How To Minimise Late Payments (And Deal With Non-Payers)
If you don't want to charge up front, there are some things you can do to increase your chances of getting paid.
You win a new client, deliver the work, send the invoice and wait.
The payment due date passes, but there’s no sign of your money. You send a polite email. No response.
You start to feel a little anxious.
Unfortunately, this isn’t an unusual scenario.
I've heard countless stories of freelancers not being paid on time or not being paid at all.
That's why I'm a huge advocate of getting paid up front. You don't have to deal wth non-payers if the money is in your bank before you start work.
But if you don't want to charge up front, there are some things you can do to increase your chances of getting paid.
- Part 1: Establishing effective processes
- Part 2: Dealing with overdue payments
- Part 3: Handling disputes
Part 1: Establishing effective processes
If you want to increase your chances of getting paid on time, you need effective processes. Document the terms, send professional invoices, establish a credit control process and make payment easy.
Be clear about the scope of work and price
When you are pitching for work, be clear about what your price includes. What is covered in the scope of work? What is not covered? Will there be any add-on fees? Do you charge for time spent on calls to the client? When will work be delivered?
Be clear about exactly what the client is paying for to reduce the chance of misunderstandings later down the line. The more comprehensive the proposal, the better for you and the client.
Do background checks
If you get contacted by a new client and you are worried about being paid, do some due diligence. Check them out on Companies House if they are a Limited Company or the Register of Charities if they are a charity.
If they are not registered, then visit their website or social media pages. If you have any doubts about their credibility, ask for full payment upfront (or at least a deposit).
Confirm your payment terms and their contact details
Make your payment terms clear in advance. Do you charge a deposit? Can payments be made in instalments? When are invoices raised? Do you work on 7-day, 14-day or 30-day payment terms?
Confirm you have the correct email address for your client’s accounts department. If a purchase order number is required, make sure the PO has been approved before you start work and that you have the PO number.
Get signed contracts
Ideally, the client should sign a formal contract agreeing to your terms and conditions. You'll find loads of basic contract templates online, or you can get one drawn up by a solicitor. There are also loads of options to get contracts signed electronically to speed up the process.
A signed contract makes it easier to prove what was agreed if there is a payment dispute.
Send professional invoices
If you want to be taken seriously, send professional-looking invoices. Many accounting software packages include professional invoice templates. Alternatively, you can find plenty of templates online.
Make sure your invoice includes your name (if you are a sole trader) or your company name (if you are a limited company) and your address. Include company registration or VAT registration numbers if applicable. And make sure each invoice has a unique invoice number.
Establish a credit control process
Invoices can be easily overlooked, and it doesn’t always mean that the client is unwilling to pay. They may have deleted your email by accident, moved it into the wrong folder or simply forgotten about it. Often, a simple reminder is all it takes to get payment.
Put a process in place for following up. Choose how soon after a due date the first reminder should go out, how frequently, and how many reminders you will send before you take the next step. Some accounting software (such as Xero) allows you to automate invoice reminders, making the process even easier.
Make payment easy
Make it as easy as possible for clients to pay. Include BACS details on invoices, use payment processing software, or offer Direct Debit options. The easier it is for clients to pay you, the faster they are likely to pay.
I recommend Go Cardless for Direct Debit and Stripe for card payments. You pay a small fee, but it makes getting payment much easier.
Part 2: Dealing with overdue payments
If you have sent your invoice, issued reminders, and still not received payment, then you need to take more direct action. Be assertive and proactive. Don't let companies fob you off or take advantage. You are not doing anything wrong by asking for what you are owed.
Issue a statement of accounts
A statement of accounts is more formal than a reminder and lists all outstanding invoices. You might also find it beneficial to include wording along the lines of:
I/We understand and will exercise our statutory right to interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to agreed credit terms.
This can often be enough to prompt the client to pay quickly. Nobody wants to incur additional charges (and you are within your rights to apply these).
Contact the accounts department
Many freelancers are wary of chasing payment as they don’t want to ‘rock the boat’ with a client. You are entitled to your money and have a right to ask for it.
When chasing payment by telephone, be polite, but do not end the call without agreeing to a payment date. If they say they intend to make payment ‘this week’, ask which day and then follow up if payment is not made.
Charge interest
UK law says that you are within your rights to charge interest and fixed penalties on overdue payments. You can find details on the government website about when this applies and how to calculate charges correctly.
If you decide to charge interest and penalties, raise a new invoice for these amounts and send it with a statement of accounts to the client.
Hire an agency
If the debt is for a substantial amount, you may want to hire a debt collection agency to chase the debt on your behalf. If you do decide to go down this route, ensure you use a company that has been authorised and regulated by the Financial Conduct Authority (FCA).
If you are applying late payment fees and interest, this may cover some of the cost of using an agency.
Make a statutory demand
If you are owed money, you can issue a statutory demand. The debtor then has 21 days to either pay you or agree to payment terms. If they do not pay, you can apply to make them bankrupt, but this is a costly process.
Try mediation
A mediator acts as an impartial person to help both sides come to a payment arrangement and can often be cheaper than hiring a solicitor or going to court. The court will see this as evidence that you have made an effort to resolve your dispute before taking legal action.
Take legal action
Another option is to make a court claim, often referred to as taking someone to small claims court. Your claim will be subject to court fees, which vary depending on the claim amount.
Hiring a solicitor is usually a last resort, as it can be expensive, but might be worth considering if your claim is for a substantial amount of money and you have exhausted other options. Before you instruct a solicitor to act on your behalf, be sure you understand the fees involved, what the process is and how long it will take.
Part 3: Handling disputes
In most cases, clients pay late because they have overlooked your invoice, have inadequate accounts processes in place, or are experiencing cash flow problems. But occasionally, a client might refuse to pay if they don't think you have delivered what was promised.
If a client is disputing your services, find out why they are unhappy so you can try to resolve the issue or compensate for something you have missed.
If you feel the client is being unfair, revisit the proposal and contract. If the scope of work is clear and you have delivered everything you said you would, then the client should have no grounds for dispute.
Should you ever write off the debt?
It's frustrating when clients refuse to pay, but sometimes it's in your interests to take the hit. If the invoice value is very low, the (time or money) cost of chasing it may not be worth it.
You may also decide to write off a debt (or part of it) if you have not provided the agreed services or delivered what was expected. Sometimes it can be easier to walk away from a project empty-handed than to keep working on it indefinitely. An apology to the client, an explanation of why you haven’t delivered, a refunded deposit, and a waiver of fees may be the best option if you want to keep your reputation intact.
But as I said right at the start of this article, the best way to avoid issues with payment is to get paid up front. This takes away a lot of headaches and makes life as a freelancer much easier.
Lisa Slater