Being paid on time, from the first invoice to the tribunal

Before the work

Terms that are agreed, not assumed

Payment terms, in business.gov.au’s words, are “the rules your business sets for how and when customers must pay for your goods or services”, and they form part of the sales contract. business.gov.au suggests putting them on your invoices and contracts so customers know which payment methods you accept, when you expect payment, whether you offer credit and on what conditions, and how you collect overdue payments.

Credit, where a customer pays some days after delivery, is common between businesses and carries the risk that the money comes late or not at all. To reduce it, business.gov.au suggests running a credit check before offering credit, setting a limit, and making it clear that the goods remain yours until they are paid for in full. It also suggests knowing who you are dealing with, pointing to ASIC’s advice on checking another business, and having a signed contract.

The invoice

An invoice that is easy to pay

business.gov.au suggests sending the invoice when the customer buys, listing your payment methods and terms on it, and offering more than one way to pay. If you are registered for GST, a tax invoice also has details the law requires; the ATO lists them on its tax invoices page, and the BAS side of invoices is on board 2.

The Ombudsman’s invoicing tips for small businesses follow the invoice after it leaves you. In short:

• find a contact in the customer’s accounts team and ask what they need in order to process your invoice;
• before sending, check that the details match the order and the delivery receipt, then confirm the invoice arrived;
• about ten days before the due date, check that it has been processed and is set to be paid;
• if it is a day or two overdue, ask the accounts team whether something has stopped the payment and what you can do to fix it.

The Ombudsman also says electronic invoicing can reduce errors. Under the Payment Times Reporting Scheme, large businesses and some government enterprises must report their payment terms and times for small businesses every six months, and the Ombudsman says making that information public can help small businesses. The reports can be searched on the Payment Times Reports Register.

When it is late

The ladder, one rung at a time

The Ombudsman says it is in everyone’s interest to avoid expensive debt collection and formal legal action where possible, and suggests negotiating first, perhaps by proposing a payment plan.

1. Read what was agreed

   Check the contract for the date payment was due, the payment method, and what you agreed would happen if it was late. With a verbal agreement, you need proof of what was agreed, such as emails or texts.

2. A friendly reminder

   A missed payment may be an oversight. Contact the customer by phone, email, letter or in person to remind them, agree a new date, or work out a payment schedule. business.gov.au points to Business Victoria’s templates for a reminder email, a second reminder and a final notice.

3. A letter of demand

   If reminders get no answer, a letter of demand states how much is owed, what for, and when it must be paid by, and may warn that you will consider legal action. Send it to whoever owns the business, which may not be the person you dealt with. business.gov.au’s checklist before sending:

   • every fact in it is accurate, and nothing could be called false or misleading;
   • late payment interest appears only if the contract specified it;
   • it mentions only action you are prepared to take;
   • it is polite, signed and dated, with copies of the contract, invoice, reminders and emails attached;
   • you keep copies, and send it by registered post with a signed proof of delivery.

   business.gov.au also notes that you have legal obligations when contacting others about a debt, and points to the ACCC’s debt collection rules. It has a letter of demand template to adapt.

4. Help from someone in the middle

   The Ombudsman’s online dispute support tool points to the organisation best placed to help, and if none fits, the Ombudsman can guide you through the dispute itself. It describes alternative dispute resolution, such as mediation, as generally quicker and cheaper than court, with more control over the outcome. business.gov.au adds that nationally accredited mediators can be found through the Australian Mediator and Dispute Resolution Accreditation Standards website. Some states have their own small business commissioners; they are listed on board 6, free help.

5. A debt collection agency

   After reminders, negotiation and a letter of demand, you might engage a debt collector. business.gov.au suggests telling the customer first, since that alone may prompt payment.

6. A court or tribunal

   Depending on the amount, you can get legal advice or lodge a claim in a small claims court or tribunal. The Ombudsman says the right court or tribunal depends on the type of dispute, where each party is, and the value of the claim; that lodgement fees vary; and that you can keep negotiating after lodging, since a lodged claim can be cancelled if the matter is resolved before the hearing. It lists the courts, tribunals and free or low-cost legal help in each state and territory on its how we help page.

7. Or let it go

   Chasing a payment takes time and money, and business.gov.au says that sometimes the best option is to stop chasing and write the debt off.

The other side

When your business is the one that owes

The Ombudsman’s advice for the paying side starts with paying any part you know you owe and can afford, then offering a payment plan for the rest that is within your means. It says this can lower the risk of the dispute growing, of legal action, and of added interest. The free services it lists for business debt, including the Small Business Debt Helpline, are on board 6.