Cough up! A practical guide to getting paid on time
If you’re a freelancer or a small business owner, then we don’t have to tell you how frustrating late payments can be.
While this is a problem that has been around for some time, the government is now taking steps to try and resolve it. As well as the ongoing recruitment of a Small Business Commissioner to help resolve disputes and provide guidance, last month new legislation came into place forcing big businesses to make reports on their payments to small businesses public. While these changes may be a step in the right direction, the toxic culture of late payments will take a lot more than a little legislation to fix.
So what can you do to protect your business against reluctant payers? Follow these steps to arm yourself as best you can:
Draw up payment terms
First things first: make your payment terms known loud and clear. Your payment terms are the conditions that you impose on your customers to make sure that you receive payment within an acceptable timeframe. Before you start working with a client, draw up a brief summary of these terms, and ask them to sign it. As well as laying down your payment deadline (e.g. 30 days after invoicing), you might want to request a deposit in order to secure some of the cash upfront.
You can also preemptively guard against being paid late by introducing a late payment penalty into your terms. You can legally charge 8% interest plus the Bank of England base rate on invoices that are over 30 days late, and you’re also entitled to claim debt recovery costs of up to £100 for the inconvenience. Having a written agreement in place makes everything clear right from the beginning, and can give you a cast-iron comeback against any flimsy excuses.
Have a watertight invoice
If your invoices are missing information, then you’re giving your clients an opportunity to take advantage. It’s vital that you list your full business details, plus a rundown of the work completed and a clear cost breakdown in your invoices. Be sure to include any late payment penalties, and if you like, you could even include your full payment terms on every invoice.
Do you use services like PayPal, GoCardless or Stripe? Make your invoices even slicker by adding an instant payment link, so making that payment couldn’t be any easier.
For more ways to make sure your invoices are untouchable, check out these tips to make sure it stands up to client questions.
Be firm (but friendly)
Relationships with clients can often be a little tricky, requiring you to constantly toe the line between being friendly, yet professional. However, if you want to keep things sweet between you, then it’s crucial that you be assertive and upfront about your payment terms.
Part of taking a firm hand could be requesting immediate payment for any work done. Our research has shown that small business owners who issue zero-day terms, often get paid far quicker than their more lenient counterparts.
Send a prompt, professional invoice (FreeAgent offers a gallery to choose from, so it's easy to find one that fits your brand) and you’ll be off to a flying start. Once you’ve sent that invoice out, don’t be afraid to chase your client up. Be firm yet friendly, and remember - you’re only asking for something that is rightfully yours! To really take the awkwardness out of repeated invoice reminders, let FreeAgent take care of it by sending automated invoice reminders out for you.
Fight for your rights
If, despite all your best efforts, you still can’t get a client to cough up, you are well within your rights to take legal action. Whether it’s taking your case to small claims court, referring the matter to a debt collection agency or even getting a solicitor involved, you have lots of options to help claim what is rightfully yours. Check out our comprehensive guide on options for UK-based small businesses faced with this situation.
- Everything you need to fill out your 2017/18 Self Assessment tax return
- 5 New Year’s resolutions for freelancers & small businesses
- Turkey or tax? Four reasons to start your Self Assessment over the Christmas holidays
- Hark the business angels sing! (and other ways to fund a business)
- Seasonal Spotlight: Ashley Laird, Support Accountant