Late payment is rarely one customer being difficult. It is usually a small set of habits — vague terms, invoices sent whenever the job wraps up, no deposit, no follow-up rhythm — and one or two large customers whose payment cycle quietly sets your bank balance.
It is a measured problem, not just a felt one. This article is written for Australian small businesses: the benchmarks below are Australian, and the legal points — including what you can charge on an overdue account — differ in other jurisdictions, so don't carry them across. Xero's Small Business Insights program tracks "time to be paid" for Australian small businesses as a headline metric. A March-quarter reading reported on the program's Australian landing page (snapshot approximately late 2024, with the quarter not restated on the page) put time to be paid at 24.1 days, alongside sales up 7.2% year on year. Earlier, in a media release covering January 2023 data, Xero reported time to be paid rising 0.6 days to 23.8 days — then the longest since September 2020 — which Xero framed as a possible early sign of a cash-flow squeeze. Treat both as reported readings for those periods, not as today's number; check the current figure on Xero's page before you quote it to anyone.
On cost, Xero's "Crunch" research, published 7 September 2022 using 2021 invoice data, estimated late payments cost Australian small businesses $1.1 billion a year, with almost half of all invoices owed to small businesses in 2021 paid late and 10% paid more than a month overdue.
First, work out which problem you actually have
There are three different problems that all look like "they paid late".
- A calendar problem. The customer's accounts-payable run happens on fixed dates — say twice a month. Your invoice arrives the day after a run and sits until the next one. Nobody is stalling you. Chasing harder achieves nothing; sending earlier achieves everything.
- A process problem. The invoice is missing a purchase order number, the wrong contact, the wrong entity name, or no remittance detail — so it goes into an exceptions pile. This is the most common and the most fixable.
- A cash or intent problem. The customer is using you as working capital, or cannot pay. This is the only one that needs an escalation ladder.
This week, take your last ten late payments and label each one. The mix tells you where to spend effort.
For the calendar problem, ring the accounts payable contact — not your buyer — and ask three questions: when do you run payments, what is your cut-off for inclusion in a run, and what does an invoice need on it to clear without a query. Write the answers next to that customer in your system and time your invoicing to their cut-off. That single call often shortens your average days more than months of reminders.
The leverage sits before the invoice
Once work is delivered and the invoice is out, you have handed over your position. The terms you can most readily enforce are the ones agreed before you start.
- State terms on the quote, not just the invoice. Days, method, and what happens if it is late. Terms that first appear on the invoice are much harder to rely on — if you want them to bite, get them agreed up front, and take legal advice on the wording.
- Take a deposit. For project or custom work, a deposit before commencement is standard in many trades and services. It also filters customers who cannot pay.
- Bill in progress claims or milestones. Long jobs invoiced only at completion mean you fund the whole thing. Split at defined points — design signed off, materials ordered, stage complete.
- Invoice on delivery, same day. Every day between finishing and invoicing is a day of your money with no benefit.
- Get the invoice into the right hands. Confirm the AP email and any portal at the quoting stage. Xero, in a submission to Treasury published in May 2024, argued that eInvoicing adoption removes several of the common excuses for paying small suppliers late — worth looking at if your customers support it.
- Make paying frictionless. A payment link or direct debit for recurring work removes a step from the person who has to act.
One caution on late fees and interest: whether you can charge them, and on what basis, depends on your contract and the relevant law. If you want to rely on them, have the wording checked by a lawyer rather than copying a clause from a template.
An escalation ladder you can actually send
The point of a ladder is that each rung is unremarkable, so you never have to make a scene. Keep it factual and easy to answer. Use the same wording every time so it reads as process, not emotion.
Three days before due (all customers): > Hi [name], quick note that invoice #1042 for $X is due on [date]. Payment details are on the invoice — let me know if you need anything to process it.
Day after due: > Hi [name], invoice #1042 for $X fell due yesterday and I can't see it received. Has it been through your payment run? Happy to resend if you need it in a different format or to another address.
Day seven — move to the phone. Email is easy to defer; a call is not. Ask one question: is there anything stopping this invoice being paid? Then confirm in writing what was agreed, including a date.
Day fourteen — name the consequence, calmly. > Hi [name], invoice #1042 for $X is now 14 days overdue. Until it's cleared I'll need to hold [next delivery / scheduled work]. I'd rather not, so if there's a timing issue tell me the date and I'll work with it.
Stopping supply is usually your strongest lever, and it is far more effective than a threatening letter — but check your contract first so you are not the one in breach.
Day thirty and beyond. Payment plan in writing, or hand it to a collections agent or lawyer. Before you do, work out the economics: agent commission or legal costs, plus your own hours, against the amount owed and the realistic chance of recovery. For small balances, chasing can cost more than the debt. Writing it off and declining further work is sometimes the commercially correct answer.
The concentration maths nobody puts in the article
If one customer is 30% of your revenue and pays at 45 days, that customer sets your working capital requirement no matter what your stated terms say. Your options are not really "chase harder". They are:
- Reprice the work so the cost of funding those days is in your margin.
- Renegotiate structure — deposit, milestones, or direct debit — rather than the headline number of days.
- Reduce their share of revenue by winning smaller, faster-paying work.
- Exit them.
All four are legitimate. Which one fits depends on your margins, your pipeline and your appetite, so this is a decision to model with your accountant, not to take from an article.
Before you reach for invoice finance
Invoice finance is a real tool, but it is priced per day of funding, and it only pays for itself if you compare the fee against the days it actually saves. Ask the provider for the total cost on one specific invoice — all fees, not the headline rate — then divide by the number of days earlier you would have the cash. That gives you a cost per day of funding you can compare with your overdraft, your margin, and with simply invoicing three days sooner. Fixing invoice timing is free; finance is not.
What to do this week
- Label your last ten late payments as calendar, process or cash.
- Ring the AP contact at your two largest customers and get their run dates, cut-offs and invoice requirements.
- Add terms, deposit and milestone wording to your quote template.
- Set the four-rung ladder above as saved templates and diarise the reminders.
- Calculate what share of revenue your largest customer represents, and how many days they take.
Then check the current "time to be paid" reading on Xero's Australian insights page and compare it to your own average. If yours is worse, the gap is usually in steps 2 and 3.
Sources
- Xero Small Business Insights — Australia
- Xero media release — XSBI Australia, January 2023
- Xero media release — Crunch cash flow report, part 2 (Australia), 7 September 2022
- Xero submission published by The Treasury, May 2024