How to Chase Unpaid Invoices (Without Losing the Customer)
The way to chase an unpaid invoice without losing the customer is a fixed, polite escalation: a friendly nudge the day after it falls due, a firmer reminder a week later, a phone call, a final notice, and only then a letter of demand, a collector or a small claims application. Most late payers aren't refusing to pay; they're disorganised, and a predictable sequence gets you paid while keeping the relationship intact. It's routine: Xero's Small Business Insights has consistently found Australian small businesses are paid several days after the due date on average.
Prevention: invoices that get paid
Most chasing is avoidable. Slow payment usually starts with a vague quote, a missing purchase order number or an invoice sent three weeks after the job.
- Agree terms before you start. Payment terms belong in the quote the customer accepts, not on the invoice they see afterwards: the due date (7 or 14 days is common; 30 days is a gift to your customer's cash flow), any deposit, what happens if they pay late and who pays recovery costs. See types of business contracts for what terms of trade should cover.
- Take a deposit. For anything beyond a small job, a deposit (often 20 to 50 per cent) weeds out customers who never intended to pay.
- Invoice on the day. The longer the gap between the work and the invoice, the less urgent it feels.
- Make the invoice impossible to query. Correct legal name and ABN, the customer's purchase order number, an itemised description matching the quote, a due date written as a date (not "net 30"), bank details and a pay-now link.
- Use eInvoicing for business customers. Sending through the Peppol network drops the invoice straight into their accounting software; see our eInvoicing guide.
- Check new business customers. Look up any account that would hurt if unpaid on ABN Lookup and ASIC's registers before extending credit; big companies' payment times are published on the Payment Times Reports Register.
- Automate reminders. Most accounting and invoicing apps send scheduled reminders for you; see our accounting software comparison.
The reminder sequence
Each message is proportionate and expected, so the customer can see where it's heading and fix it before anyone gets uncomfortable.
| Timing | Channel | Tone | Goal |
|---|---|---|---|
| 1-3 days overdue | Friendly | Assume oversight, make paying easy | |
| 7-10 days overdue | Firm | Ask for a payment date | |
| 14 days overdue | Phone | Direct | Get a commitment |
| 21-30 days overdue | Email and post | Final notice | Set a deadline and state what happens next |
Template 1: friendly reminder (1-3 days overdue)
Hi Sam, a quick note that invoice #1042 for $1,870 was due on 12 September and hasn't reached our account yet. If it's on its way, please ignore this. If not, you can pay by card at the link below or by transfer to the details on the invoice. Thanks, Priya.
Template 2: firm reminder (7-10 days overdue)
Hi Sam, invoice #1042 for $1,870 is now 10 days overdue. Could you confirm when it will be paid? If there's a problem with the invoice or the work, tell me now so we can sort it out; otherwise I'd appreciate payment by Friday 26 September. Regards, Priya.
Template 3: final notice (21-30 days overdue)
Dear Sam, despite reminders on 15 and 22 September and our call on 29 September, invoice #1042 for $1,870 remains unpaid. Please pay the full amount by 10 October. If it isn't received by then, we'll issue a formal letter of demand and may refer the account to a collection agency or [court or tribunal], which can add costs to the amount owed. We'd much rather resolve this directly. Regards, Priya, [Business name], [phone].
Every message carries the invoice number, amount, due date, a specific ask and a way to pay. Don't apologise, and don't threaten anything you won't do.
The phone call
Around two weeks overdue, ring the person who approved the work, not the accounts inbox. The ACCC and ASIC Debt Collection Guideline applies to businesses chasing their own debts as well as to agencies: call between 7.30am and 9pm on weekdays or 9am and 9pm on weekends, skip public holidays, and don't contact a debtor more than three times a week or ten times a month.
- Open neutrally. "Hi Sam, it's Priya from Southside Electrical, calling about invoice 1042. It's showing as unpaid and I wanted to check whether there's an issue."
- Listen. If there's a dispute about the work, resolve that first.
- Ask for a commitment. "When can you pay it?" Then silence. Get a date and an amount, not "soon".
- Offer a bridge. "If the full amount is hard this week, can you pay half today and the rest on the 30th?"
- Confirm in writing. "Thanks for the chat. As agreed, $935 by 3 October and $935 by 17 October."
Log the date, time and outcome of every call; at a tribunal, that log is evidence.
Payment plans
A payment plan beats a dispute and beats a write-off. Put it in writing with the total owed, each instalment amount and date, and a clause making the whole balance payable immediately if an instalment is missed. Set up a direct debit rather than relying on the customer's memory, and stop extending credit while the plan runs: new work is cash up front.
Late fees and interest: what you can enforce
You can charge a late fee or interest, but only if the customer agreed to it before the debt arose and the amount is a genuine pre-estimate of what lateness costs you (admin time, financing, collection costs). A fee designed to punish is a penalty and a court won't enforce it; the unfair contract terms rules in the Australian Consumer Law, which protect small business customers as well as consumers, also catch one-sided clauses. So:
- Put the clause in the terms the customer accepts, then restate it on the invoice. If your terms are silent you can't add interest later (a court can still award interest if you win).
- Keep it modest and explainable: a flat administration fee, or interest at a rate you can justify.
- Use it as leverage, not revenue: offer to waive the fee in exchange for payment this week.
Letter of demand
A letter of demand is the formal step between your final notice and outside help, typically sent 30 to 45 days after the due date; courts and tribunals expect to see one before you file. State who owes what, for which invoice and when, a deadline (7 to 14 days is standard), how to pay, and what you'll do if they don't. Send it by registered post with proof of delivery and by email, and keep copies. business.gov.au has a free template.
Two cautions: it can inflame a relationship you might have salvaged, so it belongs after the phone call, not instead of it; and don't dress it up to look like it came from a lawyer.
Debt collectors
A collection agency does the chasing for you. Most work on commission, commonly 10 to 30 per cent of what they recover and more on old or small debts, or charge flat fees for single actions such as a demand letter (roughly $30 to $150, as at September 2026). "No recovery, no fee" is standard, but read the contract for minimums and for what happens if the customer pays you directly.
The agency acts in your name and is bound by the same ACCC and ASIC guideline; a heavy-handed collector can wreck the relationship and expose you to complaints. Collectors suit clean, undisputed debts; if the customer disputes the work, you're heading to a tribunal.
Small claims and tribunals by state
If the debt is undisputed and the customer can pay but won't, small claims is cheaper and simpler than most owners expect, and you don't need a lawyer. Where to go depends on your state (limits as at September 2026):
| State or territory | Where to file | Limit |
|---|---|---|
| NSW | Local Court, Small Claims Division (General Division above this, to $100,000) | $20,000 |
| Victoria | VCAT Civil Claims List for goods and services disputes; Magistrates' Court for larger debts | Magistrates' Court to $100,000 |
| Queensland | QCAT minor debt dispute | $25,000 excluding interest |
| Western Australia | Magistrates Court minor case claim | $10,000 |
| South Australia | Magistrates Court minor civil action | $12,000 |
| Tasmania | Magistrates Court minor civil claim | $15,000 |
| ACT | ACAT civil dispute | $25,000 |
| Northern Territory | NTCAT small claim | $25,000 |
In NSW, NCAT's consumer claims are for consumers taking action against businesses, not businesses chasing invoices (home building work is a notable exception), so debt claims go to the Local Court. For a sense of cost, QCAT's minor debt filing fee is $96.30 for claims up to $1,000, $164.30 up to $10,000 and $405.60 above that (as at 1 July 2026), and you can usually ask for the fee to be added to the judgment.
Before you file:
- Can they pay? A judgment is paper, not money; enforcing it costs more time and fees. If the customer is a company, search ASIC to confirm it hasn't been deregistered or entered liquidation.
- Have you tried mediation? The small business commissioners in NSW, Victoria, South Australia and WA run low-cost mediation, and many tribunals require conciliation first.
- Is the evidence in order? Accepted quote or terms, invoice, completion records, every reminder and your call log. Most debtors pay once served.
The limitation period for an unpaid invoice is six years from the due date everywhere except the Northern Territory, where it's three. A part payment or written acknowledgement generally restarts the clock.
When to write it off
Sometimes the right answer is to stop. If the debt is small, the customer has vanished or gone broke, or the hours you'd spend exceed the amount, write it off and move on. Record the decision and move that customer to prepayment only.
There's a modest tax silver lining if you report on an accruals basis: you can deduct a bad debt if the income was already included in your assessable income, the debt is genuinely bad (not just doubtful) and you formally write it off in your accounts before 30 June. Cash-basis reporters never declared the income, so there's nothing to deduct. On GST, accruals reporters who've paid GST on the sale can claim a decreasing adjustment of one-eleventh of the unpaid amount once it's written off or 12 months overdue; if the customer later pays, you make an increasing adjustment. Bad debts sit alongside everything else in our small business tax deductions list.
Our cash flow management guide covers where unpaid invoices and expected bad debts sit in a 13-week forecast.
Key takeaways
- Most late payers are disorganised, not dishonest; a predictable, polite escalation gets you paid and keeps the customer.
- Prevention is cheaper than chasing: agreed terms, deposits, same-day invoicing and automated reminders.
- Friendly email, firm email, phone call, final notice, then a letter of demand giving 7 to 14 days.
- Late fees are only enforceable if agreed upfront and based on your genuine costs.
- Small claims limits run from $10,000 in WA to $25,000 in Queensland, the ACT and the NT; check the debtor can pay before you file.
- Write off hopeless debts before 30 June; accruals-basis businesses get a deduction and a GST adjustment.
Where to get help
- business.gov.au – dispute resolution guidance and a free letter of demand template.
- ACCC and ASIC Debt Collection Guideline (RG 96) – contact and conduct rules for you and any agency you use.
- Your state small business commissioner (NSW, Victoria, SA, WA) – low-cost mediation.
- Tribunals and courts – each publishes self-help guides and current fee schedules.
- ATO – guidance on bad debt deductions and GST adjustments.
- Your accountant for write-off timing and GST treatment, and a lawyer for disputed or large debts and drafting your terms of trade.
Frequently asked questions
How long should I wait before chasing an unpaid invoice?
Send a friendly reminder one to three days after the due date, not weeks later. A prompt, polite nudge shows you track your accounts, and most overdue invoices are paid at this stage because the customer simply forgot. Follow it with a firmer email at about a week overdue and a phone call at two weeks.
Can I charge a late fee or interest on an unpaid invoice in Australia?
Yes, but only if the customer agreed to the fee in your terms before the work was done and the amount is a genuine pre-estimate of what late payment costs you. A fee that is really a punishment is a penalty and won't be enforced, and one-sided clauses can also fall foul of the unfair contract terms rules. You can't add a fee after the invoice is issued if your terms never mentioned one.
How long do I have to chase an unpaid invoice?
Six years from the date the invoice fell due in every state and territory except the Northern Territory, where the limit is three years. After that the debt is statute-barred and you lose the legal right to recover it, although a part payment or written acknowledgement by the customer generally restarts the clock.
Can I write off an unpaid invoice on my tax?
Yes, if you report income on an accruals basis, the invoice was included in your assessable income, the debt is genuinely bad and you write it off in your books before 30 June. If you report on a cash basis you never declared the income, so there is nothing to deduct. Accruals reporters registered for GST can also claim back one-eleventh of the unpaid amount as a decreasing adjustment once the debt is written off or 12 months overdue.
Do I need a lawyer to take a customer to small claims?
No. Small claims divisions and tribunals such as QCAT, ACAT and the NSW Local Court Small Claims Division are designed for people representing themselves, with informal hearings and modest filing fees. Bring your accepted quote or terms, the invoice, proof the work was done and your record of reminders and calls, and consider a lawyer only for disputed or large debts.
General information only. This guide doesn't take your personal or business circumstances into account and isn't financial, legal or tax advice. Rates and thresholds change — check the official sources linked in this guide and get qualified advice where your circumstances require it.