Late payments are a continued source of worry for freelancers and small business owners as clients and suppliers fail to get their invoices paid on time.

A recent report from accounting software company Xero has revealed that 53.6% of small businesses are beginning 2018 in negative numbers thanks to late payments.

Research published by small business finance provider Liberis also revealed that 72% of SMEs are spending up to three days every month chasing late payments.

With little to protect freelancers and small businesses from late payments other than the threat of small claims court, it’s inevitable that this late payment culture will only continue to get worse.

It’s not surprising, therefore, that a YouGov poll found 61% of small business owners want legislation enforced surrounding late payments to help reduce their impact on the self-employed and small businesses.

The survey of more than 2000 small businesses showed that six in 10 would back the introduction of a 45-day minimum payment term.

The current state of late payments in the UK is putting freelancers and small businesses at risk, and given that freelancers contributed £119 billion to the UK economy in 2016 and that the combined annual turnover of SMEs in 2017 was £1.9 trillion, it makes sense that we should want to protect their income.

Methods to avoid late payments

If you’ve been subjected to late payments from clients, there are a few things you can put in order to help try and deter them from doing the same thing repeatedly – or in the first place.

Have a contract clause

The first thing you should do to ensure you’re covering your own back when it comes to late payments is make a contract for each client you have.

This might be the same template for all clients but you’ll want to amend it per the different terms for each project.

Within this contract you may want to include a provision of interest in your contract. This is a clause which will lay out the payment terms and detail the date each payment is payable by.

If you don’t have a clause in your contract you could be putting yourself at risk if you do receive a late payment, and especially if it is taken to the stage of small claims court.

Fine late payers

When outlining the payment terms with your clients, it may be worth mentioning any details of fines for late payers.

This might an additional amount added each day the fine is not paid by, or it could be a clause outlining details of action that would be taken if the payment is not paid within a given time. The more specifics you add in at an early stage, the more seriously your clients will take your payment terms.

Reward early payers

On the flipside of fining late payers is offering an incentive to those who pay up on time.

Discounts for early payers will mean you’re not only likely to get paid on time but to get paid even earlier than anticipated, so you’ll never have to leave your bill payments overdue again.

Of course this won’t work for the small minority who have predetermined that they won’t be paying, but it will help deter them from trying to pull the wool over your eyes.

Avoid untrustworthy clients

Possibly the most obvious advice is often the most tried and tested. Steering clear of any untrustworthy clients is the surest way of you receiving your payments on time.

Of course, this isn’t always fool proof but it can certainly help you avoid more late payments than necessary.

Clients you may want to consider dropping are; those that fail to get back to your emails within a set timeframe, are vague about their needs from the project and who continuously send back work expecting multiple changes included in the face value payment.

This isn’t an exclusive list as there can sometimes be other red flags that appear when you’re negotiating a project contract with a client – it’s up to you to be able to spot them and trust your gut.

Steps freelancers can take facing late payment

If the above methods haven’t worked and you’ve been faced with a late payment, it’s time to think about what action you can take in order to get the money you’ve worked for.

Send a polite reminder

The first thing you should do (and possibly already have done) is to send a polite notice reminding them that they haven’t paid.

This is usually over email, and looks something like the following:

Hi XX,

I hope you’re well.

This is just a reminder to let you know I haven’t yet received your payment for XX which was due on XX/XX/XXXX.

I have reattached the invoice here in case you did not receive it.

Kind Regards,

XXX

Sometimes clients may have genuinely not received the email, or forgotten to pay the invoice, and giving them the benefit of the doubt should always be your go-to.

Check correspondence

If you still haven’t received a payment from the client, make sure you thoroughly check all the correspondence you’ve had with them.

This includes any emails, letters, phone calls or social media interactions (eg Facebook messages).

This may sound like a thankless task but doing your research and knowing exactly what’s been said between you both will give you the upper hand should the invoice continue to go unpaid.

Send documentation

If you receive no reply to your initial email or you do but there’s still no payment received, you should send another couple of nudges.

After this you should follow up with a sterner correspondence and attach your initial contract, drawing attention to the clauses relating to late payments – provided you’ve included these.

For more certainty you might want to send this both as an email and as a letter to the company’s address.

Small claims court

If after several emails, letters and phone calls you still have no luck in getting your client to cough up, it may be time to take further action.

Taking a case to small claims court can be a lot of hassle and cost some money, but this can be reduced if you put an online claim in rather than a paper form. The amount that follows will depend on your clients response and if they continue to refuse to pay, but in the long term would be worth it.

However, if the company who commissioned the project has gone into liquidation you’ll become a creditor and join the queue of those waiting for money ahead of you (such as HMRC for any tax due).

Are you struggling with late payments from clients? What tactics do you use to help avoid them? Would you like to see legislation surrounding late payments, like the 61% of business owners in YouGov’s survey? Let us know in the comment section below or get in touch over on Twitter.