As a Freelancer or Contractor one of your biggest concerns, after finding work, is being paid! You may expect to be paid 7, 14 or 30 days after emailing your invoice to ‘accounts@….’ but how likely is that to happen?
Research by BACS Payment Schemes Ltd, conducted this summer, shows that around 60% of SME’s have to deal with late payments, with the average business waiting 43.4 days beyond payment terms before invoices are settled. That means an invoice you raise today, with payment due in 30 days, could be in your bank account mid January 2013! Cashflow is the life blood of any business, but one business protecting its cashflow by delaying payment could inadvertently put another company out of business.
What can you do to minimise this risk?
- Firstly, before you accept a new piece of work, ask around about the company and their likelihood to pay promptly.
- You could also pay for a credit report on the company in question, but remember there is a cost associated with this, the info could well be 12 months out of date, and may not be easy to use or understand. The same BACS research highlights that although the worst offenders with regards to late payment are large companies, almost a quarter of those surveyed said fellow SME’s were just as guilty of paying late and it may not be as easy for you to check the credit worthiness of a freelancer or smaller company.
- If it’s a large piece of work it may be worthwhile agreeing to deposit upfront; staged payments; or setting a credit limit. Also include a clause within your terms and conditions indicating that you will charge interest on all late payments. Depending on your relationship with your client you may not pursue this but at least you have the option.
- You should make sure your invoice is correct with clear instructions on making payment. This is easy to do – you can purchase an invoice template, create your own, use an online bookkeeping system with built-in invoicing function or outsource the invoicing.
As a basic minimum every invoice should include:
- The word INVOICE
- A reference number (if not automatically generated you could use a combination of initials and dates)
- PAYMENT DETAILS – payments made directly to your business bank account, rather than waiting for a cheque to clear, will be available sooner and help your cashflow
- PAYMENT TERMS – you choose but commonly on completion/ 7 days/ 30 days, etc. If you intend to add interest for late payment include it here and also consider giving a discount for prompt payment if you can
- Clearly describe the goods/services provided and when if the work has been done in stages
- The name and address of the company you are invoicing – if possible address this to the person responsible for authorising your payment
- VAT – if you or your business is VAT registered you must ensure that the invoice is presented following the correct VAT Regulations
Check all the details before sending, an extra 10 minutes now spent checking for errors is nothing compared to delays if the invoice is disputed when it reaches the payment approval desk!
Finally, be prepared to follow up on unpaid invoices, setting some time aside specifically for this. It may not be an enjoyable task but remember you have done the work and deserve to be paid for it.
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Why Freelancers Should Hire an Accountant
In the world of work, freelancing is an increasingly popular option. The promise of flexibility, unlimited earning potential and complete control over the way you work is a hugely attractive prospect for many.
Although freedom is one of the big draws of the freelance lifestyle, there’s still plenty of financial responsibilities that come with it that can really eat into your time and profits.
But do freelancers really need the services of an accountant? Let’s find out.