How to Reduce Debtor Days — A Practical Guide

1. Invoice promptly — the same day, every time

Every day between completing work and issuing the invoice is a day you add to your collection cycle before it has even started. For businesses that batch their invoicing weekly or monthly, this can add 2–4 weeks to their debtor days before a single customer has been slow to pay.

The fix is straightforward: issue the invoice the same day the goods are delivered or the service is completed. If your accounting software supports it, automate the invoice on job completion. For project work, invoice on agreed milestones — not just at the end of the project.

2. Use clear, specific payment terms

"Payment due within 30 days" is vague. "Payment due by 15 July 2026" is not. Specific due dates on every invoice remove ambiguity — and ambiguity is often exploited by slow payers as an excuse.

State your payment terms prominently on the invoice — not buried in fine print. Include your bank details, BSB, account number, and reference information so that a customer who wants to pay can do so immediately without having to email you for details.

For standard terms to include in your contracts and credit applications, see our credit terms template.

3. Send automated payment reminders

Most late payments are not wilful — they are the result of the customer's own accounts payable backlog, a missed email, or a simple oversight. A systematic reminder sequence resolves the majority of these before they become a problem.

A practical reminder schedule:

• 5 days before due: A friendly reminder that payment is coming up — include the invoice as an attachment.
• On the due date: A polite notice that payment is due today.
• 7 days overdue: A firmer notice that the invoice is overdue — request payment or contact to discuss.
• 14 days overdue: A formal overdue notice advising that interest or late fees may apply.
• 30 days overdue: A letter of demand — use our letter of demand template.
• 60 days overdue: Escalate to a collection agency.

Most accounting and practice management software can automate the first three or four steps. Set them up once and let the system run.

4. Offer early payment incentives

An early payment discount (for example, "2% discount for payment within 7 days") can accelerate cash collection from customers who have the cash available but are not in a hurry to use it. The cost of the discount is effectively the cost of getting your money earlier — for many businesses, this is worth it.

The formula to assess the cost: annual equivalent cost = (discount % ÷ (100 − discount %)) × (365 ÷ discount period). A 2% discount for 10-day payment on 30-day terms is equivalent to a 37% annual rate — very expensive for the customer to forgo, which is why it works.

5. Conduct credit checks before extending credit

The single most effective way to reduce future bad debts is to not extend credit to customers who will not pay. Before supplying on credit:

• Require a signed credit application
• Verify the ABN is active
• Check trade references (call them — do not rely on written references alone)
• For larger limits, run a credit bureau check
• Set an initial conservative credit limit

See our credit application checklist for the full list of what to ask.

6. Review your receivables book regularly

An aged debtors report shows every outstanding invoice grouped by age: current, 30 days, 60 days, 90 days+. Run this report at least weekly and act on anything that is moving in the wrong direction.

Pay particular attention to customers who are consistently paying at the outer edge of your terms — a customer who always pays on day 29 of a 30-day term is not a problem, but one who routinely pays on day 45 is quietly eroding your debtor days. Address it before it becomes 60 or 90 days.

Use our DSO calculator to track your overall debtor days over time.

7. Have a clear escalation process

Every business needs a documented, consistently applied escalation process for overdue accounts. Without one, the same account manager who has a good relationship with the customer will keep extending informal grace periods rather than escalating, and the debt will age further.

A simple escalation ladder:

• 0–30 days overdue: automated reminders + accounts receivable follow-up
• 30–60 days overdue: phone call from a senior accounts or management contact
• 60 days overdue: letter of demand issued
• 60–90 days overdue: suspend supply, consider referral to collection agency
• 90+ days overdue: refer to Merion

8. Know when to engage a collection agency

Internal collection activity is appropriate for most accounts in the first 60 days. Beyond that, the probability of recovery without specialist help drops significantly. The key indicators that it's time to refer are:

• The account is more than 60–90 days overdue
• The debtor is not responding to communications
• The debtor has made promises to pay that have not been kept
• Multiple follow-ups have produced no result
• The amount justifies the cost and effort of recovery

Merion operates on a commission-only basis — you pay nothing unless we collect. There is no financial risk to referring, only the risk of leaving the debt to age further. See our guide: When to engage a debt collector.

This guide is provided for general information only and does not constitute financial or legal advice. Recovery outcomes depend on the specific circumstances of each account.