Getting paid on time

If you’re in small business and struggling to get your invoices paid on time, there are steps you can take to help recover debts and help you to adopt best practice processes.

Adopting best practice processes

Consider sending new businesses that you will be providing good or services to an engagement letter to help achieve a shared understanding. The letter should clearly set out the responsibilities of both parties, the fee arrangement and the expected terms of trade and payment, including:

• invoice dates
• any extra fees for overdue payments and any debt collection processes you have
• what happens when there is a dispute.

Your client then has the chance to respond with signed acceptance or contact you if they would like to discuss. To help you get started, use Business Victoria’s letter template.

It’s also important to ensure invoices clearly state payment terms, options and your banking details. The ATO website walks through information that’s needed when invoicing to make sure your customers can determine the key details. It’s also a good idea to:

• contact the accounts area of the businesses and customers you work with to be certain about what they need to pay invoices
• use electronic invoices to reduce errors
• review the terms of your contracts closely so you’re across rights and obligations – both yours and the businesses and customers you work with.

You might want to consider introducing new procedures, such as doing a thorough background check on a business before you offer credit or waiting until payment clears before dispatching goods.

Recovering payments that are overdue

When requesting payment of an overdue invoice, we recommend following Business Victoria’s step-by-step process and using their templates and scripting:

Step 1. Send a friendly payment reminder that includes payment options, your banking details and contact information.

Step 2. Send an overdue payment reminder.

Step 3. Send a final notice.

Step 4. Try to make direct contact in person.

Step 5. Consider sending a formal letter of demand – think carefully before you do this and the right timing as it may adversely affect your business/customer relationship.

Step 6. Consider using a debt collecting agency, bearing in mind that you and the debt collector must abide by the laws against banned debt collection practices.

Step 7: Review the debt collection guideline and share this with your debt collector to make sure you are both aware of your rights and obligations.

Applying for our help

You can apply to the Victorian Small Business Commission (VSBC) for confidential and impartial help to resolve your business-to-business dispute. We provide free help early on and can progress more complex matters to low-cost mediation, where an independent mediator helps you and the other party to negotiate a fair agreement.

Other services that can help

Consumer Affairs Victoria offers information on your rights and responsibilities under the Australian Consumer Law, and the Victorian Civil and Administrative Tribunal deals with a range of civil disputes.

– Commissioner Lynda McAlary-Smith