Chasing outstanding invoices

Published Monday 11 May 2026

Table of contents

• What are outstanding invoices?
• What's the difference between outstanding and past due invoices?
• How do unpaid invoices affect your business?
• How to chase late payments
• Tips for avoiding late payments
• When you still don't receive payment
• Download Xero's free invoice template
• Take control of your outstanding invoices with Xero
• FAQs on outstanding invoices

Key takeaways

• Start with polite payment reminder emails, then escalate through overdue notices, phone calls, late fees, and a formal letter of demand to maximise your chances of getting paid.
• Set clear payment terms upfront, including late fees, and consider requesting partial payments or deposits before starting work to protect your cash flow.
• Use accounting software to automate invoice tracking and payment reminders so you can spot overdue payments early and follow up consistently without manual effort.
• Offer early payment incentives such as a 2/10 Net 30 discount to encourage faster payment and reduce the number of outstanding invoices you need to chase.

What are outstanding invoices?

An outstanding invoice is one you've sent to a customer but haven't received payment for yet. It's a normal part of the billing cycle and simply means the payment is pending.

"Outstanding" doesn't automatically mean "overdue". An invoice is only considered overdue or past due after it has passed its payment deadline.

What's the difference between outstanding and past due invoices?

The difference comes down to timing. Outstanding invoices include all unpaid bills, whether they're still within the payment period or already overdue. If you're new to invoicing, this guide to common invoicing questions covers the basics.

Past due invoices are outstanding invoices that have exceeded their payment deadline and require immediate collection action. Here's how to tell them apart:

• Outstanding: may still be within payment terms
• Past due: payment deadline has passed, and urgent action is needed

How do unpaid invoices affect your business?

Unpaid invoices can seriously disrupt your cash flow and make it harder to plan for the future. Late payments from large businesses shift A$7 billion in working capital away from small businesses each year. And the longer an invoice remains unpaid, the harder it becomes to collect; invoices become significantly less likely to be paid after 90 days.

When payments arrive consistently late, your business faces immediate challenges:

• Cash flow disruption: difficulty covering essential operating costs
• Financial planning obstacles: inability to predict available funds
• Operational strain: risk to supplier relationships and credit rating

Unpaid invoices can also affect your relationships with suppliers if you can't pay them on time. This may impact your credit rating and make it harder to secure future work.

Successfully invoicing and managing unpaid invoices is crucial to sustaining your business's long-term financial health.

How to chase late payments

Follow these steps to chase late payments effectively, starting with a polite reminder and escalating as needed.

1. Send a payment reminder email

A well-written payment reminder email resolves most overdue invoices through professional, documented communication. This first step prompts immediate payment in many cases and establishes a paper trail if you need to escalate later.

Payment reminder emails are effective because they:

• Resolve most overdue invoices with a polite nudge
• Maintain your professional business relationship
• Create documented evidence for future collection efforts

To structure your payment reminder email, follow this approach:

• Subject line: include the invoice number and due date, for example, "Payment reminder: Invoice #1234, due 1 June"
• Greeting: address the client by name and keep it friendly
• Body: reference the specific invoice number, amount owed, and original due date, then politely ask when you can expect payment
• Call to action: include a direct link or instructions for making the payment

You don't need to restate what the payment was for; those details should already be on the original invoice. Include a brief reminder of your payment terms so the client knows what to expect next.

2. Send an overdue invoice

Sending an overdue invoice creates urgency by marking unpaid bills with a clear "overdue" stamp or notification. This escalation step increases payment pressure while maintaining professional communication.

Overdue invoices work by:

• Adding visual urgency with a clear "overdue" marking on the original invoice
• Serving as a formal reminder attached to a follow-up email
• Signalling a shift from polite request to firm demand

Add an invoice reminder schedule to your accounting routine so you can promptly follow up on late payments and keep customers aware of their outstanding invoices. You can do this manually or use automated invoicing software to send payment reminders until you receive payment.

3. Send a statement of accounts

A statement of accounts consolidates multiple unpaid invoices into one comprehensive document. This is useful when a client has several outstanding bills, as it streamlines your collection process.

Key benefits of sending a statement of accounts include:

• Chasing multiple invoices at once, saving you time
• Giving your client a complete overview of the total amount owed
• Presenting an organised summary that demonstrates a systematic approach

Call the client to check they've received and understood the statement.

4. Make the phone call and prepare to negotiate

Phone calls achieve the highest success rates for collecting outstanding invoices because direct conversation prevents avoidance and enables immediate negotiation.

Use this structured approach when making the call:

1. Identify the debt: reference specific invoice numbers and dates
2. Request a payment date: ask directly when payment will be made
3. Wait for a commitment: use silence to encourage a specific date
4. Confirm the agreement: don't end the call without a clear payment commitment

You may need to negotiate the terms of when you'll receive payment. For instance, if the unpaid invoice is a relatively small amount that the client can pay soon, you might agree to move the payment date but refuse to carry out any more work until payment is made.

If you'd prefer not to negotiate overdue invoices on the phone, ask your bookkeeper or accountant to handle it for you.

5. Charge a late payment fee

Late payment fees encourage on-time payments and must be clearly stated in your initial payment terms before work begins. Transparent fee policies protect your cash flow while maintaining client relationships.

Consider these tips for structuring your fees:

• Keep it simple: use a single fee rather than a percentage for clarity
• Communicate clearly: include the fee in all initial agreements
• Show goodwill: consider waiving fees for quick payment after notice

Some businesses use a percentage of the original amount as a late fee, but a single fee is often simpler for your customer. For example:

• Total due by 1 June: $100
• Total due after 1 June: $110

Keeping it simple can motivate customers to pay on time. If they don't pay by the deadline, let them know you've added the late fee. As a goodwill gesture, you can offer to waive the fee if the customer pays quickly, for example, within 48 hours.

6. Send a formal letter of demand

If your payment reminders and late fees haven't worked, a formal letter of demand is an important escalation step before engaging a debt collector or taking legal action. This letter puts the debtor on official notice and is a standard part of the debt recovery process in Australia.

Your letter of demand should include:

• The full amount owed, with a breakdown of each unpaid invoice
• A final payment deadline, typically 14–21 days from the date of the letter
• A clear statement that you'll pursue further action, such as debt collection or legal proceedings, if the debt isn't paid by the deadline

Send the letter by registered mail so you have proof of delivery. You can also send a copy by email. Keep a record of all correspondence, as this can be used as evidence if you need to escalate further.

7. Cut them off until outstanding invoices are paid

If a customer isn't paying or responding, pause work until you receive payment. This protects your business from taking on further losses.

Let the client know in writing that you'll resume work once all outstanding invoices are paid.

8. Hire a debt collector

If you're still struggling with unpaid invoices after sending a letter of demand, a debt collection service can help you recover payment when a customer is unresponsive. This is a common final step after you've tried other collection methods.

Debt collection fees in Australia typically range from 5% to 25% of the amount recovered. These fees are usually negotiated between your business and the collection agency, so it's worth comparing providers to find an arrangement that works for you.

Find approved debt collection service providers through the Xero App Store.

9. Take legal action

If a debt collector can't resolve your outstanding invoices, it may be time to consult a lawyer. The type of legal action depends on whether the debtor is a sole trader, partnership, or company. You can also consider taking the client to a small claims court to recover unpaid invoices.

Legal action can be complex, so consult a specialist lawyer with experience in collecting unpaid invoices. Your debt collector may have in-house legal expertise or can refer you to a suitable lawyer.

To find out more about legal action for unpaid invoices in Australia, check the disputes register.

Tips for avoiding late payments

Prevention is more effective and less stressful than chasing overdue invoices. Use these strategies to reduce payment delays and protect your cash flow.

Set time aside to track outstanding invoices

Tracking your invoices regularly helps you spot overdue payments early and take action before they become a bigger problem. Set a recurring time each week to review your accounts receivable.

When reviewing your invoices, follow these steps:

1. Check which invoices are approaching their due date and send a pre-due reminder
2. Identify any invoices that are already overdue and prioritise them for follow-up
3. Record any payments received and reconcile them against your outstanding invoices
4. Note any clients with a pattern of late payments so you can adjust your terms for future work

Offer early payment incentives

Encouraging clients to pay before the due date can significantly reduce the number of outstanding invoices you need to chase. Early payment discounts give clients a financial reason to pay promptly.

A common approach is the 2/10 Net 30 discount. This means the client receives a 2% discount if they pay within 10 days; otherwise, the full amount is due in 30 days. For example, on a $1,000 invoice, the client would pay $980 if they settle within 10 days.

Include the early payment discount on your invoice and in your payment terms so clients are aware of the option upfront.

Take partial payment upfront

Ask for a partial payment upfront, such as a deposit or a percentage of the total fee. This helps cover your costs and shows whether a client is willing to pay. It also improves your cash flow because you're not waiting for the full payment later.

Offer payment plans to clients

Offer a payment plan so clients can pay in instalments. For example, you might ask for 25% upfront, 25% halfway through, and 50% on completion. If a client has cash flow issues, break the payment into smaller amounts over several months.

This approach works well for large invoices or long-term projects. Payment plans can help you and your client manage cash flow and make sure you get paid before invoices become overdue.

Use accounting software like Xero

Use Xero to automate sending invoices and reminders. This saves you time and helps prevent late payments.

When you still don't receive payment

If you still don't receive payment after trying these steps, here's what you can do.

Write off the unpaid invoice

If you use the accrual method of accounting (where you report both money received and money expected), you need to write off unpaid invoices to pay the correct amount of tax. If you've already paid tax on the income you expected, you need to write off the invoice to claim the tax back. To do this, companies must meet one of the business continuity tests as defined by the Australian Taxation Office (ATO).

To write off an invoice, you'll need to prove to your local tax authority that the unpaid invoice was a "bad debt". For businesses using an accruals basis for goods and services tax (GST), the ATO allows you to claim a decreasing adjustment for a bad debt if you've already paid the GST for that sale and the debt has been overdue for 12 months or more. You could use your correspondence with the unpaying client as evidence. Xero's software can help you track, manage, and write off bad debts in your accounting.

If you use the cash method of accounting (where you only count revenue once collected), you don't need to write off unpaid invoices. Just don't include the amount in your income statements. Alternatively, you may want to explore accounts receivable financing to unlock cash tied up in unpaid invoices before resorting to a write-off.

Perform credit checks on prospective clients

Check a client's credit score before you agree to work with them. A good credit score shows they pay bills on time and are less likely to leave invoices unpaid.

Download Xero's free invoice template

Use Xero's invoice template to create and send invoices easily. Set early payment dates to get paid faster, and use Xero's live payment times to track how long your clients take to pay.

Download Xero's free invoice template.

Take control of your outstanding invoices with Xero

A clear system helps you manage your cash flow and keep good client relationships. With the right tools and strategies, you can spend less time following up and more time running your business.

Xero accounting software makes it easy to track invoices, send automated reminders, and get paid faster. See how you can streamline your finances and run your business with confidence. Get one month free.

FAQs on outstanding invoices

Here are answers to frequently asked questions about outstanding invoices.

How long should I wait before chasing an outstanding invoice?

Send a polite reminder on the day the invoice becomes overdue. You can also send a reminder a few days before the due date. Prompt, professional follow-ups show you're organised and help you get paid faster.

Can I charge interest on outstanding invoices?

You can charge interest or late fees if you include this in your original payment terms and your client agrees. Check Australian consumer law and any relevant industry regulations to make sure you comply.

What should I do if a client disputes an outstanding invoice?

Pause collection efforts and contact your client to understand their concern. Review the invoice and your service agreement for errors, then work with your client to find a fair solution. Keep a record of all communication.

Is it legal to stop work for outstanding invoices?

If your contract allows it, you can pause or stop work when a client hasn't paid. Let your client know in writing that you're pausing work until they pay the outstanding invoice. This protects your business and encourages payment.

What are prohibited debt collection practices in Australia?

Under the Australian Competition and Consumer Commission (ACCC) debt collection guideline, collectors can't use physical force, undue harassment, or coercion. They also can't make misleading representations about the consequences of not paying, or contact debtors at unreasonable times. If you hire a debt collector, make sure they follow these rules to protect both your business and your client relationship.