Getting paid

Remember – The sooner you receive the payment from the customer the less likely you will have problems with unpaid invoices. It only takes one unpaid invoice to have big impact on your profit.

Types of Payment

  • Cash – which is instant but you need to ensure cash controls are in place, for example the money should be banked as soon as possible and you need to make sure the payment is matched against the invoice so the account appears as paid on your system. You may want to use some kind of receipt keeping process such as a receipt book to keep track of payments. You do not want to end up in a situation where the customers claims to have paid, this does not match your records, but you are not confident enough in your record keeping to follow up the payment.
  • Check/Cheque – Still occasionally used. It is used more in the United States than in Australia. You need to make sure you bank the check, match to the customers invoice and follow up if dishonored
  • Direct Customer Deposit to your Bank Account – The customer deposits the payment directly to your bank account. Note funds will only be cleared according to the banks processes, for example this can take up to 3 days. Customers will need to complete your bank details correctly when transferring funds. There are usually no fees on this type of transactions
  • Credit Card Payments – You can register with your bank to be able to accept credit card payments through a reader or over the phone. Note this may incur monthly fees and / or a percentage Direct Debit from a customer This requires you to set this up through your bank. It is most suitable for a subscription service. It is generally only available to established business and requires your business to have adequate financial strength, integrity and fraud controls. You will need permission from your customer and electronic froms completed and sent to your bank.
    1) You must make a record of each time a customer makes a direct debit request and you must keep the record for seven years.
    2) If you want to change direct debit arrangements, you must give your customers at least 14 days’ notice.
    3) You must act promptly if a customer asks you change or cancel a direct debit payment.
    4) You should still supply invoices to the customer.
    5) Fees will apply
  • Online payments – There are more options in the market such Paypal, Square, Stripe that offer convenient solutions that charge via a % fee of funds received. They may offer portable readers that will allow you to receive payments in person or over the phone enabling immediate payment. You need to look to see if what they offer suits your business and customers. – It can take time (days or weeks) to be set up to take these type of payments and you will need to provide personal or company details – Although there is a fee associated with these services, this needs to be considered with the convenience of customers being able to make payments via credit cards and the quick payment you receive, as this this saves time and reduces risk of not being paid. – How soon the funds then become available to you is subject to the agreement with the payment provider (eg can be next day or more than a week), and you should be aware of the timeframes.

When do you get paid?

  • Payment in Advance: This most likely will only occur in certain industries, for example selling online on where you almost always receive the payment before the good are dispatched.
  • A Deposit amount paid in advance: this can assist as it can commit the customer to following through with their purchase, or provide some protection of your costs if you have had to use your own supplies to create the goods or commit funds or time to their work before the service is delivered
  • Payment at Delivery of the goods or service. In this case you need a method of payment that enables immediate payment
  • Payment after service provided. In this case you will need to agree terms on when the invoice is paid. This may have been agreed in advance or can be written on the invoice. Once you offer this you need a way to track you have been paid.

Payment after the Service has been Provided

This creates opens up a risk to you. Realistically you may have to offer to this your customers as it would be standard practice in a lot of industries. What are the best ways to handle this:

  • Have the shortest payment terms that you can reasonably ask for
  • Understand that it may be in your best interest to have different terms for different customers. Some larger businesses will have their own terms of payment that will not be flexible on, so you have little choice but to accept their terms if you want their business. However this may be offset by the lower risk in dealing with a larger business as they are likely to pay. However you basically have to “fund” the longer terms while you wait for payment
  • Ideally you need to have the payment terms agreed before you provide the service. Remember to include them on your invoice
  • If you have not been paid by the due date, you will need to follow up

Statements of Account

If is helpful to a customer to provide Statements This is a list the recently paid invoices and the invoices that are outstanding:

  • It can help the customer to know there account is in order, or alerts them to invoices that they have not yet paid
  • Once you have multiple customers these should be sent on a regular basis
  • If you are using an accounting system, these can be done fairly easily as the system will have a record of this, and can also be sent quickly “on demand” as some customers will prefer to receive a statement before paying
  • If you are using a manual method, these may take a little longer to compile but will be based simply on the list of invoices still outstanding for each customer.

Following up on Unpaid Invoices

Options include:

  • Checking your bank account in case you may have missed the payment or it has come in very recently
  • Start a follow up “Action Log” As soon as you start follow up actions – it should have a date and a record of the conversations and actions you take for each customer as this will assist you track the progress. It will also help you decide when a certain customer is delaying payment and escalated action may be required
  • Send a friendly email reminder with a copy of the invoice asking if they have any issues with the invoice or questions, ask them to contact you or to pay at their earliest convenience
  • Call your customer to find out when they will pay you.
  • If you need to make more than 1 or 2 calls try to get the customer to commit to a date of payment.
    You can also consider offering payment terms where they split the payment over a period of time
  • Generally a few emails or calls will result in a payment. You will know your customers and their payment habits in a while.
  • If invoices are still remaining unpaid then you need to consider the following:
    1) No further provision of services. Obviously this is not something to do lightly. However you need to consider the possibility that they will not pay you at all and you do not put more of your goods or service time at risk.
    2) Escalating measures (see below)

Escalating measures on Unpaid Invoices

  • Letters of Demand: These are a formal letter that you can send to your customer requiring that they pay. These letters should have a date that payment must be made by. They can also make reference to the fact that further action can be taken, including legal action
  • Solicitors/Attorneys Letters: These are essentially a letter of demand, except on the letterhead of a legal firm
  • Debt Collection Agencies: These will chase your unpaid debts for you. You can engage these agencies either for a fee on collection, or you can sell them the right to make the collection, which means the customer will pay them rather than you. This second case is called factoring
  • Legal action: Pursue your debtor in the courts. Some jurisdictions provide tribunals which can be a lower cost method of pursuing your debtors.
  • Writing off bad debts: You can choose to not pursue a bad debt. If you have the view that it is not economic to collect the debt, then you may write it off. You may be able to deduct bad debt expenses against your taxable income

Where to next?

Issuing an Invoice

Items on an invoice

Customer details

Payment terms


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Buying stuff

Purchase invoices and supplier credit

Other business expenses

Private expenses