be more applicable to service-based businesses. If your customer has purchased a service from you, or perhaps a piece of software that requires your assistance to operate, you can cut the service off until payment is made. This should be stated as a clear consequence within the formal letter of demand and shouldn’t be done without warning.

6. Consider a debt collection agency

No one likes to deal with them, but they are often effective. If nothing else has worked, you should consider ramping things up by potentially employing a debt collection agency, who will try to retrieve the funds on your behalf. It should be noted that they’ll expect either a substantial fee or a portion of the payment, so consider carefully whether the debt retrieval will actually be worth it.

Best practices to avoid late invoice payments

The best way of dealing with overdue invoices is to make sure they don’t become overdue in the first place. It will still happen - some customers you encounter will just be bad faith actors. However, there are a few things that you can do to minimise the risk.

Outline expectations

For all new customers, you should set out payment expectations and terms in a very clear manner prior to any transactions taking place. Some customers will plead that they just didn’t know about the terms when they made the purchase - this step will help remove that excuse.

Manage your invoices efficiently

You should make sure that your initial invoice is sent out as soon as goods have been received, and you should stay in consistent contact with your customer regarding the invoice. Schedule regular reminders to make sure it stays fresh in their mind. You could also offer a small discount for early repayment.

Perform credit checks

Sometimes, a credit check will give some clues as to whether a customer is a potential risk when it comes to repayment. If they have a poor credit history or score, it might be worth setting a purchasing limit for this customer to mitigate the risk.

Offer payment plans or partial payments

A large part of invoice recovery is negotiation. Some businesses might feel embarrassed that they’re unable to pay for whatever reason.

For these customers, consider a monthly payment plan that’ll put less strain on their finances. And though it’s not ideal, you might want to accept a partial payment if your business can afford to take the hit. After all, something is better than nothing.

Use a financial service such as Wise Business

Not only does Wise offer a comprehensive business bank account that facilitates international payments, but we also give our customers many automated services. This includes invoice management, automated reminders, and account integration.

We take much of the legwork out of constantly chasing invoices by making the whole process as efficient and stress-free as possible.

Wise Business serves as a cost-effective solution where you can receive money from around the world at the speed and price of local payments.

Transform the way you receive payments with Wise Business:

• One-time fee of 65 AUD for local account details in 8+ currencies, including AUD, NZD, USD, and more—no recurring fees
• One account to hold, send, and convert money with no hidden fees or exchange rate markups
• Create and send professional invoices directly to your customers through Wise Business
• Create payment links to request money in specific currencies
• Seamlessly receive payments from customers, online sales, or PSPs like Stripe and Amazon.
• Wise is safe and secure - Trusted by 13 million people and counting

Sign up for the Wise Business account! 🚀

Conclusion

No one wants to deal with requesting payment for overdue invoices. But unfortunately, they’re almost an inevitability. The best advice that we can give you is to be prepared for them. Know the steps you need to take to minimise the risk of them happening, and understand what you need to do in order to retrieve your money.

And above all, avoid making assumptions and stay calm throughout the exchanges.

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FAQs

Can I charge interest on the overdue invoice?

It is legal to charge interest on overdue invoices. However, any interest arrangements need to be clearly stated on the payment terms agreed on before the transaction commences. They should also be reiterated on subsequent payment reminders.

What can I not do when chasing overdue invoices?

There are several steps that you must not take when trying to recover your money¹. Threat and deception, providing misleading information, blackmail, and turning up unannounced at the customer’s premises are some of the things that will likely get you in legal trouble.

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Sources:

1. Banned debt collection practices - Victoria