Overdue invoices: still a problem for Australian businesses?
Outstanding bills and overdue invoices frustrate freelancers and small business owners around the world, but one country has become infamous for late invoice payments: Australia.
Fortunately, initiatives and regulations to speed up payments have led to a drastic improvement - late payments have reached a record low, and research has found that outstanding bills are now settled 11.7 days late, down from 15.3 days in 2017.
While the overall situation is improving, overdue invoices can still cause issues for small businesses and freelancers. For those of you who struggle to get paid on time, we’ve put together a few tips and tricks to help you get your money sooner.
Should I offer credit?
There’s a few official requirements for invoicing in Australia, including a due date. Generally, you can set your own due date, and it's up to you to decide how long a customer has to pay an invoice.
The most common options for setting a due date are asking for payment upfront or offering the purchase on credit. When you offer credit, you provide a customer with goods or services before they have paid. If you choose to offer credit, your customer becomes a debtor, and ownership of the purchased item doesn’t legally change hands until payment is made in full. Common terms of credit include 7 days, 14 days, and 30 days.
Although offering credit might increase your sales, it can be a risky strategy. If you customer doesn’t pay their invoice on time, your cash flow is likely to be affected. If they don’t pay at all, you will either need to write off the invoice as a loss or invest time and money reclaiming the debt.
When deciding whether to offer credit, bear in mind that you can set different payment terms for different customers. You might want to offer reliable customers longer credit terms than customers who regularly miss payments, and you might also consider asking for payment up front from customers who always seem to pay their invoices late.
How do I use terms and conditions to avoid late payments?
Unlike a due date, you aren’t legally required to outline payment terms on your invoices, but terms and conditions can help you get paid quicker. You can use the terms and conditions section of an invoice to describe which payment methods you accept and, importantly, when you expect to be paid. A clear, precise description reduces back-and-forth communication, and can therefore make it easier for your customer to pay on time.
One way to reduce the impact of overdue invoices is to ask for deposits. In some industries, it’s very common to ask the customer to pay a percentage of the total price up front. This ensures that you won’t be left out of pocket, and that you have enough cash to cover your expenses. If you choose to ask for a percentage of the total fee up front, make sure this is clearly explained in your terms and conditions. Clearly state how much is due before the customer receives their good or service, and make sure the customer can easily identify when the rest of the payment is due.
You could also use the terms and conditions to outline fees for late payments. In Australia, late fees are not enforceable unless they cover genuine losses caused by the late payment. This means that you can’t just add an additional $10 to any invoice that is overdue, and that you will need to prove how the late payment is responsible for specific financial losses.
Before setting fees for late payments, think about how this might affect your future relationship with the customer. If the customer is a chronic late-payer, you might not be too concerned about risking future sales, but you should be wary about jeopardising your business relationship going forward - especially if if the customer makes regular or high-value orders.
Should I send a late payment reminder?
Asking for a deposit or outlining payment terms might help minimise late payments in the future, but what can you do about invoices that are already overdue? One solution: payment reminders.
You should send a payment reminder within a few days of late payment. The first reminder you send should be friendly - we’ve all forgotten to pay a bill on time, so a gentle reminder can help you secure the payment without annoying or upsetting the customer. If this doesn’t work, you can send follow-up reminder letters. With each reminder, your tone can become more stern, and you should place more and more emphasis on the importance of their outstanding invoicing - but you should always make sure that your reminders are professional and reasonable.
Get paid quicker with invoicing software
Sending a late payment reminder can be uncomfortable and awkward, but invoicing software like Debitoor makes it easy to add reminder letters to your invoicing process. With Debitoor, you can see which invoices are overdue, and you’ll have the option to create friendly, first, second, and third reminders - which each come with a pre-planned message to help you get paid.
It’s easy to add payment terms to your invoices, and you can create customer statements to show clients how much they owe in total. Try Debitoor free for seven days, and find out how invoicing software can help you get paid quicker.