Unpaid invoices are one of the most common headaches for businesses. Most late payers aren’t acting in bad faith. After all invoices get lost, cash flow gets tight and sometimes you simply forget, but some debts do need firm action.
The real question is whether chasing an unpaid invoice is worth the time, cost and stress. Here’s how to work that out and what to do at each stage.
Step 1: Check your paperwork
Before you send a reminder, make sure your house is in order. Check:
- Did the invoice go to the right person and address? Specifically, check that it is addressed to the customer that you performed the work for. Is it a company, or individual? If it is a trust, identify who the trustee of the trust is.
- Does it clearly show the amount, the due date and how to pay?
- Is there a written agreement, quote or email confirming the work and the price?
- Did you deliver what was agreed?
If there’s a genuine dispute about the work, a reminder won’t fix it. It’s always best to pick up the phone and talk it through first. Good records may also help you if the matter goes further and your paperwork becomes your evidence. This includes a short diary entry of the time, date and contents of your call.
Step 2: Start friendly then firm up
Most debts are recovered with simple, polite persistence. You could do something like this:
- A few days after the due date: Send a friendly email reminder with the invoice attached.
- Two weeks overdue: Follow up with a firmer note and a new date for payment, and a note that any interest that is legitimately able to be charged will be added to the debt.
- Three weeks overdue: Pick up the phone and have a conversation that may reveal what’s really going on.
If your customer is genuinely struggling, consider a payment plan. Being paid in instalments beats not being paid at all but always confirm any arrangement in writing.
Whatever process you follow, be sure to keep a record of every contact. This should include dates, what was said and any promises made. Even if you’re getting frustrated, it’s important to stay professional. Threatening, harassing or misleading someone can breach consumer law, even if they owe you money.
Step 3: Send a letter of demand
If reminders don’t work, a letter of demand is the next step. This letter should formally set out what is owed, why and a deadline for payment. The letter should also explain what you will do if the debt isn’t paid, like starting legal proceedings or charging interest.
You can write a letter of demand yourself, but a letter from a law firm often gets a faster response. It signals you’re serious and gives the debtor a clear, final chance to pay before costs start to climb.
When to keep chasing
It’s usually worth escalating when:
- The amount is significant to your business;
- You believe the debtor can afford to pay but is choosing not to;
- Your paperwork clearly supports your claim; or
- The debtor is still trading or has assets.
In Western Australia, debts up to $75,000 go to the Magistrates Court. Claims of $10,000 or less can run as a minor case claim, which is a simpler process where lawyers can’t appear unless the court allows it, but we can still help you prepare behind the scenes. If you choose the more formal procedure of the Magistrates Court, you’ll usually pay your own legal costs even if you win.
For debts between $75,000 and $750,000 you will need to file a claim with the District Court, or the Supreme Court if it’s over $750,000. You can have legal representation but expect these options to be quite costly.
If the debtor is a company and the debt isn’t disputed, a statutory demand can be powerful. If it still goes unpaid, it can lead to the company being wound up. These steps carry costs and strict rules, so get legal advice on which path suits your situation.
When to let it go
Sometimes walking away is the smarter business decision. Consider writing off a debt when:
- The cost outweighs the amount: Legal fees, filing fees and your own time can quickly exceed a small invoice;
- The debtor has nothing to pay with: A court order is only useful if it can be enforced. If the business is in liquidation or the person is bankrupt, you may only be able to lodge a claim with the liquidator or trustee;
- The relationship matters more: A long-standing client who pays late once may be worth more than one invoice;
- Your claim is weak: If the work was disputed or poorly documented, you may struggle to prove what you’re owed; or
- Time has run out: Generally, you have six years from when the debt arose to start legal action.
Even if you write off a debt, check with your accountant if you can claim it as a bad debt for tax purposes.
Prevention is better than cure
The best debt is the one you never have to chase. Put clear payment terms in writing, ask for a deposit on larger jobs, invoice promptly and follow up early. Where you are dealing with a company, get trade references and require directors to sign personal guarantees. Small habits like these dramatically reduce the number of invoices that go unpaid.
If you’re owed money and not sure whether to pursue it, we can help. We’ll review your documents, give you a realistic view of your chances and likely costs, and act quickly when it’s worth it. Contact our Dispute Resolution & Litigation team for a confidential conversation.
