How to SetUp Payment Terms that Protect Your Cashflow
- Simon. P
- Sep 15
- 8 min read
Updated: Nov 26
Cash flow doesn’t collapse overnight. It erodes slowly — one late invoice at a time.
A client pays a week late. Then another pushes it out “until next month.” Then a big invoice you were counting on gets delayed, and suddenly you’re juggling wages, rent, and suppliers with money you haven’t actually received yet.
That pressure doesn’t come from bad customers alone. A lot of it comes from unclear or weak payment terms.
Payment terms are one of the most underrated levers in your business. When you set them well, they protect your runway, keep cash moving, and give you breathing space to grow. When you leave them vague — or copy whatever someone else does — you end up acting like a bank for your clients.
This resource guide will walk you through how to set up payment terms in Australia in a way that protects your business, feels fair to clients, and creates a simple, repeatable system you can use across every proposal, invoice, and contract.
What Are Payment Terms and Why They Matter
Payment terms explain when and how your customers are expected to pay you.
They’re not just a throwaway line at the bottom of an invoice — they’re a practical agreement between you and your client about:
Due dates (e.g. “Due on receipt”, “7 days”, “14 days”, “30 days”)
Payment methods (bank transfer, card, direct debit, PayPal, etc.)
Deposits or milestone payments
Late fees or interest for overdue invoices
Early payment incentives (discounts for paying quickly)
In Australia, your terms also need to be consistent with Australian Consumer Law and fair trading expectations. If you ever need to chase a bad debt, clear written payment terms become part of the evidence that supports your case.
Think of payment terms as the rules of how money moves in and out of your business. If you don’t define them, someone else will — usually in their favour, not yours.
Why Payment Terms Matter for Business Owners
Payment terms aren’t just admin. They’re financial strategy.
1. They protect your cash flow
Shorter, clearer terms mean money arrives sooner. That lets you pay your team, cover your bills, and reinvest in growth.
2. They prevent awkward conversations
When expectations are clear up front, you avoid the “Oh, I didn’t realise it was due” conversations.
3. They make you look professional
Consistent terms across contracts, proposals, and invoices give people confidence in working with you.
4. They help you scale
Once your terms are set and automated in your systems, you don’t have to reinvent how you bill every new client.
5. They give you legal footing
If a client doesn’t pay, clear terms and a documented process make it easier to escalate if you need to.
Mentor insight:
If your business would be in trouble because three clients pay two weeks late, your payment terms need to be tighter. They’re there to protect your runway, not just to sound polite.
What You Need Before You Setup Payment Terms
Before you formalise your terms, get these basics in place:
Registered business name and ABN
Business bank account (never use your personal account for client payments)
Invoicing or accounting software(Xero, MYOB, QuickBooks, or similar)
Rough idea of your cash cycle(How long from quote → work delivered → payment received?)
Contract or terms-of-trade templateEven a simple one-pager helps make your terms enforceable.
Mentor Tip:
Ask yourself: “If a key client paid three weeks late, would I still be okay?”Your payment terms should be designed to make that answer yes.
How to Set Up Payment Terms in Australia:
Step-by-Step
Step 1: Define Your Ideal Payment Timeframe
Don’t just copy “Net 30” from someone else’s invoice. Choose what actually works for your business.
Common options:
Due on receipt
Great for small, one-off jobs or first-time clients.
Net 7 or Net 14
Popular for service businesses with short delivery windows.
Net 30
Often used in larger or traditional industries — if you use this, consider deposits.
Deposits (e.g. 30–50% upfront)
Essential for projects, custom work, or anything with significant upfront effort.
Milestones
For longer projects: e.g. 30% deposit, 40% mid-way, 30% on completion.
Pre-payment for products or custom order
Especially if you buy materials or stock specifically for a client.
Outcome:
You’ve chosen payment timings that support your cash flow, not just your client’s.
Step 2: Standardise Your Terms Across the Business
Once you’re clear, your terms should appear everywhere, not just on the invoice.
Add them to contracts and engagement letters
Set them as defaults in your invoicing / accounting software
Include a short reference in proposals and quotes
If relevant, add a brief version to your website (e.g. on pricing pages)
Train your team to use the same language with clients
Outcome:
Your business speaks with one voice about payment expectations — no mixed messages.
Step 3: Set Up Invoicing and Automation
Let your systems do the chasing so you don’t have to.
In your accounting or invoicing software:
Create a standard invoice template with:
your logo and business details
clear due date
how to pay (bank details, card link, etc.)
a short line about late fees or interest (if used)
Turn on automatic reminders, such as:
a reminder a few days before the due date
a reminder on the due date
a reminder 7 days overdue
Make sure invoices include:
total amount
Due date
Payment options
Outcome:
You’re not manually emailing “Just following up” messages — your system does it for you.
Step 4: Offer Smart Incentives and Clear Penalties
Not every client is trying to pay late. Sometimes they just need a reason to pay early — or a reason not to push you down the list.
Options to consider:
Early payment incentives
e.g. “2% discount if paid within 7 days” on larger invoices.
Late fees
e.g. a small monthly fee or interest rate clearly stated in your contract and invoice.
Suspension of work
e.g. “We reserve the right to pause work if payment is more than 14 days overdue.”
Retainers and direct debit
For ongoing services, charge a fixed amount on a set date each month.
Make sure these are reasonable and clearly disclosed — not hidden in fine print.
Outcome:
Clients are motivated to pay on time and understand what happens if they don’t.
Step 5: Communicate Payment Terms Clearly (Not Just Legally)
Terms only work if people know about them.
Communicate them:
Before work begins (in your proposal or engagement letter)
At the time of acceptance (when they sign)
On every invoice (front and centre, not buried)
For bigger projects, walk through the milestones verbally and confirm them in writing.
Outcome:
No surprises. Clients know exactly how and when to pay.
Step 6: Create an Overdue Invoice Process
When a payment goes past due, you want a clear, calm process — not panic.
A simple escalation path might look like:
Day 0 (Due date) – Automatic reminder + easy pay link
Day 7 overdue – Firm reminder with due date and any late fee note
Day 14 overdue – Send a “pause services” warning (if applicable) and call the client
Day 30 overdue – Final notice and intention to refer to collections / legal options
Document your process and keep it consistent. Keep records of all communication — it matters if you ever escalate.
Payment Terms for Small Business (Australia)
Common, practical options:
Due on Receipt — best for small, quick jobs and new clients
Net 7 / Net 14 — popular for service-based businesses
Net 30 — acceptable in many industries (pair with deposits)
Milestones — structured payments for longer projects
Retainers — fixed recurring payments (set a strict due date each cycle)
Track DSO (Days Sales Outstanding) monthly. If it creeps up, shorten terms or tighten enforcement.
Keep reminders polite but firm; always include balance, due date, and how to pay.
Overdue Invoice Process (Australia): Step-by-Step
Polite Reminder (on due date): “Just a nudge — here’s the payment link.”
Firm Reminder (7 days overdue): State late fee/interest and new total.
Suspension Notice (14 days overdue): Pause work until payment clears.
Final Notice (30 days overdue): Advise escalation to collections/legal.
Handoff: Engage debt recovery or small claims if unpaid.
Document everything. Keep call notes and email threads. It matters if you escalate.
Automate Client Payments
(Direct Debit, Card, E-Invoicing)
Direct Debit (e.g., GoCardless): Collect on due date; great for retainers
Card-on-file (Stripe/PayPal): One-click pay; set auto-charge with consent
E-Invoicing (Peppol): Government-backed standard; invoices flow system-to-system
Xero/MYOB Reminders: Enable pre/post-due reminders; add payment services
Dunning: Sequence reminders + incentives, then apply late fees
Mini-Setup Checklist
Add a payment service to invoices (card/direct debit)
Enable pre-due and post-due reminders
Offer early-payment discounts on long terms
Store a client’s preferred method (with consent)
Standardise your overdue workflow
Legal & Compliance Notes (Keep It Simple)
Unfair Contract Terms (UCT): Keep fees reasonable and clearly disclosed.
Surcharging: If you surcharge cards, disclose it upfront.
Chargebacks: Card payments can be disputed — keep delivery evidence.
Retention of Title (PPSR): If you sell goods on terms, consider registering security interests.
Security of Payment (Construction): Industry-specific rules may apply to progress claims.
This is general information only. For edge cases, get legal advice.
Cost of Implementing Payment Terms
Tool or Action | Cost Range |
Xero / MYOB / QuickBooks | $25 – $85/month |
Contract template (one-time) | $0 – $300 |
Legal review (optional) | $150 – $500 |
Reminder automation | Included in most accounting tools |
Money-Saving Tip: Use templates from trusted platforms and your accounting software’s built-in payment services.
Common Mistakes Business Owners Make
Copy-pasting terms from another business → your cash cycle is different
Not including terms on the invoice and in the contract → hard to enforce
Manual chasing → automation exists for a reason
Skipping late fees → no consequences, no urgency
Client-friendly, founder-hostile terms → your business isn’t a bank
What to Do Right Now
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The Bottom Line
Payment terms aren’t a line at the bottom of an invoice — they’re part of your business model.
They decide how quickly money comes in, how much stress you carry, and how confidently you can plan ahead. When you get them right, you’re no longer at the mercy of late payers and vague “we’ll sort it soon” promises.
Set payment terms that respect your clients, but protect your business first. Clear, fair, and consistently enforced.
Because the goal isn’t just to send invoices — it’s to get paid on time, every time, so you can keep building the business you set out to create.
FAQs
Do I need to charge late payment fees?
Optional but recommended. Reasonable, clearly disclosed late fees create urgency and protect cash flow.
Can I set payment terms shorter than 30 days?
Yes. 7–14 days is common for service-based businesses in Australia.
How do I enforce payment terms legally?
Put them in contracts and invoices. Keep records. Use debt collection or small claims if breached.
What should I include in payment terms?
Due date, payment methods, deposit/milestones, early-payment discounts, late fees/interest, and dispute window.
Can I change payment terms per client?
Yes — document clearly in your contract and set per-client defaults in your invoicing system.
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