What to do when your customer won’t pay their invoice on time
With over a decade of experience running her own business before joining Earlypay, Elise understands firsthand the challenges that come with managing cash flow and late-paying customers. In this article, she shares practical strategies to help business owners stay in control when invoices go unpaid.
Written by Elise Heslop, Head of Marketing at Earlypay
Every business owner knows the frustration of late payments. You’ve done the work, delivered the goods, and sent the invoice, but then the wait begins. Days turn into weeks, and sometimes into months, while your bills, wages, and rent still need to be paid on time.
I know this feeling all too well. Before stepping into the corporate world, I ran my own business for ten years. It was my passion, and I was extremely proud of what I offered my customers, but it was also my biggest stressor. When sales were strong, I felt on top of the world. When things slowed, the pressure mounted. But the biggest challenge was managing those gaps between fulfilling a large order and actually receiving payment. Customers who were quick to place an order sometimes became slow to pay or stopped responding altogether when it was time to chase invoices.
I learned the hard way that surviving these cash flow crunches wasn’t just about keeping a healthy P&L - it was about putting the right processes and funding solutions in place to keep money moving, even when my customers paid late, to avoid the stress spiral.
Here’s what worked for me, and I hope these tips can help other business owners who might face a similar challenge:
- Get a deposit as a commitment for work, especially when the project is big and you need to pay for production or labour up front to fulfil the order. You can structure your contracts so customers pay a deposit, partial or upfront. You could also offer incentives for upfront or early payments.
- Think about integrating a “buy now, pay later” or instalment option for your customers, while you receive full (or near-full) payment from a partner. Partnerships like Zip with Xero and Stripe can help with this kind of flow.
- Set clear invoice terms and enforce them. Make sure that your invoice terms clearly state that the deposit must be paid and is non-negotiable before work commences. Think about if you can hold goods until payment is received in full. This might not suit all businesses, especially when you have large customers who are used to paying on terms, but it could work for others.
- Don’t ignore debtor management The old saying, ‘cash flow is king’, is well-used for a reason – because it’s true! If you don’t have the time to be making calls or following up payment on invoices for work you’ve done, get support. Whether it’s your bookkeeper, an accounts receivable person/team, or outsourcing this function completely, it’s too important to ignore. Your P&L is important but not having cash in the bank to pay staff or rent is what will keep you up at night.
- Use funding solutions to bridge the gap. If your customers are on long payment terms for their orders, there are ways to get that cash in your account faster yet keep your customers on the terms they want so they keep doing business with you.
What works best for you will be based on your business model, your margins, risk tolerance and how predictable your cash flow cycle is. Below are some options to consider if you find yourself in the same situation as I did:
Cash flow options to think about
1. Invoice Finance (sometimes known as Invoice Factoring & Invoice Discounting)
- Invoice Finance lets you unlock the cash tied up in your unpaid invoices, so you don’t have to wait until your customers pay. This is especially useful when you have customers on longer payment terms or some larger customers that typically pay later than their due date.
- A lender advances most of the invoice value (usually 70–85%) upfront. You receive the balance (minus fees/interest) once your customer pays. This has relatively predictable costs and can help you scale if you’re growing.
Two main models:
- Factoring: Where the lender helps manage accounts receivable collections and your customers pay them directly.
- Invoice Discounting: You stay in charge of collections but still get the upfront advance. This is usually more confidential.
2. Cash Flow Loans / Unsecured Working Capital Loan
- When you’re confident of your upcoming revenue and need a relatively simple cash injection, this is a short- to medium-term. You borrow money and pay it back over a defined term with interest.
3. Line of Credit / Revolving Credit Facility
- This is like a business credit card or overdraft but formalised: you have a maximum credit limit you can draw on when needed, repay, then draw again. It’s good with flexibility and for unpredictable fluctuations but there are some downsides with interest/fees and the potential for personal guarantees and security.
4. Merchant Cash Advance (MCA)
- A financier gives you a lump sum advance, which you repay by giving them a fixed percentage of your future sales (often daily/weekly). This gives you the cash quickly and approval is dependent on your past sales, however it can be costly and risk your margins, especially if your sales drop.
5. Supply Chain Finance / Trade Finance
- If you have a complicated supply chain, trade finance can help improve your cash flow and strengthen supplier relationships. Through a trade finance facility, a lender pays your suppliers earlier on your behalf, while you repay the lender later on agreed terms. This allows your suppliers to get paid faster (which can help you negotiate early payment discounts) and reduces the cash flow pressure of holding inventory.
6. Asset-Based Lending or Secured Lending
- Use the assets you already own such as equipment, real estate, inventory as collateral for a secured loan or line of credit. If your business has significant fixed assets, even older assets, this can be attractive.
7. Venture Debt
- If your company is backed by venture capital or investors and is growing fast, venture debt providers may lend you capital with somewhat looser criteria, often with some equity warrants or rights. This can often be used to extend runway or finance growth without giving up too much equity.
8. Short-Term Loans
- Similar to cash flow loans but intended as short-term stop gaps. This can be a quick fix but may not resolve the longer payment terms in your business structure.
9. Equity / Investment
- If you’re open to having other parties involved in your business/dilution of your control, taking in investment from angel investors, venture capital or private equity funds can provide working capital. You won’t have to worry about regular repayments on a loan/facility arrangement, but investors will expect returns from their investment.
10. Grants, Government Programs, Subsidies
- There may be grants, subsidies, or government-backed financing that can help with working capital or business continuity. You can speak to your local council or check out government websites such as Austrade to see if there is something for your industry/business.
Key things to keep in mind
When comparing these options, here’s some things to consider:
- Cost vs flexibility: Faster solutions usually cost more.
- Impact on margins: Some (like MCAs) can squeeze profits.
- Security & guarantees: Know what’s on the line.
- Scalability: Choose solutions that grow with your business.
- Customer relationships: Some finance options affect how you interact with clients.
The old saying “cash flow is king” exists for a reason. Even profitable businesses can struggle if late payments leave them without cash in the bank.
If Invoice Finance sounds like it could help your business manage late-paying customers and keep growth moving, learn more here.
