It’s sad but true: getting paid in a timely manner can be one of the most challenging parts of freelancing or running a small business. In a survey we carried out earlier this year, more than half of the respondents said that they had been forced to write off invoices that were never paid*.
So with that in mind, what strategies can you employ to give yourself the best chance of pinning down that ever-elusive invoice payment? Here are our top ten tips:
1. Issue airtight invoices
If your invoice includes all the information required by HMRC and is written in a way that makes everything crystal clear, your clients should have very little excuse not to pay you on time. As well as essentials like the date of issue and your address, if you’re VAT-registered you’ll need to add in information like your VAT registration number.
Along with all these standard items, it’s also important to include your payment terms on the invoice. Although 30-day payment terms are arguably the most common, you could try setting immediate payment terms instead to see if that helps nudge your clients into a speedy settlement.
2. Offer a variety of payment options
Different businesses are set up in different ways so to give yourself the best chance of getting paid on time, try to offer your clients as many payment options as you comfortably can. As well as including your bank account details on your invoices (something that FreeAgent does automatically) consider adding in some handy online payment options. This technology is becoming more advanced all the time: providers like Stripe, GoCardless and PayPal integrate directly with accounting software like FreeAgent to automatically include a nifty ‘Pay Now’ button on your digital invoices.
3. Consider a ‘prompt payment’ discount
It might feel a little galling to offer a discount for the courtesy of simply being paid on time, but a prompt payment discount could potentially be a really smart move. It needn’t be a huge discount - even something as little as 3% for invoices paid within 10 days could be a juicy incentive for otherwise tardy clients.
4. Request a deposit
If you happen to be working on a project with a fixed fee, then you could try asking your client for a small deposit before you begin the work. As well as giving you a little bit of financial wiggle room, asking for a deposit might help illustrate to your client that your professional relationship is a two-way street. By asking for a deposit, you’re showing that you know your worth; hopefully your client will respect that and issue the remainder of the payment promptly when the time comes!
5. Invoice immediately!
This tip might seem glaringly obvious but the sooner you invoice your client after you’ve completed a piece of work, the better. Put aside any thoughts of coming across as too keen - by issuing your invoice straight away, you’re simply being organised and efficient. If you undertake regular work for a client, you could even consider setting up a recurring invoice to save time issuing repetitive invoices.
6. Consider adding a late payment penalty to your invoices
Did you know that you’re legally entitled to claim debt recovery costs on late payments? Thanks to The Late Payments of Commercial Debts (Interest) Act 1998, you’re entitled to claim between £40 and £100 for any payments that are over 30 days late (unless you have stipulated different payment terms in your invoice). If you don’t want to go down this formal route, you could consider adding your own custom late payment penalty to your invoices to motivate your customers to pay you on time.
7. Remind them!
If a conversation about an unpaid invoice is starting to feel awkward, reminding your client yet again that their payment is overdue might feel like the last thing you want to do. Just remember that you’re well within your rights to keep nudging your client until that overdue invoice gets paid, even if it isn’t particularly fun for you. If you use FreeAgent for your invoicing, our software can issue automated late payment reminders for you, so you might never need to wade into one of those thorny conversations again!
8. Drop your late-paying clients
Do you have clients who you just know will end up paying your invoice weeks (or even months) past the deadline? If so, then you might want to consider kicking them to the curb altogether! It’s a really tough decision to give a client the heave-ho, but standing your ground might encourage them to ask for a second chance and be more timely in the future. If not, it will rid you of any further stress from their late-paying ways - priceless! If you’re a FreeAgent user, our ‘Slowest Paying Customers’ feature will identify those tricky customers for you.
9. Make friends with the finance team
When working with larger clients, it can sometimes feel like your client is at least five degrees of separation away from the person responsible for paying your invoice. If you’re able to, try and figure out who in the finance department is responsible for issuing payments and see if you can get them on your side. Even if you can’t build a lasting relationship with them, you could find out useful nuggets of information like the company’s invoice payment cycle and the best times for you to issue invoices in the future.
10. Know your rights
Hopefully it will never come to this, but if you do find yourself hitting a brick wall when it comes to getting paid, there's always the last resort of taking legal action. Depending on your situation there are a variety of avenues you could pursue, from taking your case to the small claims court to using a debt collection agency. Don't forget that you’re legally entitled to claim up to £100 on any payments over 30 days late! Whatever you decide to do in this situation, remember that you are entitled to get the payment that you deserve.
FreeAgent’s online accounting software offers a variety of built-in tips and tricks to help you get paid faster, from automated late payment reminders to handy online payment integrations. Try it out for yourself with a 30-day free trial.
*FreeAgent surveyed over 1,000 small business owners in Jul-Aug 2019.
Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.