It used to be your favourite day of the month or week when you were employed and received a pay cheque on schedule. It was never a concern, just a good day and probably night down the pub.
Now you are contracting, and have gone to all that trouble of finding work, provided your expertise, sent your invoice off with an expected payment period of within 7, 14 or maybe 30 days, you might find yourself wondering why you have to chase payments and why those happy paydays have become days full of doubt and grief.
Well you’re not alone. Around 60% of SMEs deal with late payments averaging at 43.4 days after the terms specified, according to BACS Payment Schemes Ltd. Such delayed payments can sometimes devastate small businesses by creating cash flow problems which can become unmanageable.
Ways that you can reduce the risk of late payments:
1. Check your client’s reliability
Ask around the company before you start work with them to find out how reliable they are for making payments. If you are still unsure, you could even do a credit check but these are not free, the information could be out of date by about 12 months and it might not be too easy to decipher. It is worth keeping in mind that this would be more difficult to near impossible for smaller companies or other freelancers than large companies.
2. Set terms and clauses
Include a clause in your terms and conditions indicating that all late payments will incur interest. You may not wish to use it depending on your relationship with your client but the option is there and you can at least point it out once a payment is reaching its deadline and still not been paid. If you are completing a rather large piece of work, it may also be worthwhile agreeing to deposit upfront, staged payments or setting a credit limit.
3. Send good invoices
You may have created your own, used a bookkeeping software with built-in invoicing capabilities, or downloaded a template from somewhere, but no matter where you get it from, it is important to send a correct invoice with clear payment instructions.
All invoices should feature:
- the term ‘invoice’
- a reference number
- payment details e.g. bank account
- payment terms, e.g. 30 days from completion (add any terms such as interest on late payments here)
- a clear description of the services provided and when if in stages
- name and address of the company you are invoicing (preferably the person responsible for your payment)
- the relevant VAT information in line with the regulations if applicable.
You should double check all invoices before sending them to ensure there are no mistakes which might give your client an excuse to delay payment.
Although you can help reduce the risk of late payments, you will inevitably have to deal with them in your contracting career. The important thing is to follow up on any unpaid invoices, being firm whilst remaining calm. It is an unpleasant task but worth the time and effort. Otherwise, you are working for free. Contact us today to learn more about our accounting services.
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