8 Making sure you get paid on time

Once you’ve gone to all the trouble of going it alone, finding new customers, managing your workload wonderfully and so on, the last thing you want is to encounter delays in getting paid. This is (to some extent) part and parcel of freelance life, but you can take steps to minimise the inconvenience along the way, as this chapter shows.

Step one: Understand why you need to issue invoices

Once you’ve completed an assignment for a customer, get into the habit of doing your invoices as promptly as possible, so that you can keep a positive cash flow and manage your money well. Like a contract, an invoice is a formal record of a transaction between you and a client. It lists the work carried out and the price charged for it and as such is a key financial document for your accounts.

To cut down on queries from customers and also to make sure that you are covered for tax and VAT purposes, clearly show the following information on your invoices:

an identifying number unique to each invoice

your name or your business’s name, address, and if you’re registered for VAT, your VAT number

date of issue

your customer’s name (or trading name) and address

a brief description of the work done or goods supplied, along with the price and (if appropriate) the VAT charged

your payment terms

Make sure you keep a copy of all your invoices so that you can follow up with any slow payers, and also so that you have the information to hand for when you’re doing your accounts.

Step two: Chase up payments if they’re late

Even if you’ve always invoiced promptly, there will be times when an invoice just isn’t paid on time. The first step to getting your money is to find out what the problem is. For example, it could be because of:

a one-off problem. If a previously good payer suddenly doesn’t stump up on time, drop your contact a quick e-mail or ring them to find out what the matter is. It could be something as simple as the invoice not having reached them (in which case you can re-send), someone in the Accounts department having mislaid it or being unexpectedly away, and so on. In most cases, your contact will be able to sort things out quickly once they’re aware of the problem, so getting in touch is vital.

repeat offenders. If you pitch for work and are surprised at how easily you win it, it may only be a little while after that you find out why: your clients’ last supplier gave up on them after having such a nightmare trying to get paid. This type of client can deploy a whole arsenal of delaying tactics and waste a huge amount of your time as you try to chase them up. One way of minimising the potential risk when you take on a new client is to have a credit check run on them (contact Companies House for help: www.companieshouse.gov.uk/­toolsToHelp/findCompanyInfo.shtml); this should alert you to businesses going through a tough time. If, however, you decide to give the company a whirl, you may want to charge them higher prices in case you incur extra costs chasing them up, or make them pay on very tight credit terms.

a disputed invoice. Confusion or misunderstandings about the terms of a transaction happen regularly, but can be easily avoided. The best way to do this is to make sure that every step in the sales process (that is, everything from you approaching your customer for work, or them getting in touch with you, and the subsequent discussions about a fee, hourly rate, expenses (if appropriate), time scales and so on) is agreed before you start work. It’s good practice to send a quick summary e-mail or letter so that everything is clear for both sides. For example:

If you’re not clear about this information early on or can’t prove that you agreed it, you may have to haggle with the reluctant payer and risk taking a financial hit. If you’re sure you have strong case but the client just won’t budge, it’s time to think about taking a more formal approach to getting your money by going via the small claims court (see below). Keep a record or all your discussions with the late payer, as the court will want to see that you have already tried various ways of resolving the difficulty.

your client is in financial difficulty. Unfortunately, this is probably the most common reason for non-payment of an invoice, but may be hidden by your customer behind lots of other reasons. The key thing here is for you to work out whether the problem is a short-term blip or a sign of a bigger and potentially fatal malaise. If the problem is a minor one, it’s worth asking your client to pay you instalments over an agreed period of time: it’s not ideal, but better than nothing. Again, do make sure that all arrangements are confirmed in writing and then keep checking to make sure that you are receiving the payments as promised.

If, on the other hand, the problem is major, you have to face the fact that you may not get paid at all. Again, going via the courts could be a good option if you make a claim quickly enough. If you have supplied goods rather than services to the customer, you may be able to get them back if you keep a ‘retention-of-title’ clause in your terms of sale and invoices. For more information, see www.brethertons.co.uk/commConFactTitle.htm.

Step three: Try the legal route

If you’ve tried every way to think of to get paid but not got anywhere, it’s worth taking the issue up with the small claims court if the debt if for less than £5,000.

To get the ball rolling (and to shock the late payer into finally coughing up), inform them in writing that unless you receive your money within seven days, you will be taking legal action. If that bears no fruit, go to your nearest County Court (or Sheriff’s Court in Scotland) and state that you want to claim for money owed to you. You will have to pay to make a claim and the fee will depend on the amount in question. For more information, visit www.hmcourts-service.gov.uk/infoabout/fees/county.htm. Alternatively, you can make a claim online, track progress, and receive a judgement online at www.moneyclaim.gov.uk.

If you decide not to make your claim over the Internet, the Court will send you a claim form and you’ll need to tell them about your business, the debtor’s business, the amount in question, and the background to the claim. Be as specific as you can, and back up your argument with all the relevant information you can find. Once you’ve submitted the claim, the Court will send it to the debtor and then let you know when it was received. The debtor will then have 14 days in which to respond. (If you or the debtor are based in Scotland, you’ll have to ask a Sheriff’s Officer or Messenger-at-Arms to serve the claim for you.)

If the debtor doesn’t respond within the 14 day limit, you can ask the Court to enter a judgement ‘in default’ and to send the debtor an order to pay you the money you’re owed. You can be paid in full straightaway, which is probably the preferred option, but could go for instalments instead: if the late payer has had cash-flow problems, this may be the best route.

Unfortunately, obtaining a judgement is still not a cast-iron guarantee that you will be paid, so if you have further difficulties, ask the Court to enforce the judgement (there is a fee payable for this). A variety of options are open to the Court here, including having goods seized to cover the debt, having a third party who owes money to the debtor to pay you, or even starting bankruptcy proceedings.

Step four: Consider offering an incentive for prompt payment

It isn’t appropriate for all freelancers, but in some cases, it may be worth offering an incentive for customers to pay on time as long as (and that’s the key point!) it doesn’t leave you out of pocket. This route is probably most useful if you supply goods rather than services, and where there is enough of a margin on the price you’ve given to your client for you to still make some money, even if you give them a bigger discount. For example, let’s say your normal terms of credit are 30 days. You could offer a 10% discount to customers if they pay you within 14 days instead. Make clear that this is a special offer, though, so that they don’t start to expect it as standard!

Common Mistakes

You put off doing your invoices

This is the quickest way to get into choppy financial waters! The sooner you invoice a customer or client, the sooner you’ll get paid. It’s as simple as that. Few people enjoy admin, but then again few people enjoy being overdrawn or not being able to make their mortgage repayments, so get your act together and set aside some time every week or month (depending on the type of work you do) to keep your invoicing in check. Remember that your payment terms are based on the invoice date, not the date that you did the work for client.

You’re too sympathetic to late payers

Although building good relationships with your clients is an integral part of making a success of freelance life, you mustn’t put off chasing invoices because you’re worried that you might upset your client. If their business really is in trouble, you might not get paid at all if you leave it too late. If you’ve completed your work to a good standard, you’ve fulfilled your side of the bargain, and they need to fulfil theirs.

STEPS TO SUCCESS

Invoice promptly and don’t be afraid to chase up payments as soon as they’re late, however good your relationship with the supplier.

To cut down on the possibility of queries, check over your invoices before you send them to make sure they have all the relevant details on them.

Rather than sit there and worry, take the initiative and contact customers who are late in paying you. They may not be aware that there is a problem if payments are handled by another department, for example. Make sure you track all your correspondence, though.

If you have no success retrieving your money yourself, it may be worth taking your claim to court. Make sure you have all the necessary information to hand when you start a claim.

Before taking on any large contract with a new client, run a credit check on them.