How to chase unpaid invoices

Make sure the problem is the payment and not the invoice or your own records.

• Look for the payment in your bank account. It may have arrived but not been matched, been applied to the wrong invoice or been paid short.
• Check the invoice went to the right person or accounts address, and that it shows how much is owed, when it was due and how to pay. business.gov.au says an invoice tells the customer those three things.
• Check the details are right, including the description, quantity and price. business.gov.au suggests detailed item descriptions to avoid disputes.
• Check your terms. business.gov.au suggests reading your contract for its payment conditions and confirming when payment was due, how it was to be paid and any agreed consequence for paying late. If the agreement was verbal, it says you'll need something that shows what you both accepted, such as emails or texts.

If the invoice was wrong or never arrived, fix that first and send a corrected copy. Chasing a customer for an invoice they can't pay as issued only slows things down.

business.gov.au points out that a customer may simply have overlooked the payment. It suggests getting in touch by phone, email or letter to remind them, talk about a new date for payment or, if needed, agree a schedule of payments. Its cash flow checklist calls for quick follow-up of unpaid invoices, so send the first reminder soon after the due date.

Make the reminder easy to act on. Include:

• the invoice number and date
• the amount owing and the date it was due
• how to pay, with your payment details
• a copy of the invoice
• a name and contact for any questions.

business.gov.au recommends a set process for following up late payers. Deciding the steps in advance means every overdue invoice gets the same treatment, and nothing is left because it felt awkward to ask. business.gov.au points to templates from Business Victoria for a reminder email, a second reminder and a final notice.

Keep the timing consistent, and only say you will take a next step if you mean to take it.

business.gov.au suggests starting with a polite reminder, and says that keeping calm can sort out a late payment while keeping the customer relationship intact. A call also tells you why the invoice hasn't been paid, which an unanswered email can't.

• Ask for the person who approves or makes payments.
• Confirm they have the invoice and that nothing on it is in question.
• Ask when it will be paid and how.
• If they raise a problem with the goods or work, note it and agree how it will be sorted out.
• After the call, confirm in writing what was agreed.

If the customer can't pay everything at once, business.gov.au suggests discussing a new payment date or negotiating a payment schedule. A plan the customer can keep gets the debt moving, where a demand for a full amount they can't meet may not.

• Set out each amount and its date in writing.
• Say how each payment should be made, and the invoice number to quote.
• Say what happens if a payment is missed.
• Record each payment against the invoice as it arrives, so the balance owing stays up to date.

While an invoice is overdue, each new sale on credit to the same customer adds to what is at risk. You might pause further work or deliveries on credit until the account is brought up to date, or ask for payment up front in the meantime. Check what your contract says before you do. business.gov.au's guidance on credit terms suggests capping the credit you give each customer.

• Note every contact: the date, who you spoke to and what was agreed. Keep copies of emails and letters with the invoice.
• Apply part payments to the invoice they relate to, and leave the rest open.
• Mark any amount the customer disputes, so your list of what is owed shows it.
• Don't delete or credit an invoice just to tidy the list. If you no longer expect it to be paid, ask your accountant how to record that.

If reminders, a call and a payment plan haven't worked, the next steps are formal ones. business.gov.au lists more formal options, and legal advice may be needed before you take them. Those steps are outside the scope of this guide.

business.gov.au also notes that chasing a debt has its own cost in time and money, and that sometimes stopping is the better choice. If you decide to stop, ask your accountant how to record it.

For the routine chasing itself, business.gov.au lists chasing overdue payments among the work a bookkeeper may do.