Our helpful guide to help you avoid the negative impact of customer late payment and make sure invoices are always paid on time
Freelancers and small business owners know this only too well – late payment by clients happens far too often and causes a whole host of cash flow problems. But don’t despair, you can reduce the risks and get paid on time.
The depressing facts were outlined in a recent study by cloud accounting software firm FreeAgent, which found that 47 per cent of invoices sent by UK freelancers and micro businesses last year were paid late.
And, a Federation of Small Businesses report showed that over 30 per cent of payments to small businesses are late, at an average value of more than £6,000. That’s no small problem for a small business!
Late payment and non-payment are real problems
As a freelancer or micro business owner your best starting point is to be fully armed with the facts, know the potential risks, and put some vital processes in place to reinforce the way you work.
In some cases that may mean simply handing invoicing and all your credit control over to an accountant, such as Oscar Fairchild, to manage.
That might help you avoid having to wait three to six months for payment, like 25 per cent of UK micro businesses have. Or worse, becoming one of the 10 per cent to have suffered total non-payment by a client.
Oscar Fairchild Managing Director Kim Redwood-Lee advises business clients to be proactive: “Don’t just take it on the chin and accept late payments as a part of being in business. If you’ve provided the goods or services agreed – then you deserve to be paid on time.”
The government is taking the problem seriously, and so should you. December last year saw Paul Uppal appointed as the new Small Business Commissioner to support Britain’s 5.7 million small businesses in resolving payment disputes, tackle unfair payment practices and drive a culture change.
Don’t underestimate the negative impact late payments can have on your business, personal life and even your health. Freelancers who have to wait months for a major payment could find themselves forced out of business.
Owners of micro businesses in London, Essex and Hertfordshire with poor cash flow might have to borrow to survive and add the stress of that extra burden to the suffering they inflict on family at home.
Bookkeeping tasks should never be left to last
The lifestyle of a freelancer is all about risk and reward: you risk the absence of a monthly salary for the reward of working the way you want, that great work-life balance. A challenge you don’t want is actually getting paid for work done.
Our recent blog on credit control outlined best practice in invoicing procedures and chasing late payments. If you’re too busy or feel under-qualified, get a professional bookkeeper or accountant to do it all for you.
But you can get your house in order right from the start: across your terms and conditions, your invoicing, and a process to recover late payments quickly and firmly.
The basics of good terms and conditions
Accuracy and transparency are the cornerstone of effective terms and conditions. Deliver them with your job quotation and they’ll help you get paid on time, or chase down late payments.
There’s a simple tick-list of things to include:
- full description of the goods/services provided
- timescales for delivery
- obligations on the buyer
- payment terms and consequences of late payment
- circumstances that will bring the agreement to an end
Top tips on what to include in your invoices
When a freelancer or micro business takes on a new client they should follow some simple steps to help get invoicing right and reduce the risk of late payment:
- Get your new customer’s full address, partnership or limited company details
- Ask limited company directors to provide you with a personal guarantee
- Get their bank details
- Agree clear payment terms
- Invoice asap, to the person who will pay the bill
- Get your invoice details 100 per cent right – double check to avoid query delays
Recover late payment debts quickly
Don’t waste time when it comes to late payments. It’s your money, you earned it, so be consistent and firm when it comes to getting paid.
Check the issue with the client, but if your payment-chasing system doesn’t work instruct a solicitor to issue a debt recovery letter. At Oscar Fairchild we work with a specialist debt recovery solicitor, TM Law, to ensure quick recovery of late payments.
About Oscar Fairchild:
Oscar Fairchild (incorporating Redwood Clarke since 01.09.18) is an Association of Accounting Technicians (AAT) qualified accountancy & bookkeeping practice with offices in The City of London and Billericay, Essex. Offering a wide range of services including Self-Assessment Services, Annual Returns, VAT Returns, Credit Control, Payroll, Auto Enrolment Pension and Management Account services to high growth businesses across London, Essex and Hertfordshire.