Why late payments are a mental health issue (and what to do about it) - Part 3.
In the next 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 to reduce the likelihood of it happening.
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 this part, we’ll look at the tangible things you can do to help reduce the likelihood of facing late payments, with support from our sister project freelancing.support - which provides a wider range of resources on freelancing, not just the mental health aspects.
Prevention is better than cure.
Some years back, I spoke to FreeAgent’s Chief Accountant, Emily Coltman FCA, about the issue of late payment, and asked: what can freelancers do to avoid this happening in the first place.
A simple response: "Prevention is better than cure".
Doing everything in your power to avoid late payments is always better than having to deal with late payments.
Whilst it's not your job to fix your client's internal accounting and payment processes (unless it is, and then, go fix it), there are lots of things you can do to remove as many possible excuses for the invoice to become overdue.
"Agree payment terms with your customer before you do any work, make sure they’ve seen, read and signed your payment terms and make it as easy as possible for customers to pay you, and if your customer is late with a staged payment, stop working on their project until they cough up!"
Before you start work.
Make sure you have a clear contract and scope of work - so when you’ve delivered your work, there is less chance of them challenging what you said you’d deliver. Working without a contract makes chasing unpaid invoices incredibly hard - and I’ve lost count of the number of freelancers I speak to who are dealing with late payments, and don’t have a contract.
Confirm your payment terms - If there’s no payment terms in the contract, it legally defaults to 30 days. Suggest a 14 day payment term - most businesses won’t accept it, but it’s worth asking. Anything over 60 days is unfair, and you should challenge it. The law will be changing later this year to make anything over 60 days illegal, but this is not yet in place.
As soon as your contract is agreed, ask for contact details of the finance team, and find out what process you’ll need to follow to get paid - some businesses require you to follow a specific approach, get set-up on a system before you can get paid, and provide certain details (like PO numbers) to be included on the invoice. Get all that sorted out now, so there’s no delay later. Don’t wait until you’re ready to invoice.
Consider an upfront deposit to start work for longer-term or larger value projects, and break the project into phases where signoff can be provided as you go - if they're not willing to pay a portion upfront, what might this say about their behaviours later?
Check the client’s previous payment behaviours - if they’re a larger company, they’re probably obliged to report on their payment behaviours, and you can check here. If they’re a smaller company - ask in your communities for any anecdotal evidence from fellow freelancers.
It can really help to have a defined process in place for starting work with a new client, and dealing with invoicing, reminders and remittance - so you can reduce the mental load of going through the process each time.
Create yourself a little checklist document, using the recommendations above, and run through it for each and every new client.
When you send your invoice
Ensure the required information is present on your invoice:
a unique identification number
your company name, address and contact information
the company name and address of the customer you’re invoicing
a clear description of what you’re charging for
the date the goods or service were provided (supply date)
the date of the invoice
the amount(s) being charged
VAT amount if applicable
the total amount owed
How they can pay you: most commonly your bank name, bank account number and sort code
If you're a sole trader, you must also include:
your name and any business name being used
an address where any legal documents can be delivered to you if you are using a business name
If your company is a limited company, you must also include:
the full company name as it appears on the certificate of incorporation.
Any additional requirements your client additionally requires, i.e. purchase order, contact name of the client, project ID, etc - this may vary by client.
Failing to include essential information on an invoice is a common reason clients may give for not paying you on time. Make sure this isn’t an excuse they can use.
Ensure the invoice is sent to the correct person - it could be a finance team, it could be a dedicated email address, it could be your direct client - but don’t assume just because you’ve emailed your direct contact, that’s sufficient.
After you’ve sent an invoice
Do not assume that it has been received - follow up within 24 hours. Ask for confirmation that:
The invoice has been received by the accounts payable / finance team
When the invoice is going to be approved
It contains all of the required information
There are no reasons why payment will not be made by the due date
5-10 days before the due date, contact your client and accounts payable team to remind them of the upcoming due date, and request confirmation the invoice has been processed. You can also follow up early if you’d like to check the invoice has been approved for processing.
Keep good records of all emails, invoices and correspondence, should you need to use it for legal proceedings.
It can really help to automate this process where possible - tools like FreeAgent and Crunch have automated notifications, which send payment due emails to your client. If you don’t have tools to automate, keep a simple spreadsheet with due dates so you can chase quickly, if you haven’t been paid.
Sometimes, your client might dispute the invoice, which can cause delays in your invoice being accepted. Keep good records of these conversations, ask for follow-ups via email rather than relying upon phonecalls. The law will be changing to require clients to ensure they have raised and resolved any disputes within 30 days - but this is not yet a requirement.
Next week, we’ll look at what to do if your invoice is paid late.
But if you’re facing problems with late payments now - here’s a ready reckoner from Freelancing.Support which gives you some actionable suggestions.
This week in freelancing
Positive news for freelancers, and related to our thread here about late payments - the government has published a series of proposals for changes in law to tackle the problem. You can read more in my post over on freelancing.support.
That’s all from me this week.
✌️ mk