How freelancers can get paid on time

Dealing with debts and disputes is inevitable for most businesses, and since the economic crash of 2008/9, late payment of freelance invoices has become commonplace.

While this issue is arguably a freelancer’s biggest problem, the issue is not isolated to freelancers alone and affects many small businesses, causing 50,000 businesses a year to close while costing the economy £2.5bn1. 

In this article, Markel Direct share their top tips on how freelancers can get paid on time, most of the time.

Set your terms and expectations at the outset

The best way to ensure you are paid on time is to set your terms and expectations at the outset and agree them with your client. No matter how familiar you are with a client, always make sure you have a written and signed contract so that you’re protected.

Use a milestone payments method

If you’re not sure what terms to set, then it’s a good idea to follow a ‘milestone payments’ rule.

As part of the initial client discussion and agreement process, ask for a deposit up-front. A deposit payment financially ties both yourself and your client to the success of the project. Do not be tempted to present any work without the deposit, otherwise you will be giving your client the option to walk away.

Agree on milestone payments to ensure your cash-flow remains strong. These typically come in two or three stages: deposit, first presentation and final delivery.

Make sure communications about payment terms are clear

A problem involved with payments is the hiring client not telling the supplier exactly what details must be provided to ensure they are paid. This information can include: a purchase order number, or obscure demands such as setting out an invoice in a specific way or in a specific font so that it meets the hiring party’s brand requirements.

Give your client an incentive to pay early

Provide your clients with an incentive such as a 5% discount or a specific amount off the invoice for paying early. This will make your client feel they’re getting a good deal and mean you’ll have money in the bank quicker.

Charge late payment fees

Charging interest on late payments can be another incentive for clients to pay on time.

If you do not agree a payment date, the law states that payments are late 30 days after:

1. The customer gets the invoice.
2. You deliver the goods or provide the service.

The interest you can charge if another business is late paying for goods or services is known as “statutory interest”, which is 8% plus the Bank of England base rate for B2B transactions. You will need to send a new invoice to your client if you do decide to add interest.

You are also entitled to charge a business a fixed sum for the cost of recovering a late commercial payment on top of claiming interest for it. The amount you can charge depends on the size of the debt owed.

If you have been forced to charge late payment interest on your invoices, but still have not received payment, then you could consider further action.

What else can help?

• Arrange professional indemnity insurance – often, clients not paying can be the first sign of a negligence claim being made against you. Even if you’ve not done anything wrong, it is unfortunately used as a tactic to obtain a discount or even write off the invoice entirely. Markel Direct’s professional indemnity insurance can cover the cost of defending against allegations of negligence.
• Use IPSE’s legal helpline – your 24-hour legal helpline offers friendly, pragmatic advice from experts to help you navigate payment issues.

Sources:

1. www.ft.com/content/2e62609a-f647-44ae-a84e-f56382685ec7
2. https://www.gov.uk/late-commercial-payments-interest-debt-recovery/claim-debt-recovery-costs