For freelancers, contractors and the UK’s 5million or so self-employed people, being paid late – and often late – has unfortunately become inevitable. And without the deep pockets of big businesses, late payment can often spell disaster for the cashflow of the UK's independent workforce.
As many as a third of payments to micro and small businesses in the UK are late, according to The FSB. 37% of those paid late run into cash-flow difficulties, while 30% of freelancers, contractors and other micro and small businesses have even been forced into a business overdraft because of unpaid invoices.
A concerning 20% of freelancers and small businesses have recorded a slowdown in profit growth too, solely because of late or unpaid invoices. So needless to say, late payment is an epidemic in the UK, and one which the new-look Government must resolve. It’s in the Government's own interests to do so too, with the end of late payment estimated to boost the annual economy by £2.5billion.
Given that 79% of small businesses do not charge interest on overdue invoices, the UK’s self-employed are by and large suffering in silence, and without any form of compensation. It comes as no surprise that big businesses are the worst offender either, contributing to 61% of all late payment to small businesses.
Until a prompt payment law is enforced, with the offenders penalised, there is only so much freelancers, contractors and small businesses can do to combat late payment. That said, there are a handful of tactics to lessen the likelihood of being paid late, and to speed up any outstanding payments without jeopardising valuable client relationships.
1) Shorten payment terms
Try shortening your payments terms from 30 days down to 14. If your client fails to pay within a fortnight, you’re well within your right to chase them for payment immediately, theoretically speeding up your payments somewhat.
2) Invoice instantly
By invoicing instantly and the moment you finish a job, you’ll benefit from something called ‘recency bias’ explains Ivo Weevers, Founder of Albert – a free mobile invoicing app. With you and your invoice fresh in mind, your client will prioritise your invoice, or so we’re told.
3) Request a deposit
Outline your terms of working, and request a deposit before you start a project. This is by no means unheard of, and will help you keep a healthier cashflow – particularly if the final payment ends up being paid late. Consider requesting between 30 and 50% up front, before starting a job.
4) Draw up a contract
On being signed by both parties, a contract becomes legally binding. Draw up a detailed contract outlining the project, the timeframe, the fee and the payment terms. If you suspect your client will be a late payer, you might want to detail that interest will be payable on any unpaid invoices. Weigh up the nature of your client first however. General guidelines on interest on late commercial payments can be found here.
5) Automate payment chasing
Stop wasting precious time and energy chasing invoices. Whether you use FreeAgent, Xero or many of the accounting softwares out there, let technology to the hard work and remind the client that an invoice deadline is approaching. Invoice through your accounting software and more often than not they’ll automatically remind clients and chase late payments – saving you time and what can pose to be a difficult conversation.
6) Talk to the right person
Often your direct client contact will not be the one in charge of paying your invoice. Getting hold of a contact from your client’s accounts department is a smart move. After all, they will be the person paying you.
7) Consider action
If all else fails and you’ve exhausted all options, legal action might be your only option. Unless agreed otherwise, payment is considered late after 30 days. The UK Government website will guide you through the ins and outs of legal action, here.
What tips do you have for speeding up the payment of invoices?