Part 3: Using AI to see trouble coming · MODULE 12

Bad payer warning signs: how to spot trouble early

Customers who end up not paying often show signs months earlier. Their payments drift later, part payments appear without explanation, promised dates slip, and disputes arrive only after reminders. Watching each customer's average days to pay, rather than just your total overdue, lets you tighten terms while there's still money to protect.

6 MIN READ · UPDATED 10 OCTOBER 2026

IN THIS MODULE

Warning signs in your own ledger
Warning signs outside your ledger
What to do about each sign
Tracking it without extra admin
Common questions

What are the warning signs a customer won't pay?

The most reliable signals come from how a customer pays you. They show up long before a customer stops paying altogether, and you already have the data in Xero.

They take a little longer to pay each month, even on small invoices.
Part payments start arriving without an explanation.
A date they promised to pay comes and goes without a word.
Disputes come up only after you've sent a reminder, for work they were happy with at the time.
Direct debits or card payments start failing.
Your usual contact leaves, and nobody else will talk about accounts.
They ask for longer terms or "end of month" without a clear reason.
A sudden large order arrives from a customer who's already behind.

EXAMPLE

A builder has paid a plumbing business for three years, usually about 18 days after invoice. Over the last three months the average has crept to 26 days, then 35. Nothing is badly overdue yet, so the total overdue figure barely moves.

The trend is the warning. A sensible response is to move the builder to 7-day terms on new work and ask for a deposit on the next big job, while the amount at risk is still small.

Warning signs outside your ledger

New entries on a commercial credit report, such as payment defaults or court actions. Reports can also show business tax debts the ATO has disclosed, which happens when at least $100,000 is more than 90 days overdue and the business isn't engaging with the ATO.
Notices on ASIC Published Notices, such as a winding-up application by another creditor.
Other suppliers or subbies mentioning they're also waiting to be paid.
A big customer's results on the Payment Times Reports Register getting worse.

Phoenix activity
ASIC describes illegal phoenix activity as a deliberate attempt to avoid a company's debts by moving its assets to another company. Warning signs include the old company changing its name to its ACN, a new company with a similar name running the same business from the same place with the same people, and assets moving across for less than they're worth. If you see this, stop extending credit and report it to ASIC.

Warning signs outside your ledger

New entries on a commercial credit report, such as payment defaults or court actions. Reports can also show business tax debts the ATO has disclosed, which happens when at least $100,000 is more than 90 days overdue and the business isn't engaging with the ATO.
Notices on ASIC Published Notices, such as a winding-up application by another creditor.
Other suppliers or subbies mentioning they're also waiting to be paid.
A big customer's results on the Payment Times Reports Register getting worse.

What to do about each warning sign

Responding to bad payer warning signs:

Days to pay creeping up:
- What it might mean: Their own cash flow is tightening
- What to do: Shorten terms on new work and invoice the same day
Unexplained part payments:
- What it might mean: They're paying what they can
- What to do: Call them and agree a plan for the rest
Missed promised dates:
- What it might mean: They're juggling suppliers
- What to do: Ask for a smaller, firmer commitment and confirm it in writing
Late disputes:
- What it might mean: Buying time
- What to do: Respond quickly with evidence and ask for the undisputed amount
Failed payments:
- What it might mean: Account problems or low funds
- What to do: Contact them the same day
Big new order while behind:
- What it might mean: Stocking up before trouble
- What to do: Ask for the overdue balance first, or a deposit on the new order
Credit report or ASIC notices:
- What it might mean: Wider financial stress
- What to do: Stop extending credit and move to payment up front

The goal is to reduce how much you have at risk, not to cut the customer off at the first late payment. Plenty of good customers have a rough quarter and come out the other side, and they remember who worked with them.

Tracking warning signs without extra admin

Ten minutes on a Monday with your aged receivables report catches most of these signs. Module 16 explains what to look for. For the trend in each customer's days to pay, AI can do the sums for you from a Xero export.

For a deeper look at payment trends, use the prompt below with an invoice list that includes paid dates. Module 13 walks through the full process.

Export your invoices from Xero with invoice date, due date, paid date and amount. Replace customer names with codes first.

Step 1: Export the data from Xero

Open the Aged Receivables Summary report. Set it to age by due date, so the columns show how overdue each balance is, rather than how old the invoice is.
Export it to Excel or Google Sheets, then save it as a CSV file.
For trends, also export your sales invoices from the last 12 months with invoice date, due date, paid date, amount and contact.

The aged receivables summary tells you where things stand today. The invoice history tells you which way each customer is heading, which is usually the more useful of the two.

Step 1: Export the data from Xero

Open the Aged Receivables Summary report. Set it to age by due date, so the columns show how overdue each balance is, rather than how old the invoice is.
Export it to Excel or Google Sheets, then save it as a CSV file.
For trends, also export your sales invoices from the last 12 months with invoice date, due date, paid date, amount and contact.

The aged receivables summary tells you where things stand today. The invoice history tells you which way each customer is heading, which is usually the more useful of the two.

AI PROMPT

Below is a list of my invoices from the last 12 months for an Australian small business. Customer names are replaced with codes.

For each customer, work out the average number of days from invoice date to paid date, for each of the last four quarters.
List the customers whose average days to pay has increased by more than 7 days over that time, with the trend.
Flag any customer who has made part payments or has invoices paid more than 30 days late.
Show the calculations in a table so I can check them.

[Paste your invoice list]

Common questions

What are the signs a customer won't pay an invoice?

Common signs include payments arriving a little later each month, unexplained part payments, promised dates being missed and disputes raised only after a reminder. Failed direct debits, a key contact leaving and sudden requests for longer terms are also worth watching.

What should I do if a customer shows warning signs?

Reduce how much you have at risk. Shorten terms on new work, invoice the same day, ask for a deposit on bigger jobs and agree a plan for any overdue balance. Stop extending credit if you see insolvency notices or signs of phoenix activity.

What is phoenix activity?

ASIC describes illegal phoenix activity as a deliberate attempt to avoid a company's debts by transferring its assets to another entity. A common pattern is a new company with a similar name running the same business, with the same people and assets, while the old company is left with the debts.