At a glance
- Establish clear contracts upfront, with payment terms, late fees, and consequences clearly spelled out.
- Maintain thorough documentation of all work you’ve performed, communications, and payment attempts.
- Recognise and respond to red flags like repeated late payments or poor communication.
Every business needs cash flow to keep the river running. Often this means invoices paid in full and on time.
Ensuring this happens requires honest relationships, clear communication and meticulous paper trails.
But even with the best procedures and intentions, chasing up late payments can be an unavoidable reality of managing a small business.
Whether it’s a long-standing client who’s suddenly gone quiet or a new relationship that’s turned sour, spotting the red flags early and handling non-payment effectively is essential.
Alice Ey, senior associate at DW Fox Tucker Lawyers, has some practical tips on protecting your firm’s financial health and tackling those tricky unpaid invoices.
1. Be clear upfront
Every successful working relationship requires honesty and clarity, and that begins with a comprehensive contract.
Details are important to avoid unexpected surprises, says Ey.
“Accountants should ensure that all engagement documents accurately identify the parties they’re serving by using full legal names, whether it’s an individual or business. Payment terms like due dates, late fees or interest on overdue amounts, along with consequences of non-payment, should be clearly spelled out.”
When dealing with corporate clients, Ey advises securing personal guarantees from directors or additional security interests.
“Including a clause allowing the accountant to register a security interest on the PPSR [Personal Property Securities Register] is wise. Service contracts should also cover indemnities, limitations of liability, and should clearly define the right to terminate services if fees remain unpaid.”
Ey adds that having these contracts reviewed by a lawyer ensures they’re enforceable.
2. Maintain a clean paper trail
Ey has found that a thorough paper trail of your services is vital. “Accurate records of work performed, correspondence with the client, and any approvals or instructions are critical. Having bookkeeping records that show when payments are made – or not – can support your position if recovery action is necessary.”
For this reason, consistent follow-up and documenting communications is important, she adds.
“Whether through emails, phone calls with corresponding file notes, or letters, you want to make sure there is a clear paper trail of attempts to resolve the matter amicably before escalation.”
And of course, sending out invoices promptly and regularly can prevent bill shock and minimise disputes.
Establish relationships
Building strong relationships from the outset not only gives accountants confidence but can help to reduce the need for legal intervention, says Ey.
“Start with informal correspondence and hold regular meetings to address payment concerns early, before they get out of hand.”
If problems come up, it’s crucial to gradually shift from casual talks to formal written communication, she adds.
“Accurate records of work performed, correspondence with the client, and any approvals or instructions are critical.”
Alice Ey, Senior associate, DW Fox Tucker Lawyers
“Proactively propose solutions like reasonable payment plans or extensions of time, tailored to the client’s circumstances. This shows you’re flexible while protecting the business’s interests. The key is to maintain open dialogue and document all steps taken.”
For those who find relationship management challenging, Ey recommends training to boost confidence.
“Regular training on conflict management and early intervention techniques can empower accountants to take decisive and constructive action.”
Learn to recognise red flags
Knowing when to seek legal advice or help is crucial. Red flags that may indicate a client is becoming a credit risk include:
- repeated late payments or requests for extensions without a clear reason;
- broken promises to pay, such as agreeing to a payment plan but failing to stick to it;
- poor communication, like avoiding phone calls or ignoring emails;
- sudden disputes about previously agreed fees or services, especially after the work has been done; and
- changes in the client’s personal or business circumstances, like signs of financial distress, insolvency notices or winding-up applications.
When these warning signs appear, it’s important to escalate appropriately, says Ey.
“Accountants should have internal protocols to review and decide when escalation is warranted, from informal reminders to formal demands.
“Sometimes these are all that’s needed to encourage payment.”
Seek expert help
When a client seems genuinely unwilling or unable to pay, it’s time to obtain legal advice, says Ey. “Engage a lawyer after you’ve made all reasonable efforts to resolve the issue directly, without success,” she advises.
Legal steps may include sending a demand letter and possibly starting court proceedings. Procedures can vary slightly depending on your jurisdiction.
At this stage, your detailed paper trail will become invaluable, says Ey.
“When you then engage a lawyer, having a well-documented file of your efforts not only strengthens your legal position for the debt recovery process, but you also enables your lawyers to act swiftly and efficiently – which ultimately saves you money on legal fees.”
Finally, never attempt to take the law into your own hands, she warns.
“Avoid any behaviour that could be seen as harassment, including excessive follow-ups, contacting clients outside of business hours, or making threats. Instead, focus on following a structured and professional process.”
