Why late payments are a mental health issue (and what to do about it) - Part 4.
In the final episode of a short series on late payments, and why it isn't just a problem for the bank balance - this week, we look at what you can do, when you experience a late payment.
In the first part of this short series, we looked at why late payments to freelancers are a mental health issue, specifically with regards to a major problem: Cashflow.
In the second part, we spoke about confidence and capacity.
In the third part, we looked at how to avoid late payments in the first place.
And finally, we’ll look at how to deal with them when they happen.
When you face a late payment…
Ideally, you’ve not let it get to the point where you’ve passed 30 days (or whatever your terms are) without confirming they received your invoice, there were no issues with making payment, and perhaps a couple of gentle reminders of the due date coming up - so when it hits 30 days, there should be no excuse from your client for not having paid.
However, and more than half of small business invoices are paid late, it’s likely you’ll have to follow this process at some point.
As soon as the payment is overdue:
Contact your direct client via email, to notify them the payment is overdue.
Ask if there is there is something preventing the payment being made, and ask for a date of when the payment will be made.
Keep things polite and professional - and keep records of your correspondence.
Contact the client’s finance or accounts payable department, notifying them the payment is overdue, and requesting a date when the payment will be made.
Doing this via email helps you have a record of communication
If there’s no response within 24 hours, pick up the phone and try to have a conversation directly with your client or their finance team.
If you hear from the client and they have an excuse on why the payment will be late, make a decision on whether this is acceptable to you, and agree and confirm a payment date in writing. Remember, you are probably entitled to statutory compensation, even if you agree to a later payment.
0-2 weeks overdue:
After 5 working days, contact them again via email or letter.
Explain that your invoice continues to be overdue, and unless paid within the next five working days (state the date in your communication), you’ll be charging interest and late payment fees, as is your right under the Late Payment of Commercial Debts (Interest) Act 1998.
You do not need to have included this in your terms or the contract - as you are entitled to these fees by law. Read the section the guide about your rights.
If you’ve unsuccessfully chased an invoice for over 30 days
Decide how you want to escalate things. Consider your options, which include:
Charge the customer late fees and interest.
Speak to someone more senior in the business, to find a resolution and agree a payment date.
Contact the Office of the Small Business Commissioner to ask them to intervene.
Speak to a solicitor, who can help you send a "Letter before action" suggesting legal proceedings to recover the debt. Legal advice can also help you explore further actions.
Make a money claim or seek a binding decision from a judge in court.
Pass your debt to a recovery agency.
Communicate to the client the escalation actions you’re considering, and request a clear timeline for when they expect payments to be made.
Explain that you’ll be charging interest and late payment fees, as is your right under the Late Payment of Commercial Debts (Interest) Act 1998.
Chasing money can be emotionally stressful, and take up considerable time - don’t forget to lean upon your support network, and automate the process where possible.
If your invoice has been paid late - you are entitled to interest and debt collection fees.
Under UK law, you’re entitle to charge interest for each day the invoice is late, as well as a “debt collection” fee based upon the value of your invoice.
Decide if you want to charge late interest and surcharges, as is your right under the Late Payment of Commercial Debts (Interest) Act 1998, if your client is also UK based.
If you’re going to charge the client, you'll need to provide them with a new invoice, detailing the interest and surcharge fees, due immediately, referencing the original invoice.
Calculate the interest and surcharge, using the OSBC calculator, or this ready reckoner:
Late Payment Interest:
In the case of late payment, you are entitled to claim interest for the late payment without a reminder. This interest is calculated at 8% above the Bank of England Base Rate (which is currently 4%).
For instance:
If your business were owed £1,000 and the Bank of England base rate were 4%:- The annual statutory interest on this would be £120 (1,000 x 0.12 = £85)
- Divide £85 by 365 to get the daily interest: 33p a day (120 / 365 = 0.33)
- After 50 days this would be £16.44 (50 x 0.33 = 16.54)
Late Payment / Debt Recovery Costs:
The creditor (you) is entitled to obtain from the debtor (your client), a fixed charge of:
- £40 (for invoices up to £1000)
- £70 (for invoices up to £10,000)
- or £100 (for invoices over £10,000)You can collect interest on a late payment up to a maximum of 6 years from the from date following end of contracted payment terms.
It’s good practice to state in your terms and conditions and on all your invoices that you’ll do this, although you’re entitled to do it even if you haven’t said you will.
Remember, you have rights - as a business, and as human.
Whilst law protects your rights as a business - I think it's just as important to know your rights as a human. As someone who has worked hard for your client and delivered the work as you'd promised.
You have the right to be respected - not paying you on time shows a lack of respect for your work and for you as an individual.
You have the right to understand what's happening - all too often, late payments also come with little or zero communication, the invoice just goes unpaid, and then you're doing the chasing. It's not too much to ask to, at the very least, know why your invoice hasn't been paid yet.
You have the right to be a priority - I don't care how large or small your client is, or how big the project was - you are just as important as any another project that's taking place. The work was important enough for them to ask you to do it, so it's important enough to pay for.
You have the right to be frustrated - you've done good work, you delivered it on time, and now you deserve to get paid on time, and anything else is unfair. it's not a bad thing to feel a sense of unjust, and not a bad thing to demand what is rightfully owed to you.
You have the right to know this isn't your fault - late payments are all too common, and not a reflection upon you or your work, but rather poor process and lack of value placed upon suppliers from others. Don't let the blame lie at your feet for the behaviours of others - its not your job to help them run their accounts team (although there are lots of things you can do to make it as easy as possible for them).
You have the right to deal with this how you see best - no matter what is written here in the guide of how we recommend you approach late payments, you know what works right for you - and you should always follow the path that you're most comfortable with. Just make sure you're not making decisions which ultimately lead to your bank or emotional health going into an overdraft.
So, we know our rights, what is holding us back from putting our foot down and demanding payment right now?
It's probably those pesky things called emotions and feelings. After all, we're human - and all small businesses are built upon relationships, especially with our clients. Stomping our feet and threatening bayliffs doesn't seem conducive to building great business relationships, right?
You also have the right to decide that chasing a late payment is adding too much stress and workload for you. Whilst personally, I think all freelancers should actively chase late payments (because every time we don’t kick up a fuss, it makes it a little easier for clients to do it again to the next freelancer), we also all have our own personal limits.
However you chose to approach chasing and dealing with late payments, remember you don’t have to do it alone.
Ask for support from your community and network, speak to the Small Business Commissioner, even drop us a note and we’ll help where we can.
» There’s a more extensive version of guides and resources for late payments on the main Leapers website.
That’s all from me this week.
✌️ mk