From a freelancer’s viewpoint, late payments are one of the biggest challenges to staying in business. There have been many examples over the years where clients big and small have got into financial difficulties, and the first people to feel the pain were the contracting members of the team.
Although it’s often impossible to predict which types of client may have solvency issues, here are a few tips to consider in mitigating or reducing any losses that may occur
Highlight your payment terms on all invoices
This might seem obvious, but if properly documented will mean that the client cannot claim they were unaware that payment was due, and it will also help should you eventually need to down the legal route to recover any monies owed.
Consider using an agency
Most of the time you won’t have an option on this one, but even if you can work for the client direct, sometimes having an agency on board reduces the need to chase payment, as they will have a dedicated accounts department to handle this.
Don’t let a debt build up
As soon as an expected invoice payment fails to reach your bank, call the clients’ accounts department direct and find out what the problem is.
You will be able to gauge from there reply whether it’s an administration issue, or whether they are having financial difficulties. If it’s an oversight, then an FPS payment facility should be available to correct the matter that day.
Late payment compensation
Clients who pay late must by law pay compensation and penalty interest.
For debts of less than £1000 the penalty is £40, rising to £70 for debts up to £9,999.99 and £100 above that.
Interest is payable at 8 per cent over Bank of England base rate. The penalties and interest apply to all businesses regardless of size.
Be clear when you invoice for work that “payment is due within X days”.
The small claims court
If you start court proceedings, for sums under £10,000 you will end up in the Small Claims Court. The first step is to issue a summons, for which you have to pay a fee of £100., You can now issue claims online at MoneyClaim
Advantages of the small claims court are
- You don’t need a lawyer.
- Often times you will win be default if the other party fails to turn up
- If you do lose, costs are usually very limited.
One thing to remember though, if the client doesn’t have the money, then suing generally won’t get you any compensation.
If the client cannot pay
In the worst case scenario, if the company goes into liquidation – you become a creditor, with the banks, the staff and the Inland Revenue ahead of you in the queue for whatever money is available. Although there is often little chance of a freelance receiving substantial payment, make sure the liquidator or administrator has your details as well as comprehensive details of your claim. Make sure the liquidator acknowledges your claim as a valid one.
You can check the status of a UK company, and get the address of the liquidator if one has indeed been appointed, at the Companies House website (see the link below). Once you have found the right company, look for “Liquidation creditors”
These are situations that most freelancers will never find themselves in, but it’s worth knowing a little about the subject in the unlikely event it does happen.