What To Do When A Wholesale Customer Won't Pay

A wholesale customer who won't pay can put real pressure on your cash flow. You've already supplied the goods, paid your own suppliers or staff, and now you're stuck chasing money that should already be in your account.

The tricky part is knowing how firm to be. You want to recover the debt, but you don't want to accidentally waive your rights, breach your own contract, or make the situation harder to resolve.

The good news is that unpaid wholesale invoices can usually be handled in stages. Start with the contract and the paperwork, then move through reminders, payment plans, supply suspension and escalation if needed.

What Should You Do First When A Wholesale Customer Won't Pay?

You should first pause, check your records and work out exactly what is overdue before you send anything forceful. A clear paper trail is often what turns a messy overdue invoice into a recoverable debt.

Start by collecting:

• The signed wholesale agreement, terms of trade, credit application or purchase order
• The relevant invoices and delivery dockets
• Emails, texts or portal messages confirming the order
• Proof that the goods were delivered or collected
• Any complaints, returns or quality issues raised by the customer
• Your customer statement showing all outstanding amounts

Then check whether the customer is actually disputing the debt or simply not paying. This matters because a genuinely disputed invoice usually needs a different approach to a customer who accepts the debt but is delaying payment.

For example, say Mel runs a food wholesale business in Melbourne. A cafe owes her $18,700 across three invoices on 14 day terms. The invoices are now 32 days overdue. Before stopping supply, Mel checks the customer's credit application, signed terms of trade, delivery records and email chain. She finds the cafe accepted each delivery and only started raising vague concerns after the invoices became overdue.

That puts Mel in a stronger position. She can respond calmly, ask the cafe to identify any specific dispute by a set date, and continue recovery steps for the undisputed amount.

At this early stage, avoid:

• Posting about the customer online
• Threatening action you're not ready or allowed to take
• Continuing to supply more stock on credit without a plan
• Agreeing to a vague extension without confirming it in writing
• Repossession or set-off unless your contract clearly allows it

What Should You Check In Your Terms Of Trade?

You should check your terms of trade because they usually decide your strongest options for chasing an overdue wholesale invoice. Without clear written terms, you may still be able to recover the debt, but it can be harder to claim extra amounts or justify stopping supply.

Look for clauses covering:

• Payment terms: For example, payment due 7, 14 or 30 days from invoice, delivery or end of month.
• Late payment interest: Whether interest applies, how it's calculated and when it starts.
• Debt recovery costs: Whether the customer must pay reasonable legal or collection costs.
• Credit limits: Whether you can stop accepting orders once the account exceeds a limit.
• Suspension rights: Whether you can pause supply if invoices are overdue.
• Retention of title: Whether ownership stays with you until the goods are paid for.
• PPSR registration: Whether you can register a security interest under the Personal Property Securities Act 2009.
• Dispute process: Whether the customer must notify invoice disputes within a certain time.

If your customer is a small business, the unfair contract terms regime under the Australian Consumer Law may also matter. Since 9 November 2023, unfair terms in standard form small business contracts can attract penalties, not just be declared void. A small business contract can be covered where at least one party has fewer than 100 employees or annual turnover under $10 million.

This doesn't mean you can't protect your business. It does mean your default, interest, termination and suspension clauses should be fair, clear and proportionate.

Templates often miss these details, especially for wholesale supply where credit, stock and repeat orders are involved. Your terms work best when they're tailored to how you actually sell.

Can You Suspend Supply Or Stop Future Orders?

Yes, you can often suspend supply or stop future orders if your terms allow it, but you should be careful about timing, notice and any existing commitments. Stopping supply without a contractual right can expose your business to a counterclaim, especially if the customer says they relied on ongoing stock.

Before you suspend supply, ask:

• Do your terms say you can suspend supply for overdue invoices?
• Do you need to give written notice first?
• Are there accepted orders you still need to fulfil?
• Is the debt undisputed, partly disputed or fully disputed?
• Could the customer suffer loss if you stop supply immediately?
• Have you kept records showing the invoices are overdue?

A practical middle ground is to place the account on hold for new orders while you deal with the existing debt. You might say that no further credit will be extended until the overdue balance is paid or a written payment plan is agreed.

If your goods are perishable, seasonal or custom made, get advice before cancelling or withholding anything. The commercial pressure can be high, but your recovery position is stronger when your conduct matches your contract.

A Worked Example

Mel's terms say she can suspend further supply if an invoice is more than 7 days overdue, after giving written notice. She sends a reminder with the $18,700 balance, gives the cafe 5 business days to pay or propose a plan, and states that new orders will move to prepaid only until the account is back within terms.

The cafe offers $5,000 upfront and six weekly payments of $2,283.33. Mel accepts only after recording the plan in writing, including what happens if a payment is missed.

Should You Offer A Payment Plan?

Yes, a payment plan can be a sensible option if the customer accepts the debt and you think staged payments are more realistic than immediate payment in full. It can also help preserve a valuable wholesale relationship.

The key isn't to make the plan too casual. If you simply say, no worries, pay when you can, you may weaken your position and lose momentum.

A good payment plan should cover:

• The exact debt being acknowledged
• The amount and due date of each instalment
• Whether interest or recovery costs are included
• Whether future supply is prepaid, on hold or limited
• What happens if one payment is missed
• Whether the customer gives up the right to later dispute the acknowledged debt
• Who signs on behalf of the customer, especially if it's a company

For larger debts, you might use a deed of acknowledgement of debt rather than a simple email. A deed can be useful where you want a more formal promise to pay, but it needs to be prepared properly.

Overdue Invoice Letter Outline

Here is a fill-in outline you can use to brief your team or lawyer. It isn't a finished legal document, and it should be tailored before you use it.

1. Customer details: Insert the customer's legal name, ABN or ACN if known, and contact person.
2. Invoice details: List invoice numbers, dates, amounts and due dates.
3. Supply details: Briefly state what goods were supplied and when delivery occurred.
4. Contract basis: Refer to the signed agreement, terms of trade, credit application or purchase order.
5. Amount overdue: State the total amount due, including any agreed interest or costs if your contract allows them.
6. Payment deadline: Give a clear date for payment, not just as soon as possible.
7. Dispute request: Ask the customer to identify any genuine dispute in writing by a set date.
8. Next steps: Explain whether supply may be suspended, credit withdrawn or the matter escalated.
9. Reservation of rights: State that your business reserves its rights under the contract and law.

When Should You Use A Debt Collector Or Lawyer?

You should consider escalating when the debt is significant, the customer has ignored clear reminders, or there's a dispute that needs careful handling. The right option depends on the amount, the relationship and whether the debt is genuinely disputed.

A debt collector can be useful where the debt is straightforward and the customer simply won't engage. Check that any collector you use operates lawfully and professionally, because heavy-handed collection can damage your brand and your recovery prospects.

A lawyer is usually worth involving where:

• The amount is large enough that you don't want to risk a mistake
• The customer is disputing quality, delivery or contract terms
• You want a formal letter of demand
• You're considering a statutory demand against a company
• You need advice on suspending supply, terminating an account or relying on retention of title
• The customer has offered a payment plan but you want it properly documented

If the customer is an Australian company and the debt is due, payable and not genuinely disputed, a statutory demand under the Corporations Act 2001 may be an option once the debt is at least $4,000. The company then has 21 days to pay, secure or compound the debt, or apply to set the demand aside.

Statutory demands are powerful, but they aren't a normal reminder letter. If there's a genuine dispute or offsetting claim, using one can backfire. Get tailored advice before going down that path.

Also keep privacy and fair collection conduct in mind. If you handle personal information, the Privacy Act 1988 may apply to your business, and debt collection communications shouldn't be misleading, harassing or unnecessarily public.

How Can You Prevent Overdue Wholesale Invoices Next Time?

You can reduce overdue wholesale invoices by tightening your credit process before the next order goes out. Debt recovery is much easier when your terms, onboarding and systems are set up properly from day one.

For wholesale supply, consider putting these protections in place:

• Written terms of trade: Make sure customers accept them before their first order.
• Credit application form: Ask for the customer's legal name, ABN, ACN, directors and trading history.
• Credit limits: Set a limit and don't let accounts drift above it without approval.
• Personal guarantees: For higher-risk company customers, consider director guarantees with proper advice.
• Retention of title: State that ownership of goods remains with you until payment is made.
• PPSR registrations: If you rely on security interests, register correctly and on time under the Personal Property Securities Act 2009.
• Dispute windows: Require customers to raise invoice or delivery issues within a clear timeframe.
• Account holds: Make it clear when supply can be suspended or moved to prepaid terms.

PPSR timing can be especially important for wholesalers. For a purchase money security interest over inventory, registration generally needs to happen before the customer obtains possession. If you register too late, you may lose priority to other creditors.

You should also train your accounts and sales teams to work together. Sales teams naturally want to keep customers happy, but if they keep approving orders while accounts are overdue, your exposure can grow quickly.

A simple internal rule can help: once an account is more than a set number of days overdue or over its credit limit, new orders need approval from someone with authority to manage the risk.

Key Takeaways

• Start by checking your contract, invoices, delivery records and any customer complaints before escalating.
• Your terms of trade should clearly cover payment dates, late fees, recovery costs, supply suspension and retention of title.
• You can often suspend supply for overdue invoices, but only if your contract and the circumstances support it.
• Payment plans can work well, but they should be written, specific and clear about what happens if the customer defaults.
• Debt collectors, lawyer letters and statutory demands can be useful escalation tools, but they need to match the debt and any dispute.
• Stronger onboarding, credit limits, PPSR registrations and tailored wholesale terms can reduce unpaid invoices in the future.

If you'd like help with your wholesale terms of trade, overdue invoice letters, payment plans or supply suspension rights, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.