Unpaid invoices are one of the leading causes of cash flow problems for small and medium businesses in Australia. Yet many business owners treat accounts receivable as someone else's problem — or deal with it reactively, only chasing invoices once they're seriously overdue. As a bookkeeper, you're in the ideal position to make aged debtors management a proactive, systematic part of your client service. Here's how to build a process that actually works.
Reading the Aged Debtors Report
The aged debtors report is your starting point. Most accounting software — Xero, MYOB, QuickBooks — produces this as a standard report, and it groups outstanding invoices by how long they've been unpaid: current (not yet due), 1–30 days overdue, 31–60 days, 61–90 days, and 90+ days.
Run this report at least weekly for clients with active receivables. As you review it, flag anything sitting in the 31–60 day column — not because it's catastrophic yet, but because early intervention dramatically improves recovery rates. Invoices that reach 90+ days are significantly more likely to become bad debts, and the client's leverage diminishes with each passing week.
Look for patterns as well as individual invoices. Is the same debtor consistently slow? Are invoices over a certain dollar threshold taking longer to be paid? Is there a correlation between invoice timing (end of month versus mid-month) and payment speed? These patterns tell you where to focus your client's energy and give you something concrete to bring to your regular check-in.
Setting Payment Terms That Work
Bookkeepers rarely get involved in setting payment terms, but you should. The invoice terms a client offers directly determine how early the aged debtors clock starts ticking.
Standard terms in Australia are often net 30, but for many small business clients, that's unnecessarily generous. Clients in trades, professional services, and retail frequently do better on net 14 or even due on receipt for smaller jobs. Some clients find that offering a small early payment discount (say, 2% for payment within 7 days) moves the cash faster than any chasing process.
The opposite problem is also common: clients with net 30 terms who don't actually enforce them. If a client's largest customer routinely pays at 60 days without consequence, effectively the terms are net 60 — and cash flow planning should reflect that reality, not the invoice terms on paper.
When you spot this gap, raise it directly. A simple message like: "I've noticed [Customer X] consistently pays at 60 days. Would it be worth having a conversation with them about terms, or at least adjusting our cash flow forecast to account for the actual payment pattern?" is the kind of advisory nudge that clients genuinely value from their bookkeeper.
Building a Dunning Process
"Dunning" is the formal term for a structured sequence of payment reminders. A simple dunning process might look like this:
- Invoice day: Send invoice immediately, not in batches at month end.
- Day before due: Automated courtesy reminder (most accounting software supports this).
- Day 7 overdue: Friendly follow-up email referencing the invoice number and amount.
- Day 21 overdue: More direct email or phone call; ask if there's a problem with the invoice.
- Day 45 overdue: Formal letter of demand on the client's letterhead.
- Day 60+ overdue: Refer to debt collection or solicitor.
The key is consistency and documentation. Every contact attempt should be logged — date, method, response received. This documentation is important if the matter eventually goes to the NSW Civil and Administrative Tribunal, VCAT, QCAT, or a similar state body, or if the client later disputes whether the invoice was properly issued.
You don't need to manage this process yourself, but you can set it up in the client's accounting software, train their admin staff, and review compliance each month. Some practices offer debtor management as a standalone service — it's a natural extension of bookkeeping that many clients will pay separately for.
Bad Debt Write-Off: The ATO Rules
When all recovery attempts fail and a debt is genuinely irrecoverable, it needs to be written off. From a GST perspective, the ATO allows you to claim back the GST component of a bad debt write-off, provided:
- The debt has been written off as bad in the client's accounts (not merely overdue — formally written off).
- The client has already reported the GST on that invoice in a previous BAS.
- The debt is more than 12 months old, or there are reasonable grounds to believe it will not be recovered (insolvency, for instance).
The bad debt adjustment reduces G10 (or the equivalent label on the current BAS form) and results in a credit for the GST previously paid. This is a legitimate tax benefit that many small business clients don't know to claim — making sure it flows through the BAS correctly is a straightforward way to add value.
For income tax purposes, the bad debt deduction is claimed in the income year the debt is written off (not when it becomes doubtful). The client must be able to demonstrate that the debt was a genuine commercial debt, not a loan or related-party arrangement masquerading as a receivable.
Making Aged Debtors Part of Your Regular Service
The most effective way to manage aged debtors is to make it a standing agenda item in your monthly or quarterly client meeting, not an emergency you handle when things get out of hand. Even a five-minute review of the aged debtors report — "here's who owes what, here's what I think you should do" — keeps the conversation visible and keeps your client accountable.
Clients who manage their debtors well have better cash flow, less stress, and more accurate books. They're also easier to serve: clean receivables make BAS preparation faster, reconciliation cleaner, and year-end less painful. That's a good outcome for everyone — including you.