Tips to help you get paid earlier
While an IT contractor or creative freelancer is less likely to go out of business as a result of late payments than a trading company, late payments can cause significant financial difficulties. The issues that often cause late payments tend to have nothing to do with the company trying to get paid and more to do with the larger firms that might only pay suppliers once a month or have strict budgets on how much they can spend in a given period. As a result, small companies like contractors or consultants who frequently rely on a single source of income find themselves burning through reserves while waiting for payment and there’s seemingly nothing they can do about it. Sometimes this is true but there are steps you can take to improve your chances of being paid on time:
Set clear payment terms before starting a project
If you are working directly for a client, payment terms are likely to be 30 days but if the client works with many contractors, you might be able to agree more favourable 7 or 14-day terms. In any case, you will need to set out your payment terms clearly before the contract commences.
Make your invoices easy to understand
Your invoice layout is likely to be an afterthought but remember that there is likely to be someone reading the invoice and inputting the data manually into your clients’ accounts system so ensure the key information is easy to find, especially your bank details! You can see our invoicing guide here.
Make it easy for the client to pay
If you’re working with smaller clients, there are plenty of options for setting up invoice payment links so that a client can pay you directly from the invoice using PayPal or similar services. Alternatively, you could ask regular clients if they’d like to set up a direct debit. Doing this with someone like GoCardless means that you automatically get paid on the due date of an invoice and the client saves time on admin.
Get your invoices out as soon as possible
If you’re invoicing monthly, prepare the invoice during the month based on how much work you think you’ll do then on the last working day of the month, there will just be a small amendment to make before sending it. If you’re invoicing for a whole project that may last several months, it’s reasonable to expect at least 25% upfront so make sure you prepare an estimate and then a deposit invoice before starting the project.
Send your invoice directly to the accounts department
Wherever possible, get the address, phone number and email address of the accounts department and send the invoice directly to them. A short but cordial phone conversation with someone in accounts to confirm they’ve received your invoice can often help to get your invoice paid on time.
Get software to do the hard work for you
We recommend FreeAgent to our clients as it has a plethora of tools to make invoicing, tracking payments and chasing clients easier but there are hundreds of tools out there that can help. It’s surprising how many people we encounter that invoice late, don’t know how long their clients take to pay or even don’t know which invoices are outstanding. A tool like FreeAgent can automate all this for you if you’d like it to and it was originally designed by IT contractors rather than accountants so it’s geared towards cashflow and showing you who hasn’t paid rather than your profit and loss account.
Give your client an incentive to pay on time
If you’re trading as a limited company, it’s your legal right to charge interest on late payments of up to 8% above the base bank interest rate. This sometimes isn’t the best option if it’s going to impact your relationship with the client and larger clients might just ignore interest threats but if you have a client that regularly pays late it could tip the balance into your favour and encourage them to get your invoice paid sooner.
Chase payments politely
When your invoice is overdue, chase it immediately but a generic and polite payment reminder email will suffice at this point. You can get this to automatically go out but make sure you’re not chasing payments that have just been paid. You could also give the accounts department a call but it’s best to approach them assuming your invoice was misplaced or might have had incorrect details rather than to call and demand payment as a good relationship to with the people processing your invoices will always work in your favour.
If you still can’t get paid, take legal action
For clients that are consistently late with no reasonable excuse you can potentially persuade them to finally pay them with the threat of getting a debt recovery agency involved or if that fails a solicitor. In these circumstances it’s essential to weigh up the time and effort you’re putting into chasing the invoice as it’s unfortunately sometimes better to cut your losses and simply not work with that client again.
If all else fails, insure or factor your invoices
In some industries (especially in the public sector) employing all the best practices will not get your invoice paid on time and you’ll regularly be waiting 60+ days for payment. If this a considerable issue for you, you could appoint a company to insure or factor certain invoices. Factoring means that the company you appoint will pay your invoices (after taking a 5-10%) and then chase your client for the payment with the help of an experienced legal team. Insuring your invoices can be invaluable if your client is in some financial trouble as it means that for a fee, your invoice will be paid even if the client goes under.