Here, Emily Coltman, chief accountant to cloud accounting provider FreeAgent, provides essential guidance for freelancers and small business owners chasing late payments from clients.
If you’re a freelancer or a small business owner, then we don’t have to tell you how frustrating it is to be chasing late payments.
While this is a problem that has been around for some time, the government is now taking steps to try and resolve it. As well as the ongoing recruitment of a?Small Business Commissionerto help resolve disputes and provide guidance, in May new legislation came into effectforcing big businesses to make reports on their payments to small businesses public.
While these changes may be a step in the right direction, the toxic culture of late payments will take a lot more than a little legislation to fix.
So, what can you do to protect your business against reluctant payers? Here are some top tips to arm yourself as best you can.
Draw up payment terms
First things first: make your payment terms known loud and clear. Your payment terms are the conditions that you impose on your customers to make sure that you receive payment within an acceptable timeframe.
Before you start working with a client, draw up a brief summary of these terms, and ask them to sign it. As well as laying down your payment deadline (e.g. 30 days after invoicing), you might want to request a deposit in order to secure some of the cash up front.
You can also pre-emptively guard against being paid late by introducing a late payment penalty into your terms. You can legally charge?eight per cent interestplus the Bank of England base rate on invoices that are over 30 days late, and you’re also entitled to?claim debt recovery costsof up to 100 for the inconvenience.
Having a written agreement in place makes everything clear right from the beginning, and can give you a cast-iron comeback against any flimsy excuses.
Have a watertight invoice
If your invoices are missing information, then you’re giving your clients an opportunity to take advantage. it’s vital that you list your full business details, plus a rundown of the work completed and a clear cost breakdown in your invoices. Be sure to include any late payment penalties, and if you like, you could even include your full payment terms on every invoice.
Do you use services like PayPal, GoCardless or Stripe? Make your invoices even slicker by adding an instant payment link, so making that payment couldnt be any easier.
For more ways to make sure your invoices are untouchable, check out these tips to make sure it stands up to client questions.
Be firm (but friendly)
Relationships with clients can often be a little tricky, requiring you to constantly toe the line between being friendly, yet professional. However, if you want to keep things sweet between you, then it’s crucial that you be assertive and upfront about your payment terms.
Emily Coltman is chief accountant to FreeAgent, provider of cloud accounting software for freelancers, micro businesses and accountants. She is passionate about helping the owners of small and growing businesses to escape their ?fear of the numbers? and she translates small business finance and tax into practical common sense speak.