Before offering any payment arrangements that allow customers to pay later, it’s strongly recommended that you seek professional advice from a financial advisor, accountant or lawyer.
What do we mean by ‘credit’?
This page covers ‘credit’ as payment arrangements that allow customers to receive products or services before full payment is made.
This helps to ensure a healthy cash flow, timely invoice payments and sustained profitability.
This is different to offering ‘credit’ under consumer credit and finance laws, something not covered here.
Payment terms outline how and when your customers pay for your products or services.
This includes the payment methods you accept, such as cash, card or bank transfer.
You can also outline whether you offer the option to pay later (credit) and what the terms and conditions are to do this.
For example: If you run a landscaping business, you might tell customers they can pay by card on the spot or get an invoice to pay within 28 days.
Setting these clear terms at the start helps avoid confusion and keeps your cash flow steady.
If you plan to offer arrangements that could be considered credit, you should consider whether the National Credit Code applies to these arrangements.
If a customer doesn’t pay within the agreed terms, you may have grounds to pursue recovery under Australian contract law.
Choosing a payment method depends on what your banking arrangement is and the type of business you have.
Payment methods could be one or more of the following:
cash
cheque
EFTPOS
credit or debit card
BPAY and online payments
vouchers and gift cards
direct debit
Afterpay.
Payment timeframes vary, however common periods are seven, 14, 21 or 28 days. Industry standards can influence these terms.
For example, the construction industry often applies short payment timeframes. Whatever timeframe you choose should be clearly stated on all invoices.
Offering customers the option to pay later increases your risk of being paid late, or in the worst case not at all.
For new customers you might set payment terms such as being paid upfront or on delivery.
The type of business and the amount of money involved will often determine how much risk you are prepared to take.
To avoid potential problems, consider doing a background check on potential customers before offering ‘pay later’ terms. This might involve developing a ‘credit application’ form.
‘Credit’ application form
You can use the information provided on the ‘credit’ application form to verify the business.
A ‘credit’ application form should include:
The full contact details of the applicant
The applicant’s business structure, any directors, partners or owners and their Australian Business Number (ABN)
The contact details of at least three referees
Permission to conduct a credit check
Signed acknowledgement confirming they have read your payment terms and conditions.
Check the Australian Business Number (ABN)
Use the ABN Lookup tool to verify the legitimacy of the business and to confirm its registration status.
The tool can also help identify the business structure and any relevant directors or partners.
Contact referees
Reach out to suppliers, previous service providers or other business contacts listed as referees.
Ask about their experience with the customer, including payment punctuality, reliability and any past disputes.
This can give you a practical sense of whether the customer is likely to pay on time.
Undertake a credit check with a credit agency
For higher-value arrangements, consider using a professional credit reporting service.
A credit agency can provide detailed information on a business’s financial health, outstanding debts and payment behaviour.
Make sure to obtain consent from the customer before conducting this check, as this is required under privacy laws.
Obtain signed acknowledgement of your payment terms
Have your customer formally agree in writing to your payment terms and conditions by signing the application form. This ensures they are aware of their obligations, including payment deadlines, credit limits (if any) and consequences of late or non-payment.
Clear documentation protects your business legally and helps prevent misunderstandings.
Once you have checked the application, you should notify the applicant in writing whether they are successful or not.
If you offer ‘credit’, notify them of the approved payment timeframe, the consequences of non-payment and any other relevant terms and conditions.
When you start a business, you will need to prepare terms and conditions specific to your business.
These, together with the law, will protect you should a customer fail to pay you. It is best to get this done properly at the start of your business journey.
Once you have established what best suits your business you should seek advice from a lawyer who specialises in commercial law to check that what you have written is legal and meets state and federal laws.
The type of business you operate will determine what you include in your terms and conditions – some items to consider are provided below:
1. Stating that by using your service/website/purchasing your product, the client agrees to be bound by these terms and conditions.
2. Clearly describe what you are selling or providing.
3. Pricing and payments:
state your prices, including whether they are GST inclusive or exclusive
accepted payment methods
payment terms
consequences of late payments.
4. How to purchase: Outline the steps involved in placing an order or engaging your services including the confirmation process.
5. Shipping and delivery:
delivery timeframes, estimates and methods
shipping costs including international shipping
items or locations that do not include a shipping option
risk of loss/damage transfer.
6. Returns, refunds and cancellations:
clearly outline your policy for returns/cancellations, exchanges and refunds (these will need to comply with the Australian Consumer Law)
timeframes and conditions for returns
process for initiating a return/cancellation.
7. Intellectual Property (IP):
outline who owns the IP rights to your website content, logos and products
define how users are permitted to use your IP
if you create IP for clients, outline the copyright ownership transfer terms.
8. Disclaimers and limitations of liability:
includes disclaimers about accuracy of the information provided on your website
state that you are not responsible for events outside your reasonable control.
9. While usually a separate document, your terms and conditions should clearly state that you collect, use and store personal information in accordance with your privacy policy and provide a direct link to it.
Again, you should seek legal advice in relation to any terms and conditions you intend to establish.
● A new customer wanting to purchase from you when they usually purchase elsewhere.
● Customers who haggle over the price more than they normally would.
● Customers who don’t want to make an upfront payment, particularly when upfront payments are usual within your industry.
● Customers who appear to claim expertise in your industry and use this to demand lower prices or better trading terms.
