Maximising cash flow

Cut the chase: a guide to debt recovery

As a small business operator, being paid on time is essential to managing your cashflow and giving you a constant buffer. One late payment followed by another can quickly add up to lost revenue. 

It makes good sense to implement measures to minimise late payments, set out your terms in advance and have a process for chasing debt. With these practices and clear communication, hopefully you won’t need a debt collection service to recover overdue payments. 

Processes to prompt timely payment

There are processes you can apply to deter late payments. Once you complete a job, strike while the iron is hot and send your invoice out. In theory, the sooner you send it, the quicker it should be paid. If you have a set payment cycle, make sure it’s logged for invoicing in time for the next cycle. 

If you don’t already use an accounting software system, balancing the figures is easy with a service such as Quickbooks. You can create quick reports to see what’s outstanding and how payments are tracking. Set up email reminders for any overdue invoices as some customers need a friendly nudge. 


There is a multitude of reasons why a customer may be late in paying so your first approach to debt recovery is to find out the issue. A quick courtesy call and the problem may be resolved effortlessly. Perhaps a system fault has prevented the invoice to be submitted for payment. There could be an issue at your end with the product or a mistake on your invoice. 

A customer with ongoing cash flow issues is a long-term problem. This will require negotiation and it’s best practice to create a payment plan and remember to put this in writing. It needs to be in black and white. In some instances, you may also need to send late payment reminder letters. 

If you’re continually chasing debt, you may need to hit the pause button on supplying your customer. 


The terms of payment should always be provided on your invoice, but when taking on new customers, always state your payment terms upfront. Include your terms when sending a quote. If you don’t provide quotes, have your terms available on your website.

It’s important the terms you set are fair and communicated clearly in writing. Don’t be afraid to do this – make it your business to be paid. 

As an incentive, consider offering a small discount for early payments. You can penalise by charging interest or a late fee for payments not honoured on the due date – so it’s in your customer’s interest to pay on time. 

Debt collection

After numerous attempts, if debt recovery seems doubtful, it’s time to call in a debt collection agency. They have the authority to recover the money you’re owed. It’s important to understand your customers do have legal rights when dealing with debt collectors. The ACCC sets rules as to what they can and can’t do so take a look at these before seeking a debt collector.  

Another consideration is to give your customer a heads-up. This is often viewed as a warning and may prompt immediate payment. If not, a formal letter from a collection agency requesting payment will get results in most cases.

Debt collectors charge a flat fee or a percentage of the amount recovered, so do your maths whether to pursue or write off the debt. 

You can also send a ‘letter of demand’ to demonstrate legal proceedings are on the cards if the debt is not paid. Remember to attach copies of supporting documentation. This can include the contract, invoice, late payment reminder letters and any other relevant correspondence. 

Summing up 

Setting your expectations for payment can minimise potential late payments. Communicate your terms clearly and have a plan in place to manage late payments. It’s in everyone’s best interest that payments are made without too much effort. Constant reminders, as friendly as they may be, can turn off customers.  

At the end of the day you have a business to run and a healthy cashflow is vital to your business longevity.   

Jenny Dikranian

Content Writer, Business Australia

Jenny Dikranian is a content writer passionate about entrepreneurship and innovation in inspiring business success.

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