What to Do When a Client Doesn't Pay

If you run a service business in Australia long enough, it happens. A client doesn't pay.

At first you give them the benefit of the doubt. Maybe the invoice got lost. Maybe accounts are on holiday. Maybe they're just slow. So you wait. You send a polite reminder. Still nothing. You send another. Still nothing. A month goes by. Two months. Now you're in a weird limbo where you've done the work, you're out of pocket for the materials and wages, and the person on the other end of the email has gone suspiciously quiet.

And here's the part that really stings: the longer it goes on, the less you want to deal with it. You feel embarrassed. You feel stupid for not taking a deposit. You start telling yourself maybe you'll just chalk it up to experience and move on.

Don't.

“Every unpaid invoice you walk away from is a lesson to the next bad client that you can be walked away from.”

This article is the playbook. Not theory — the actual sequence of things to do, in order, when a client isn't paying. We'll also cover the bit nobody talks about: how to structure your terms and processes BEFORE the job starts so you never end up in this position to begin with. That's where most service businesses get this wrong — they focus on collections, when the fix is in contracts.

Fair warning: this is general information written from a business coaching perspective, not legal advice. For complex or high-value disputes, get a commercial lawyer involved — it's usually money well spent.

Part 1: Prevention — Terms That Protect You Before the Job Starts

The best debt recovery strategy is the one you never have to use. Most of the clients who eventually don't pay give you signals in the first conversation — and most of the contractual protections that would have saved you were available before you ever turned up to quote.

Five things every service business should have locked in before starting any job worth more than about $2,000.

1. A written scope of work the client signs

"Yep, all good mate" is not a contract. A signed scope of work is. It doesn't need to be a 40-page agreement — one page with the deliverables, exclusions, price, payment terms, and a signature field is enough for most service jobs. The value isn't the document itself; it's the behaviour change. Clients who object to signing a one-page scope are almost always the ones you'll have trouble with later.

2. Payment terms in writing — short and specific

Australian B2B default terms have historically been Net 30, but there's no law that says you have to offer that. For most service businesses, Net 7 or Net 14 is more than reasonable. The shorter your terms, the faster you find out whether a client intends to pay.

Write the terms in plain language on the quote, the scope, and every invoice. "Payment due within 14 days of invoice date. Overdue accounts charged interest at 10% per annum and a $25 administration fee per reminder." Specific, clear, and enforceable — as long as it was agreed upfront.

3. Deposits on anything above $5,000

20% deposit minimum. 30% is better. 50% on jobs with significant materials that you have to purchase upfront. This isn't pushy — it's industry standard. Any client who refuses a deposit is telling you exactly how they'll treat the final invoice.

On long jobs, break it into progress payments. A structural build or multi-week catering contract should have staged invoices every 2–4 weeks, not one massive invoice at the end. The longer you leave your money in someone else's bank account, the more leverage they have and the less you have.

4. Credit checks on bigger B2B clients

For any new B2B client where a single engagement is worth more than $10k, run a basic credit check. Tools like CreditorWatch, illion, or Equifax (Veda) give you payment history, default listings, and an ASIC summary for under $50. It's a ten-minute exercise that tells you whether this client pays their other suppliers on time — or doesn't.

You'd be amazed how often the answer is "doesn't." And you'd be amazed how many service businesses skip this step on jobs where the outcome matters.

5. Personal guarantee on small Pty Ltd clients

This one is underrated. If you're extending credit to a small Pty Ltd company — especially a new one — ask for a personal guarantee from the director. One short paragraph in your terms: "The director personally guarantees payment of all amounts owed under this agreement."

Why it matters: without it, if the Pty Ltd goes under, you're an unsecured creditor and you'll likely get nothing. With it, you can pursue the director personally — and that changes the conversation dramatically when an invoice goes overdue.

Part 2: The Escalation Sequence

So you've done the job, sent the invoice, and a client has gone past their payment terms. Here's the sequence. Work through it in order. Do not skip steps — you'll need the paper trail later if it goes legal.

Stage 1 — Day 1 After Due Date: Friendly Reminder

The day AFTER the invoice goes overdue — not a week later — send a friendly, automated reminder. A short email: "Hi Sarah, just a gentle reminder that invoice #1234 for $3,400 was due yesterday. If it's already on its way, apologies for the nudge. Otherwise, could you let me know when I can expect payment? Cheers."

Xero, MYOB, QuickBooks and most other software will do this automatically. Turn it on. It's more polite and more consistent than you'll ever be, and it prevents the overdue accumulating while you "get around to it."

Stage 2 — Day 7 Overdue: The Phone Call

Emails are easy to ignore. Phone calls aren't. By day 7 overdue, pick up the phone and actually speak to the client. Not the accountant. The business owner or the person who signed the quote.

Keep it neutral and non-confrontational. "Hi John, just following up on that invoice — is there a problem with it, or a particular timeframe I should expect?" Listen. 80% of the time, you'll get one of three answers: (a) It got missed — sorry, paying today. (b) There's a dispute about scope or quality. (c) Cash flow issues — can we set up a payment plan?

All three are fixable. What you want to avoid is going silent yourself — because silence equals permission to keep ignoring you.

Stage 3 — Day 14 Overdue: Formal Reminder with Consequences

If you haven't been paid or agreed a plan within a week of the phone call, escalate to a formal reminder letter (email is fine). This one has teeth. Reference the invoice, the original terms, the interest now accruing, the administration fee, and state clearly what happens if payment isn't made within the next 7 days — debt collection, legal action, and the associated costs being added to the debt.

This isn't a threat — it's disclosure. You're telling the client what will happen next. A lot of slow-paying clients get themselves sorted at this step because it's the first time they realise the consequences are real.

Stage 4 — Day 21 Overdue: Letter of Demand

A Letter of Demand is the formal precursor to legal or debt collection action. It should ideally be drafted or reviewed by a lawyer — a basic Letter of Demand from a solicitor costs $100–$400 and carries significantly more weight than anything you send on your own letterhead.

The letter demands payment in full (usually within 7 or 14 days), references the contract and the unpaid debt, and states explicitly that failure to pay will result in formal recovery action. A solicitor's Letter of Demand on a law firm letterhead clears a surprising percentage of stuck invoices. It signals that you're serious, organised, and willing to spend the money to pursue it.

Stage 5 — Day 30 Overdue: Debt Collection Agency

If the Letter of Demand hasn't cleared it, hand it to a debt collection agency. You've given the client multiple fair chances — now it's time for professionals.

Most agencies in Australia operate on a "no recovery, no fee" model. Typical commission is 10% to 30% of the recovered amount, depending on age and size of debt. Older and smaller debts attract higher commissions because they're harder to collect. You pay nothing unless they succeed — which means the agency is genuinely motivated to recover.

Agency debt collectors have a different playbook from you. They know the legal pressure points, they send letters that carry weight, they can arrange payment plans, and debtors take them more seriously than they take a business owner sending reminder emails.

Part 3: Legal Options When the Money Still Isn't Coming

About 85% of overdue invoices resolve in the first four stages. The remaining 15% are either clients who genuinely can't pay (financial distress) or ones who have decided they won't pay (disputes, bad actors). For these, you have three main legal paths in Australia. Which one fits depends on who owes you, how much, and what kind of debt it is.

Option A — Magistrates' Court (most B2B and B2C debts up to $100,000)

For most service business disputes — unpaid invoices from another business or a residential client — your forum is the Magistrates' Court of your state or territory. In Victoria it's the Magistrates' Court of Victoria, which hears civil disputes up to $100,000. New South Wales uses the Local Court (Small Claims Division under $20k, General Division up to $100k). Other states have equivalents.

Process in brief: you file a complaint/statement of claim, serve it on the defendant, they have a set period to respond (usually 28 days). If they don't respond, you can apply for default judgment. If they do respond, the matter typically goes to mediation, then hearing. Filing fees for smaller claims are usually a few hundred dollars, not thousands.

Time frame: a cooperative debtor who chooses to settle can resolve in weeks. A contested matter can take 6–12 months. The good news — many debtors fold the moment they're formally served, because the legal consequence becomes real.

Option B — VCAT (only for "consumer and trader" disputes in Victoria)

There's a common misconception that B2B invoice disputes go to VCAT. They generally don't. VCAT's Civil Claims List hears "consumer and trader disputes" — disputes between a purchaser of goods/services and a supplier. If the claim is under $10,000 it's considered a small claim.

That means if you're a service provider and your customer (the purchaser) hasn't paid you, and the dispute involves the quality, price, or delivery of services supplied under the Australian Consumer Law and Fair Trading Act 2012, VCAT might be relevant. But for the typical "I invoiced them and they haven't paid" scenario, the Magistrates' Court is almost always the correct forum.

Other states have their own equivalent tribunals — NCAT in NSW, QCAT in Queensland, SACAT in SA — with similar jurisdictional rules. Check carefully or ask a lawyer before filing; lodging in the wrong forum wastes time and fees.

Option C — Statutory Demand (only against companies, debt over $4,000)

This is the heavy artillery. A statutory demand is a formal notice under section 459E of the Corporations Act 2001 (Cth) requiring a company to pay a debt within 21 days. If they don't respond, the company is presumed insolvent and you can apply to have it wound up.

Critical restrictions:

• The debt must be at least $4,000 (regulation 5.4.01AAA of the Corporations Regulations)

• The debt must be due, payable, and NOT genuinely disputed — statutory demands cannot be used to pressure payment of a disputed debt

• It can ONLY be served on a company (Pty Ltd) — not on a sole trader, not on an individual, not on a partnership

• Must be in the correct form (Form 509H) with a verifying affidavit unless it's a judgment debt

• Must be served on the company's registered office as listed on ASIC

If used correctly, a statutory demand is powerful — because the consequence of ignoring it is liquidation. In practice, most companies with genuinely owed debts pay within the 21 days rather than face a winding-up application. But it's easy to get wrong, and a defective statutory demand can be set aside by a court, leaving you worse off than when you started. Get a lawyer to issue it.

Part 4: Building Systems So This Doesn't Happen Again

Chasing one bad debt is painful. Fixing the process so it rarely happens is transformative. Five system changes every service business should make after the first time they get burned.

1. Automated invoice reminders — turn them on today

Xero, MYOB and QuickBooks all have automated invoice reminder systems built in. Most service businesses either haven't turned them on, or turned them on badly. The rule: reminders fire at day 3 before due, day 1 after due, day 7 after due, day 14 after due. Not optional. Not manual. Let the software do the unpleasant part — it's consistent, polite, and tireless.

2. AR is a weekly review, not a monthly crisis

On Monday morning, run the Aged Receivables Summary from your accounting software. 15 minutes. Anything over 30 days gets chased the same day. Anything over 60 days escalates to the formal letter stage. Anything over 90 days goes to the debt collection/legal consideration stage. Weekly discipline prevents the "how did we get to $60k in overdue invoices" moment.

3. Deposits become non-negotiable

Any job over $5k requires a deposit. Full stop. The moment you make this a rule and stop negotiating it, two things happen: the clients who were going to pay you slowly self-select out, and your cash flow transforms. The clients who refuse a 20% deposit are telling you exactly how the job will end. Believe them.

4. Stop-work clauses for long engagements

On any multi-month engagement, your contract should include a clear right to stop work if a progress invoice isn't paid within a specified window. Not as a threat — as a protection. Without this, you end up in the worst of all worlds: months deep in a job, hundreds of thousands committed, and an invoice from last month still unpaid. With it, you can pause legally and without drama the moment an invoice breaches terms.

5. A "client fit" conversation in the first quote

This is the least systemic and probably the highest leverage. During the initial quote conversation, explicitly walk through your payment terms, deposit requirement, and what happens if payment is late. Watch the reaction.

Good clients nod and say "yep, that's standard." Bad clients push back — want to negotiate the deposit, push the terms out to 60 days, tell you their accountant "doesn't do deposits." Those conversations tell you everything you need to know. Walk away from the ones that don't fit. You are not obligated to take every job.

“The business owner who can say no to bad clients has better cash flow than the one who says yes to every quote.”

The Uncomfortable Truth

Most service business owners who end up with a serious unpaid invoice problem didn't get there because they have bad luck. They got there because their systems, terms, and standards were weak — and the market found them out.

The fix is not to become harder, meaner, or more aggressive. It's to become more professional. Clearer terms. Tighter scope. Consistent follow-up. Firm, fair, systemic processes that treat every client the same. The bad clients weed themselves out. The good ones respect you more. And you sleep better.

And for the invoice you're staring at right now? Follow the sequence. Day 1 reminder. Day 7 call. Day 14 formal letter. Day 21 Letter of Demand. Day 30 debt collector. Don't skip steps. Don't go silent. Don't write it off out of embarrassment. You did the work. You are owed the money. Go get it.

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