Late payments can cause major issues for small and medium-sized businesses. A late payment is more than simply annoying, it can threaten a business's financial health. Overdue payments are likely to damage a business's cash flow. But don't despair - we have compiled a short guide for Australia, showing you different ways that you can react to late payments.

First steps - how to initially react to a late payment

Charging your debtors interest does not have to be the first resort - there are other ways to react to delays in the payment process. Having an amicable approach to debt recovery is likely to improve your client retention.

Email them

We recommend sending a short, friendly email asking about the overdue invoice. It might be that there has been some mistake in the payment process that is easy to fix.

Give them a ring

Calling the finance officer or accounts team about the owed money is usually a good next step - they are likely to know where the problem lies.

Send them a letter

The next step may be to send a formal letter to your client, demanding payment. This can be followed up by another formal notice stating that you will be charging interest on your original invoice.

Charging interest on overdue payments

You may wonder whether you can charge interest on late payments. Yes, it is legal in Australia to charge interest for late payments on invoices. However, keep in mind that this is a legal grey area, so you'll need to follow a few standards just to be safe. Make sure you include a provision on interest in your payment terms - a common approach is to set the payment date within 30 days of receipt of the invoice. The payment date should also be clearly stated in the invoice you issue and if you do claim interest, this should be a reasonable amount. In general, it is capped at around 10% annually, with the interest broken down into a monthly charge.

This means that if you are charging interest on an invoice over  AUD 8,000 invoice, the annual interest rate would be around AUD 800. You would break this down into months and then keep charging monthly interest until the overdue invoices are paid.

Calculate interest online

Luckily, the government of New South Wales government has launched an online late payment interest calculator. The calculator will just ask you for the interest rate, the number of days by which the invoice is overdue, and the invoice amount to calculate the total value of the interest you’re owed.

What if I claim interest and the client does not pay?

Unfortunately, if you have gone through all the steps your only option may be to start legal proceedings. This can be done through a debt collection agency or a solicitor.