This post is a guest post by FreeAgent, the award-winning UK accountancy software for freelancers, small businesses and their accountants.
Late payments. Those two simple words amount to one of the biggest frustrations the freelance and small business community faces.
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.
To mitigate the effects of pesky late payers, follow these steps:
Terms and conditions apply: make 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.
Make sure invoices are completely accurate before sending
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 assertive, but don’t ruin your client relationship
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.
Take it to the courts
If after all these measures your client still hasn’t paid, you’re 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.
For more helpful articles to help you run your business and demystify the UK accounting landscape, visit the FreeAgent guides section.