There has been a lot of focus in recent years on the problem of late payment of invoices, and particularly how this affects small businesses.
It can be difficult for any company to function with thousands of pounds tied up in invoices that are not settled for weeks or even months, but for sole traders and freelancers, it can make running a successful business almost impossible.
Yet the nation’s self-employed play an increasingly important role in today’s economy, with 4.8 million self-employed people representing some 15% of the workforce.
So what can you, as a freelancer or sole trader, do to manage cash flow and minimise the risk of late payment to your business?
There are some measures you can take to try and reduce the risk of falling victim to payments that are so late it’s crippling, or worse, don’t come at all.
The Federation of Small Businesses is currently championing the important contribution freelancers make to the economy and has issued some advice for getting paid on time as part of that.
Here are their top tips to avoid late payment:
1. Research your buyers
Before signing on the dotted line, research potential clients to see if they have a track record of poor payment. The UK government now requires the biggest businesses to report on their payment practices. These reports are available to search online.
More than 1,000 large companies have so far started to report on how they pay, and thousands more will follow suit over the coming months.
2. Make payment terms clear
Ambiguity around payment terms has to be avoided at all costs. If you expect to be paid within 30 days, make that crystal clear when drawing up agreements. Equally, leave your buyer in no doubt that practices such as retrospective discounting, where big firms decide to pay less than agreed simply because they’ve paid on time, won’t be tolerated.
It’s also a good idea to send payment instructions and deadlines alongside invoices when they’re issued. Setting up user-friendly online and card payment facilities can also help avoid delays.
Ultimately, you’re looking to pre-empt any excuses your clients might try and muster for paying late.
3. Provide timely reminders and know the law
Setting up automated emails to clients to remind them when payments are due can nudge them into settling invoices more promptly. It’s also important to be aware of legislation, such as the payment terms set out in the Public Contract Regulations.
Cost effective legal support is also out there to help tackle repeat offenders. In a lot of cases, a letter from a solicitor is enough to make late payers change their ways.
4. Make late payers pay
You have the right to charge interest on invoices the moment they become overdue. Use it. FSB research shows that eight in 10 small firms don’t charge interest on late payments. That needs to change.
It can be a daunting prospect to take this kind of action against important clients. However, you need to remember that if payment terms have been made clear, you’re only taking the kind of fair, commercially savvy action that would be returned if the boot were on the other foot.
If clients expect work to be done on time, payment should be made on time.
5. Don’t be afraid to speak out
We can’t hope to change our endemic poor payment culture unless we’re prepared to call out bad practice.
Appointed towards the end of 2017, the Small Business Commissioner has been tasked with bringing our late payment crisis to an end. As part of his efforts, he’s established a dispute handling service, which provides assistance to those who are not being paid on time.
If you have been affected by late payments, don’t hesitate to reach out to the Commissioner. The late payment crisis will not climb up the national agenda unless small businesses are vocal on the issue.
It’s hard to avoid being stung by late payers at some stage during your firm’s development. But following these five steps can help you steer clear of the waiting game.
Too many big businesses don’t play fair. Adopting the right tactics, however, can ensure you aren’t left waiting for the cash you’re rightfully owed.