Tag: credit

Getting paid (5)

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Using the law

In theory, the law is on your side. In reality, the law sees you and the giant corporation you are freelancing for as two equal bodies. It does not recognise that the bigger organisation has more power and influence, can hire expensive lawyers and can bully you just with the threat of making sure you never work again.

Having said that, there are times when using the late payment laws can be very helpful.

Proper name

The full name for the late payment legislation, which you should make clear on the invoices you will use, is: the Late Payment of Commercial Debts (Interest) Act 1998 as amended and supplemented by the Late Payment of Commercial Debts Regulations 2002.

This means you can charge a fee for any invoice not paid on time, plus interest at eight percentage points above the Bank of England’s base rate. Interest rates are currently very low so the interest does not add up to much but the penalty charges are worth it.

For bills of less than £1000 you can charge £40. Between £1,000 and £9,999.99, you can charge £70 and for invoices of £10,000 or more you can charge £100. So even if you only invoice for £10, if it is paid late you entitled by law to a £40 compensation fee.

Do the Maths

Calculating the interest on top of the fee gets more complicated. First you need to know the current interest rate. This has been simplified and for the purposes of this legislation, only changes twice a year. The Bank of England rate on 31 December is used for the first six months of the year and the rate on 30 June is used for the next six months. The BofE rate has been 0.5% since 2009, making the amount you can charge 8.5%.

You take the amount of the debt (including VAT if you charge that) and multiply it by the interest rate (8.5% is 0.085) This gives you the amount in interest for a whole year. You divide that by 365, which gives you the daily rate. And then you multiply that by the number of days the invoice was paid late.

So, a £100 invoice paid ten days late is £100 X 0.085 = £8.50 ÷ 365 = 2.3p per day X 10 days = 23p. But add that to the £40 fee and the total you can claim is £40.23. There are many interest calculators online that you can use (see links below).

 Template letter

All you need to do to claim is write or email setting out that you wish to claim, giving the invoice and payment details.

Here’s a draft you can copy and adapt:

I am claiming late payment fees and interest on the invoice detailed below under the Late Payment of Commercial Debts (Interest) Act 1998 as amended and supplemented by the Late Payment of Commercial Debts Regulations 2002.

  • Invoice number: XXX
  • Dated: XX/XX/XX
  • Amount: £XX
  • Invoice due date: XXX
  • Invoice paid date: XXX
  • Days late: XX
  • Interest rate: XX
  • Interest charged: XX
  • Fee: XX
  • Total amount due: £XX.

Please make payment immediately.

If you have several invoices you might be best to produce a table of them – but you can include as many as you like in a single demand.

The key here is that you can use this as a lever to get customers to pay on time. The law allows you to wait six years before claiming your late payment charges and interest but if you keep pointing out that paying you late is incurring these charges, it can put pressure on firms to speed up payment. And you can, at the end of six years, claims for the whole lot in one go.

This might be particularly relevant if you work for one organisation for several years that paid a few invoices late. Once you have ceased working for them, demand your late payment entitlement.

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Getting paid (4)

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What to do when you don’t get paid on time

It happens to all of us. In fact, I bet we’ve all forgotten to pay someone for something, sometime, and needed a reminder. So always start out on the basis that it is an oversight – a mistake.

Be firm but be polite and cheerful. Ask if there was anything wrong with the invoice, or with the way it was sent. Ask if there is anything you can do to help invoices get paid faster next time.

But don’t be fobbed off, either with excuses or brazen refusals to pay on time. Make clear the payment time (credit period) is part of the contract. You have carried out your part of the contract and their part of that same contract is to pay on time.

The law

Explain that this is a legal requirement and not an optional extra. Remind them of the late payment legislation and that you are entitled to claim for bills paid late. Explain that late payment charges will end up costing them more and you want to help them avoid those extra charges. You want to work together.

In recent years I have had a rule of thumb to work with a client in this way for three payments. If the first is late we have a discussion about it, with me making any changes necessary to help speed up the process (billing at a certain time to coincide with payment runs or copying the invoice direct to an extra person to speed approvals). I expect them to make changes in return.

They may not get it right still the second time, but I do expect to see an improvement. I will have been in regular contact to check the progress of the payment. These regular calls and emails also give you an idea about whether the company is taking the matter seriously or not.

Usually they get it right by the third time round. If not, you need to make a decision about what you do next.

New or old customers

Most payment problems arise with new customers and then settle down. Every now and then a regular prompt payer will miss a payment through a lost invoice or other error (which would have been spotted had you chased up the invoice after you sent it). Most of the time these are nothing to worry about and can be resolved with a friendly chat.

But late payment can be a warning sign of longer-term and more serious problems. Check the status of each customer before supplying further material. Are they in trouble? Have they their own cashflow problems? Are they solvent?

Strict credit advice would be not to continue to supply if the account is overdue. In reality most of us will supply while a problem is sorted out. But don’t let the amount owed to you build up.

Special terms

You can set special terms (7 or 14 days) if the customer has paid late before. And if the customer fails to meet the special terms, revert to pro-forma invoicing (invoicing and getting paid in advance) or demanding cash on delivery.

Ultimately you may have to cease supplying altogether. That’s a painful decision to make for any freelance, but less painful than working your guts out only for the company to go bust without paying you.

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Getting paid (2)

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Clarity is key

The scramble to snatch up scraps of work can sometimes cloud the details of exactly how much a job is worth and when we are going to get paid. This is almost always a mistake.

Negotiate and agree payment terms at the point of sale, not afterwards. Afterwards is too late. Either a genuine misunderstanding can come to light or someone might try to rip you off by offering less than initially agreed. If you have already done the work, it may be too late.

You don’t want to be in a situation where your client is saying: “I thought that was included in the price,” when you thought it would be for an extra fee.

Whatever deal you agree, make sure you put it in writing – an email – and that you keep a copy. Whatever your terms – and they may vary from job to job or from one client to another - make your terms of trade clear and unambiguous. Set out:

  • The details of the job, including any dates, quantities or other conditions you have accepted and what is excluded
  • Payment amount (s)
  • Limitations – any restrictions you have put on them using your work, such as copyright, ownership, repeat fees,
  • Date of expected invoicing
  • Credit terms (when you expect to get paid), including stating your intention to use the late payment legislation.

Once you have done the work or supplied the goods or service, get a confirmation that what you have supplied has been received and check that the customer is satisfied with the quality and number delivered. Errors or faults are often used as an excuse for delaying or reducing payment.

And get that invoice in sharpish.

Getting paid (1)

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Be careful about who you work for

Check out all new clients before you start working for them – avoid the pitfalls of working but not getting paid.

What could be better than getting a new client, you think. Maybe someone rang out of the blue, or emailed, or even called. They saw your name, liked a piece of work or yours, or you were recommended by a colleague – they can even tell you their colleague’s name and you are proud of the connection.

You’re chuffed, flattered, grateful. You could do with a bit more work right now, or you were wondering what you’d do when the current project comes to end. Here’s the answer and you haven’t even had to go looking for it.

But wait. It might be great news, but it might be more trouble than it’s worth. If this is a fly-by-night outfit on one on the verge of bankruptcy, you could be about to commit to working for free with no prospect of ever getting paid.

Credit checks?

Big corporates do credit checks and due diligence before accepting clients. For most of us freelance professionals buying credit reports and seeking references is not realistic. But we can - and should - check out customers before we sign up to work for them. If they don’t pay, or go bust on us, we will have lost out.

Google is your friend. A few minutes should find out a little about this potential new customer. What are people saying about them? Are there any complaints? Check forums, chat rooms, any websites criticising them for not paying their bills or trying to cut down agreed fees after accepting similar work?

Personal contacts are even better – do you know anyone who has worked for them? What were they like to work for, did they pay well and did they pay promptly? Are people still happy to work for them? One reason organisations are often looking for new talent is because they have alienated their old favourites who will not longer work for them – if not, warning bells should sound. Check with your union – have they had to help members squeeze money out of them?

Pay close attention to quickly growing companies or companies that have been, or are being, taken over.

Sooner, rather than later

Do all this before agreeing to work for them – afterwards will be too late. A sensible freelance will also monitor existing customers and review them twice a year. You need to spot if a client is getting into difficulties and adapt accordingly, perhaps billing smaller amounts more often so that, if they do stop paying, you’re left being owed less. Better still, cease working for them before they get into difficulties.

Grade your customers by risk levels and set credit limits and terms for each customer. You might normally expect to be paid 30-days after sending the bill but not every customer has to be treated the same. You might offer to bill monthly instead of weekly, for example, but only if you can be paid within a week. That might save both of you the hassle of dealing with lots of invoices.

There may also be times when you have to ask for payment up front – before you start. This might be part payment in advance and the rest when you finish the job, or, if you are worried about the client, you might ask for full payment in advance. You might even ask clients to apply for credit terms – a child entertainer or magician, for example, might do many jobs based on payment with the booking but have a corporate client that provides regular work who pays on invoice after each performance.

It’s a case of horses for courses.