The cost of late payments to freelancers and SMEs is significant: the Asset Based Finance Association recently estimated the total amount of unpaid invoices to be around £64.2 billion.
However, chasing outstanding payments doesn't have to be a big struggle. It's simply a matter of planning, prudence and persistence.
1. Set clear payment terms
Discuss terms in advance to avoid disputes later. It’s wise to communicate your payment deadlines, methods and charges (in the case of delays) before contracts are signed. These details should be included on your invoices, too. Visit our guide to setting clear payment terms for more information.
2. Offer incentives
If you show willingness to be flexible this should make it clear that you're not just looking out for number one. You might consider offering discounts for early payment, or discussing the most cost-effective way for clients to pay: whether that's online, via PayPal or in regular instalments direct to your bank account.
3. Keep clear records
Expenses can be a sticking point, so make sure you have a copy of your receipts and a note of why they were essential. It's also sensible to keep a record of all correspondence in case you need to refer to previous agreements or, in the worst case scenario, resort to legal action.
4. Issue polite reminders
If payment is late, don't jump straight into panic mode. There could be a simple explanation. A polite reminder letter or email will be more effective than resorting to conflict. Similarly, if you plan to add interest, give notice before you start charging.
5. Compromise
If the client thinks you haven't delivered, hear them out before presenting your case. Keeping your customers happy is better for your business in the long run, but just be careful not to concede on key points.
6. Know your rights
In the unlikely event that a client still refuses to pay, you may wish to try:
- Mediation: the Civil Mediation Council and National Mediation Helpline have advisors to help resolve disputes
- A county court: these bodies help businesses recover unpaid debt. You'll need to contact your local court or HMRC to start proceedings
- Debt factoring: selling your debt to a third party for up to 85% of the sum is a last resort, but can be helpful if your cash flow is in trouble.
If you’re an established freelancer, you’ve probably experienced some difficulty in dealing with the tricky subject of payment. So why not share your experiences and let us know how you deal with late paying clients in the comments below.
