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- 15 Jul 2019
It’s a story that contractors and freelancers are all too familiar with: you complete your contract, you send your invoice, wait for payment, and then nothing. The payment deadline comes and goes, and the money still isn’t in your bank account.
The simplicity of a monthly payday is lost to the self-employed, and instead, you often have a cycle of waiting, chasing and wondering when you’re going to be paid. It’s a frustrating issue – you work hard to deliver your service and you deserve to be paid on time for the work that you do. But despite this, late and unpaid invoices are all too common.
Late payments appear to be a larger issue: according to The Federation of Small Businesses, on average, over £6,000 is left unpaid to small businesses by clients each year. On top of that, a third of payments are late and businesses spend, on average, over a day a month chasing up these invoices.
These are staggering statistics that ultimately eat into your business hours and your resources. And despite the worry that many contractors have about disturbing the equilibrium with clients, there are measures you can take to cover yourself without rocking the boat.
Sometimes a gentle nudge is all it takes to remind your client that they’ve yet to pay. But this isn’t always the most effective way to tackle the issue at hand.
A payment policy will help keep you protected as long as you outline your terms to begin with. This should explain how many days you expect to be paid after completing work and your methods of payment.
Setting these terms and conditions from the outset gives your clients less room to argue if they believe you haven’t delivered what’s expected. If no payment terms have been outlined, the client usually has an obligation to pay within 30 days of work being completed.
If sending a follow-up email is necessary, you should be clever with the timing. Rather than filling their inbox every day, a well-timed reminder once a week could be much more effective.
Make your client aware of how much time has lapsed and how long they have left. If it is appropriate, you can make it clear that you will not be undertaking another contract until your outstanding balance is paid. Where possible, seek out individual contact details of the finance team rather than simply sending this to the generic email, as this will make chasing easier.
Luckily, the law is on your side: The Late Payment of Commercial Debts (Interest) Act 1998 offers small businesses protection against late and missed payments. The rules allow you to claim costs outlined in your invoice alongside any compensation. Even if this was not stated in your payment conditions, you could get compensation against public sector organisations and businesses with more than 50 employees. Following recent revisions of the legislation, you can now also claim interest from other small businesses. Interest can be charged on payments starting from the day after the last day it should have been paid (this is currently set at eight per cent of the Bank of England Base Rate). In a bid to improve transparency and increase protections for the self-employed the government recently brought in the Duty to Report legislation. Under the law, large companies must publish their payment practices twice a year. This includes the average time taken to pay for work and means that you can take a look at the worst off enders.
Use technology to make life easier for you. Where possible, try setting up an automated system to send invoices and notify you once payment has been made. Not only will this reduce the administrative burden and the time spent chasing, but it also gives your clients less wiggle-room when it comes to paying.
There is still a long way to go to tackle the poor payment culture in the self-employed sector, so in the meantime, setting measures to keep your business protected can prove to be effective in the battle against late payments.
As the UK’s largest specialist contractor accountants, SJD Accountancy are well-placed to support the self-employed with every aspect of your lifestyle. With the guidance of an expert who understands the unique workings of the self-employed by your side, you’ll always have a helping hand with whatever challenges come your way.
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