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This is the 4th article in a 10 part series covering all aspects of getting paid as a business.
Coming up: Profit & Tax, Maintaining A Money Mindset, Getting Paid As A Sole Trader, Getting Paid As A Limited Company, Saving For Tax & Your Future. Sign up to get the next article in your inbox so you don’t miss any.
It’s a wonderful thing when your client pays you on time.
Late payments though can be less than pleasant, when it’s more than your client just needing a reminder.
This article will help you with:
With late payments, there are a few basic actions you can take first:
Your first priority is to send a reminder.
Most late payments are an oversight, from your client being busy, thinking they’ve paid already, your invoice going missing or in spam, the right person in accounts being on holiday.
Send a polite reminder, and if no reply, send another reminder.
After that, it’s can’t/won’t pay and you need to take different action.
Sometimes you get the feeling your client has a temporary cash flow problem or maybe you missed the CHAPS run, or your new supplier form (and all the other paperwork they wanted) went AWOL so the right person doesn’t have it.
It’s a good idea to ask if your client has all they need from you when you send your reminder (depending on your client. This is more appropriate for bigger companies and organisations).
Be polite but firm. The precise tone will depend on your client and your business.
I know one freelancer who adds ‘Thank you for your prompt payment. My children will be able to eat tonight’ to his reminders to frequently late paying clients.
If your client is a small business or individual, you can casually hint it’s safe for your client to tell you if they have a temporary cash flow problem. It can feel embarrassing to say ‘hey, I can’t pay you right now’ and most people won’t admit it. If that is the problem, you can negotiate a solution.
Hands up who feels icky sending a payment reminder?
Mindset is important.
You need to be professional and there is no shame in using automatic or software reminders, creating an ‘accounts department’ email address or outsourcing reminders to a virtual assistant (VA).
You can’t be a proper grown up business lady and serve people if you can’t ask for your money.
When your late payments are older than a couple of reminders, you’re owed an outstanding debt.
(We’re beyond ‘I forgot’ by this point)
The issue is whether your client is not paying, can’t pay or won’t pay?
Actions you can take when you’re owed an outstanding debt:
Some people have late payments because they choose to pay late.
I agree, it’s not nice.
There are lots of sound, logical, rational reasons why a client may late when they have the money:
Ask for the experience of other freelancers. It helps you feel professional, it helps you to feel confident, and it helps you to know what you need to do specifically and how to word it.
How you chase depends a lot of the size of the invoice, the company/organisation/individual, public/private/third sector, whether you’re sole trader, limited company – and a whole raft of other factors.
In fact, a lot of the wisdom in this article is from other freelancers experiences which I salted away in my memory over the years.
When appropriate, it can be handy reminding/putting the point home with a sharp stick (metaphorically) what a random to do item (your invoice) actually means. It’s how you eat, it’s how you pay your mortgage, it means you can pay your bills at the end of the month. In my experience, that often just does not occur to people who have been employees all their lives.
If your client says they can’t pay (and you believe it’s genuine) or you suspect they can’t pay, it’s a bit different.
You need to decide if you’re going to follow up the debt or write it off.
When your client has late payments and there is good reason they can’t pay, keep the evidence of that (emails etc) so you have records to show you did all you could to recover the money.
When you suspect your client can’t pay, follow your payment procedures, but you may decide a gentler route than for a client who won’t pay. Keep evidence you followed your procedures if you need to write the debt off.
You can also allow your client extra time to pay if they’re being honest and up front with you about cash flow issues (e.g. they know when they’ll have money coming in).
Rosie’s Top Tip: It’s important to be professional and not a walk over if your client is having money problems. You did a job and you deserve to be paid. Be firm and do what you say you’re going to do.
When your late payments client won’t pay, or it’s in dispute, you have several options:
Mediation and debt collection is hiring a professional to get your money for you.
The better ones mediate with you and your client to find out what the problem is and come to a resolution. It’s not about busting doors down.
I like Steve of Thornbury Collections. He’s a normal human being who has an ethical line in no win, no fee (I wasn’t paid to say that, I know freelancers who used his business to get their money and they recommended him). The video on his homepage has some handy tips at 0.50.
You can ask a solicitor to send a letter.
You can take your client to the Small Claims Court (links in Resources).
Rarely you may have a client who tells you in writing they won’t pay. If they do this, you can apply to Companies House to have the company wound up (ask for legal advice before doing this).
Of course you could do absolutely nothing. Whether that’s a smart option, you decide.
Rosie’s Top Tip: Don’t go public about it if your client isn’t paying. It’s very tempting but appears unprofessional and can cause you serious reputation damage, if not a legal case.
If your client hasn’t paid despite trying everything, claim a bad debt in your accounts. It’s also called writing it off.
Enter the amount in your expenses and of course it’s tax-deductible (as you’ve already paid tax on the money).
If your client’s late payments are late because the company has gone bust or stopped trading, you can apply to be a creditor, but freelancers tend to be so far down the pecking order, it’s unlikely you will get any money. It’s worth finding out and trying though.
Also claim a bad debt in your accounts if the company went bust/stopped trading or your self employed client stopped trading.
Keep on with your mindset work 🙂
Your life can be made a lot easier when you have a professional payment system and do what you can to pre-empt late payments.
The best way of minimising late payments is to be professional, know your options and what you can do.
You can still do a lot if your client is late paying so begin now with what you need to do.
The most important action you can take is to get cake and get started.
If you want support how to pre-empt late payments and get a good professional payment system in place, have a look at my sole trader or limited company coaching packages. I can also create an individual package just for you. I’m a safe space, no worry about silly questions here 🙂
If you want easy to understand courses and guides, have a look in my shop.
This article is part of a series about getting paid as a business.
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