One of the major advantages of running your own business is, of course, the freedom. The ability to set your own hours and pace of work is something many people are envious of, but without a proper structure in place, especially for those that are just starting out in self-employment or freelancing, one of the main issues people have is getting paid. In a structured career, you know when you’re getting paid and how much and so forth, but one of the main pastimes, unfortunately for the freelancer or small business owner, is chasing payments. It’s a very time-consuming task, and one that distracts many workers from doing their job, not to mention the stress involved! For anybody that’s working with a client who hasn’t paid up these people know how it can affect your business finances. One late payment could have a knock on effect which can throw the whole business into disarray. So if you are embarking on a career as a freelancer or have started a company and you are currently in the middle of acquiring contacts and clients, here are some things to think about to prevent late payments.
Preparation Is Key
Before you agree to work with any client, it’s best to make sure you cover your bases. So be sure to send over terms of conditions to any client before you embark on any work for them. The terms and conditions will mark out what you expect from them as a client, and what they should expect from you. The standard terms and conditions need to include things like the notice period, how you invoice them, what the expected payment period is, as well as information about any fees on late payment or terms on part payments. Other things you would need to include in your terms and conditions would be the service level agreements or KPI’s, and limits on the amount of revisions to the work. This is an important thing to bring up because if you have a very picky client who keeps asking for minimal changes over a long period of time, it can easily sour working your relationship as well as make it not worth your while in a financial sense.
Invoicing Your Clients
We all want to get paid on time, so it is important to implement good working practices when it comes to invoicing your clients. A lot of businesses use invoice factoring and spot factoring to help fill any gaps in cash flow. Put simply, this is where an outstanding invoice from a client is sent to a third party factoring service company where they will pay you a percentage of that outstanding invoice which leaves you covered financially, you can get more information here on the subtle differences between invoice factoring and spot factoring. Other tricks for invoicing is to invoice at the same time every month as well as think about what options for payment you are offering. A bank transfer or PayPal is a lot quicker than a check, and you can see the money in your account within a few hours. For those clients you have a lot of concerns about you could consider invoicing on a weekly basis instead of monthly which gives them a shorter time period to pay, and if they still pay late, you can charge a late payment fee on every single invoice which serves you better in the long run.
Chasing The Late Payments
It’s possible that with all of the things you put in place that there can be problems that may still arise. A lot of companies can face issues where a client hasn’t paid for a long time and if you have been nice about it for a certain amount of time but yet the client hasn’t paid after 30 days, then it’s best to take the following approach:
- Firstly send a reminder email which should inform them of the late payment fees they have incurred and encourage them to pay as soon as possible.
- After an additional 30 days and they have not paid, make sure you put a hold on any other work for them until you receive a payment. In the meantime, you can work out how much interest to add on to the payment.
- If there are still problems, then you may wish to go down the legal route and instruct a legal professional to send a letter to your client threatening legal action. There are also freelance membership groups online that can offer help to freelancers who experience problems in relation to things like debt collecting.
- If the client has finally got back to you, but they are struggling to pay then, it’s your prerogative whether you wish to start a payment scheme so they can pay the full amount with interest.
- The final option if everything else has failed, and by this point, relations will have likely turned very sour, and they are still refusing to pay up, it’s time to take it to a small claims court. Be warned if it does get to this point it may not be the outcome you were hoping for, especially if they are a repeat offender in this case.
Find Out Why They Aren’t Paying You
If you find out that the client is not paying you because of something you were doing wrong, such as providing a poor service or not finishing the product, then it’s in these cases where Professional Indemnity Insurance would be a lifesaver for you. It depends on the insurance policy you choose, but they could help with specific assistance, from defending a claim to investigating the whole process to see if you were in the wrong. Either way, by having this insurance in place it will be some peace of mind should a relationship with a client goes south.
Late payments are one of the primary stresses involved when you’re working in a freelance capacity, or you are running a company. If you are struggling to improve your business, it’s these issues which you can get bogged down in rather than focusing on the more important task of providing a great service for customers and clients alike.