Invoice Unpaid

Collecting Unpaid Invoices: 7 Strategies That Actually Work

Feb 15, 2026

12 mins read

Let's talk about what actually works for collecting unpaid invoices.

Not theory. Not "best practices" from consultants who've never chased an invoice in their lives.

Real strategies that move money from their account to yours.

I've spent the past few years watching business owners struggle with this. Some collect 60-70% of their overdue invoices. Others collect maybe 10-20%.

The difference isn't luck. It's system.

The businesses that consistently get paid have figured out that invoice collection isn't about sending one perfect email or making one perfect phone call.

It's about having a systematic approach to the entire process.

From prevention (before invoices go overdue) to collection (when they do) to knowing when to walk away (when they're unrecoverable).

Here are the seven strategies that actually work.

Strategy 1: Prevent Late Payments Before They Happen

The best collection strategy is to prevent invoices from going overdue in the first place.

I know. That sounds obvious. But most business owners ignore prevention completely and then wonder why they're constantly chasing payments.

Here's what actually prevents late payments:

Get a Deposit Upfront (25-50%)

This does two things:

Proves the client is serious. If they won't pay a deposit, they probably won't pay the final invoice either. Filter them out before you do the work.

Reduces your exposure. If a $10,000 project goes bad and they don't pay, you're only out $5,000-7,500 instead of the full amount.

"But what if asking for a deposit scares clients away?"

Good. You want to scare away clients who can't or won't pay you.

The ones who push back hard on deposits are often the ones who'll be problems later.

Set Crystal Clear Payment Terms

Your payment terms should include:

When payment is due - "Net 30" is vague. "Payment due within 30 days of invoice date" is clearer.
What happens if payment is late - Late fees, interest charges, work stoppage. State it upfront.
Preferred payment methods - Make it obvious how to pay you.
What "overdue" means - When exactly you'll start following up.

Put these terms in your proposal, your contract, and on every invoice.

When a client agrees to work with you, they're agreeing to your payment terms.

Not vague "we'll sort it out later" terms. Specific, documented terms.

Invoice Immediately When Work is Complete

Don't wait a week to send the invoice. Don't wait until Friday. Don't wait until you "get around to it."

The day you complete work or hit a milestone, send the invoice.

Every day you delay is another day until you get paid.

Make Payment Ridiculously Easy

If paying you requires:

Logging into their bank
Finding your bank details
Typing in a reference number
Remembering to send remittance advice

You're making it harder than it needs to be.

Add payment links to every invoice. Stripe, Square, Xero Payments, QuickBooks Payments - doesn't matter which one. Just make it one click to pay you.

"But the processing fees..."

Yeah, 2% processing fees hurt.

You know what hurts more? Spending 5 hours chasing a $5,000 invoice that could have been paid in 30 seconds with a payment link.

Screen New Clients Before Taking Them On

Not every client is worth working with.

If they:

Haggle aggressively on price
Push back on your payment terms
Want everything done yesterday but are vague about payment
Give you bad vibes during the sales process

They're probably going to be payment problems later.

Sometimes the best collection strategy is not taking them on in the first place.

Invoice More Frequently for Large Projects

Don't wait until a 6-month project is finished to invoice $50,000.

Invoice monthly. Invoice at milestones. Break it into smaller chunks.

Smaller invoices get paid faster than large ones. And if there's a problem, you find out after $10,000 of work, not $50,000.

Build Relationships With Accounts Payable

If you work with larger clients, get to know the person who actually processes payments.

Learn their name. Understand their process. Make their life easier by sending clear invoices with all the information they need.

They'll prioritise paying you over vendors who make their job harder.

These prevention strategies typically reduce overdue invoices by 40-60% within 90 days.

Prevention is always cheaper than collection.

Strategy 2: Implement a Progressive Follow-Up System

Once an invoice goes overdue, you need a systematic approach.

Not random emails whenever you remember. Not the same gentle reminder for 60 days.

A progressive system that escalates appropriately.

Here's what works:

Days 1-7: Assume They Forgot

"Hi [Name], this invoice is now overdue. Let me know if you need me to resend it!"

Friendly. Helpful. Assumes good intent.

This catches about 30-40% of late payers. They genuinely forgot or the invoice got lost.

Days 8-14: Professional Check-In

"Hi [Name], following up on that invoice. Is there anything preventing payment? Happy to discuss if there are any issues."

Still polite, but more direct. You're asking if there's a problem.

This gets another 20-30%. Sometimes there IS an issue and this email opens the door for them to tell you.

Days 15-21: Direct Request

"Hey [Name], still waiting on this one. Can you give me an update on when I can expect payment?"

More direct. The friendliness is fading. You need a timeline.

Days 22-28: Final Email Push

"Hi [Name], unfortunately this invoice has been outstanding for four weeks now. Are you able to sort this out today? Let me know if there's anything I can do to help."

Firm but professional. This is your last email before escalation.

Day 29-35: Pick Up the Phone

Email isn't working. Time for an actual conversation.

"Hi [Name], I'm calling about invoice #12345 that's been outstanding for over a month. What's going on?"

Phone calls work because clients can't ignore you in real-time.

Day 35+: Formal Letters and Escalation

If phone calls haven't worked, it's time for formal demand letters, debt collectors, or legal action.

See our guide on formal letter templates for day 35+ invoices.

The key to this system: consistency.

Every overdue invoice goes through this process. Every single one.

The businesses that automate this (using tools like Invoice Nudge for days 1-28) see collection rates of 55-64% compared to 5-10% for businesses relying on generic Xero/QuickBooks reminders.

Strategy 3: Use Payment Plans Strategically

Sometimes clients genuinely can't pay the full amount right now.

They want to. They're planning to. They just don't have the cash.

This is where payment plans can save both the relationship and your cash flow.

When to Offer a Payment Plan

Offer payment plans when:

The client has been honest about cash flow issues
They've been responsive to communication
The relationship is otherwise good
The invoice is substantial ($2,000+)
They can pay at least 30% upfront

Don't offer payment plans when:

They've been non-responsive or evasive
They've broken previous payment promises
They won't commit to the first payment immediately
The invoice is small (under $1,000)
You suspect they're just stalling

How to Structure Payment Plans

Get the first payment immediately

"Can you pay $1,000 right now? Then we'll break the remaining $2,000 into two payments over 60 days."

If they can't make the first payment, they're not going to make the others either. This is your test.

Keep it short

No longer than 90 days. The longer the plan, the less likely you'll get fully paid.

Get it in writing

Email confirmation works fine.

"Just confirming our agreement: $1,000 today, $1,000 on 15th April, $1,000 on 15th May. If you miss a payment, the full remaining balance becomes due immediately."

Charge a fee

5-10% is fair for payment plans.

"There's a $200 administration fee for the payment plan, so the total will be $3,200 instead of $3,000."

You're extending credit. Credit has a cost.

Make the terms clear

"If you miss a payment, the full remaining balance becomes due immediately and I'll need to engage debt collectors."

No second chances on payment plans.

Follow up before each payment

Don't assume they'll remember. Send a reminder 3 days before each instalment is due.

"Hi [Name], just a reminder that the second payment of $1,000 is due on Friday. Payment link below."

Payment plans work about 60-70% of the time in my experience.

The clients who make the first payment usually follow through. The ones who can't make the first payment were never going to pay you anyway.

Strategy 4: Know When to Escalate (The 35-Day Rule)

Most business owners wait too long to escalate.

They keep sending gentle reminders for 90 days, hoping something will change.

It won't.

Here's the framework:

Days 1-28: Email Follow-Up

This is when systematic email follow-up works. You're being progressively firmer, but it's still professional communication via email.

If you're using Invoice Nudge, this entire period is automated with drafts appearing in your Gmail or Outlook at days 7, 14, 21, and 28.

Days 29-35: Phone Calls

Email isn't working. Time for human conversation.

Make at least 2-3 attempts to reach them by phone during this week.

Day 35+: Formal Escalation

If they haven't responded to emails AND phone calls, it's time for:

Formal demand letters (see our letter template guide)
Debt collection agencies
Small claims court
Writing it off

Don't keep sending emails past day 35. Email #7 won't work if emails #1-6 didn't.

Escalate or walk away.

The Red Flags That Mean Escalate Now

Some situations require immediate escalation regardless of timeline:

They won't communicate at all - Multiple emails and calls with zero response.
They make promises but don't follow through - "I'll pay Friday" becomes "I'll pay next Friday" becomes "I'll pay eventually."
They suddenly dispute the work - The work was fine for weeks, but now that payment is due, suddenly there are problems.
They pay other suppliers but not you - If they're posting about new equipment on social media but can't pay you, they've deprioritised you.
They threaten you for following up - "Stop harassing me or I'll report you." Professional follow-up isn't harassment. This is manipulation.

When you see these red flags, stop being nice. Start being strategic.

Document everything. Engage professionals. Protect yourself.

Strategy 5: Use Debt Collectors Strategically (Not as a Last Resort)

Most business owners think of debt collectors as a last resort after everything else has failed.

Wrong approach.

Debt collectors should be part of your systematic escalation, not a panic move.

When to Use Debt Collectors

Use debt collectors when:

The invoice is 50+ days overdue
The amount is over $1,000 (agencies usually won't take smaller amounts)
You've sent formal demand letters with no response
You don't want to spend time and energy chasing anymore
You want professional help without upfront costs

The beautiful thing about debt collectors: They work on commission. You pay nothing upfront.

If they collect $10,000, you get $6,000-7,500. If they don't collect, you're no worse off than you are now.

Good Debt Collection Agencies in Australia

Dun & Bradstreet
Credit Corp
Australian Receivables
Panthera Finance
Lion Finance

Most charge 25-40% commission depending on the age and size of the debt.

How to Work With Debt Collectors

Provide complete documentation

Give them everything: invoice, contract, emails, phone call notes, demand letters. The more documentation you provide, the easier their job.

Be realistic about collectability

If the client has gone out of business or has no assets, debt collectors can't help. Don't waste their time or yours.

Let them do their job

Once you hand it to them, stop contacting the client yourself. Let the agency handle it. Mixing approaches confuses the situation.

Understand the timeline

Debt collection takes time. Usually 60-90 days minimum. Don't expect results in 2 weeks.

Know what they can and can't do

They can send letters, make phone calls, report to credit agencies, and pursue legal action.

They can't harass, threaten violence, or contact the client's employer or family (unless they're guarantors).

Strategy 6: Consider Legal Action for Large Debts

For debts over $10,000 or complex situations, legal action might be worth pursuing.

Small Claims Court (Under $10,000 in Most States)

Filing costs: $100-300 depending on the amount and your state.

Process:

File a claim (simple form, don't need a lawyer)
Serve the claim on the debtor
Attend a court hearing
If you win, you get a judgment plus court costs

Timeline: Usually 2-4 months from filing to judgment.

The beauty of small claims: It's designed for regular people to use without lawyers.

You need:

The original invoice
Proof of delivery of goods/services
Proof you demanded payment (emails, letters)
Any response from them

If you have those, you'll probably win.

Hiring a Lawyer (For Debts Over $10,000)

Lawyers typically want:

$2,000-5,000 retainer upfront
Hourly rate of $250-500
Total cost might be $5,000-15,000 depending on complexity

Only worth it if:

The debt is substantial ($20,000+)
You have clear documentation
The debtor has assets (no point getting a judgment if they can't pay)
You're prepared for the time and stress involved

The Reality of Legal Action

Here's what nobody tells you:

Winning a judgment doesn't mean you get paid.

Courts can order someone to pay you. But if they don't have money or assets, a piece of paper saying they owe you doesn't help.

You might need to:

Get a garnishment order (take money from their bank account)
Get a lien on their property
Seize assets

This gets expensive and complicated quickly.

Only pursue legal action if:

The amount is substantial enough to justify the cost and stress
You have clear documentation
The debtor has assets or income you can actually recover
You're prepared for a 6-12 month process

Sometimes writing it off and moving on is the smarter business decision.

Strategy 7: Know When to Write It Off

This is the hardest strategy to accept, but sometimes it's the right one.

Not every invoice will get paid. Some clients will disappear. Some will go bankrupt. Some will just refuse to pay and dare you to do something about it.

At some point, you need to decide: is chasing this invoice worth more than my time, energy, and mental health?

When to Consider Writing It Off

The amount is too small to justify further action

If the invoice is under $1,000 and you've already spent hours chasing it, your time is probably worth more than the money.

The client has gone out of business

If they've shut down completely with no assets, you're not getting paid. Chasing ghosts won't help.

The collection process is damaging your mental health

I've watched someone spend 6 months chasing an $800 invoice. The anger, frustration, and stress ate them alive.

Finally I asked: "If I gave you $100 right now to forget about this and move on, would you take it?"

They said yes immediately.

That's when they realised it had become about principle, not money. And principle is expensive.

You've tried everything for 90+ days

At some point, you've done everything reasonable. More effort won't change the outcome.

The cost of recovery exceeds the amount owed

If legal costs will be $3,000 to recover a $2,000 debt, that's not smart business.

How to Write It Off Properly

Document the decision

Write a brief note for your records: "Invoice #12345 for $2,500 written off on [date] after 90 days of collection attempts including emails, phone calls, and formal demand letter. Client non-responsive."

Claim it as a bad debt for tax purposes

Talk to your accountant. Bad debts are usually tax-deductible.

Learn from it

Why did this invoice go bad? Was it the client? Your vetting process? Payment terms?

Use it to tighten your systems so it doesn't happen again.

Actually let it go

Stop checking if they've paid. Stop thinking about it. Move on mentally.

The worst thing you can do is write it off but continue to obsess about it.

The $800 Invoice Test

Here's a mental exercise I use:

If someone offered you $50 cash right now to forget about this invoice and never think about it again, would you take it?

If yes, write it off. The invoice has become about emotion, not economics.

Your time and mental energy are worth more than the money.

The System That Ties It All Together

These seven strategies work best when they work together as a system.

Here's what that looks like in practice:

Before Work Starts:

Clear payment terms in writing
25-50% deposit upfront
Payment links on all invoices
Screen clients carefully

Days 1-28 (Overdue):

Systematic email follow-up (automated if possible)
Progressive escalation from friendly to firm
Track everything in your accounting software

Days 29-35 (Phone Calls):

At least 2-3 phone call attempts
Offer payment plans if cash flow is the issue
Document all conversations

Day 35+ (Escalation):

Formal demand letters
Debt collection agencies (for $1,000+ invoices)
Small claims court (for clear-cut cases under $10,000)
Write it off (if it's not worth further pursuit)

The businesses that implement this full system see collection rates of 60-70%.

The businesses that don't have a system? They collect maybe 10-20%.

The difference is entirely about having a process and following it consistently.

The Reality

Here's the problem with doing this manually:

You won't be consistent. Especially if you're still under 10 employees.

You'll remember to follow up on some invoices. You'll forget others.

You'll feel awkward about certain clients. You'll get busy with other work.

This is exactly why systematic automation works so well.

Tools like Invoice Nudge handle days 1-28 automatically:

Monitors Xero or QuickBooks for overdue invoices
Creates progressive email drafts at days 7, 14, 21, 28
Drafts appear in your actual Gmail or Outlook (not a separate dashboard)
Checks email history to avoid redundant follow-ups
You review in 10 seconds and send from your own email address

This catches 55-64% of overdue invoices before they reach day 35.

For the remaining there will at least be some type of communication regarding the status of the invoice.

Learn more about Invoice Nudge or start your 14-day free trial.

Your Action Plan: Implement These Strategies This Week

If you've got overdue invoices right now, here's what to do:

Today:

List all overdue invoices and categorise by days overdue
Implement prevention strategies for new projects starting this week (deposits, clear terms, payment links)
Send appropriate follow-ups based on how overdue each invoice is

This Week:

Set up a systematic follow-up process (automated or manual calendar reminders)
Call any invoices that are 28+ days overdue
Research debt collection agencies for invoices 50+ days overdue
Review your payment terms - are they actually clear?

This Month:

Analyse which clients consistently pay late - decide if they're worth keeping
Tighten payment terms for new clients
Start requiring deposits for all new projects
Write off any invoices under $500 that are 90+ days overdue

Long Term:

Track your collection rate monthly (what % of invoices are you actually collecting?)
Measure days sales outstanding (DSO) - how long on average until you get paid?
Build relationships with accounts payable at major clients
Screen new clients more carefully

The difference between businesses that thrive and businesses that struggle with cash flow often comes down to invoice collection.

You can do great work. Deliver amazing value. Have happy clients.

But if you don't get paid, none of that matters.

The Bottom Line

Collecting unpaid invoices isn't about one perfect email or one magic technique.

It's about having a systematic approach:

Prevent late payments before they happen (deposits, clear terms, payment links)
Follow up progressively when they do go overdue (days 7, 14, 21, 28)
Escalate appropriately when email doesn't work (phone calls, formal letters)
Use professionals strategically (debt collectors, lawyers)
Know when to walk away (some invoices aren't worth the stress)

The businesses that implement this full system collect 60-70% of overdue invoices.

The ones that don't have a system collect 10-20%.

That difference is tens of thousands of dollars per year.

You earned that money. You delivered value. You have every right to collect it.

Stop hoping clients will "just pay eventually."

Build the system. Follow the process. Get paid.

Related Resources

Want to dive deeper into specific collection tactics? Check out these guides:

Want to automate your invoice collection system? Invoice Nudge handles the entire days 1-28 follow-up process automatically, catching 55-64% of overdue invoices before they need escalation. You focus on the ones that actually need phone calls and formal action. Start your 14-day free trial - setup takes 3 minutes.