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How to Chase Late Payments

Working for yourself can come with great benefits, higher rate of pay, freedom to take prolonged holidays, and working your own hours amongst other things but does however, also come with more responsibility. As most contractors know, being self employed you do not receive the same benefits as you would in a permanent role, such […]

By Alex Graham on 18 Nov 2015
Read time: 3 minutes

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Working for yourself can come with great benefits, higher rate of pay, freedom to take prolonged holidays, and working your own hours amongst other things but does however, also come with more responsibility.

As most contractors know, being self employed you do not receive the same benefits as you would in a permanent role, such as sick pay and pensions, although the rate of pay usual compensates for this. So what do you do when you have a late payment?

Preparation

The best thing you can do is prepare in a way, which doesn’t get you into these particular situations in the first place. First thing would to be before you being working together, send them over a terms and conditions document, and get them to read over and approve it.

This document should include things such as:

  • Notice Period
  • Key Performance Area’s (KPI’s)
  • When and How you Invoice
  • Revision Limits (if it applies)
  • Payment Period
  • Details on Late Payment Fees

The last point, is probably the point you are most interested in, as this part could prompt the speed of late payments from your clients, or at least cover your costs as well.

Late Payment Fees

Including this in your terms and conditions can protect you for future late payments by offering an extra charge on top of your agreed contract fee if they do not pay on the agreed date, which also may increase the speed of payment from the client.

According to the Late Payment of Commercial Debts Regulations 2002, there is a set fee of late payment charges that you can charge a client: Under £1,000 agreed contract payment plus a £40 late payment fee, £10,000 – £70 and £100,000 or over – £100. However, it is always best to speak to an advisor/accountant regarding these charges.

However, you can also offer an option to pay up early, with a discount incentive. Where by you offer a 4-5 per cent discount on their next contract with you if they have paid the current contract on time, or take the percentage off the total of the next bill.

Chasing Late Payments

The previous information can aide in the prevention of late payments although you can’t predict the future so what do you do if you ever have to chase a payment?

If after the initial 30-day period, they have not yet made a payment, a polite email reminder can be sent, informing them of the payment then have now incurred and may prompt them to pay up.

If after another 30-day period has passed and no payment has been received, put all work on hold until further notice and don’t forget to calculate the interest charged on top of your fee. You can check the amount on the London Freelance website.

If the client has still to make a payment then you may wish to involve a lawyer, who can send a secondary letter to your client. However, if you feel the client relationship is worth saving you can join a freelance membership group such as PCG, who can offer contractor services which includes debt collection without the heavy fee’s.

If all else has failed in obtaining a payment from the client then the last resort would be to take the dispute to the small claims court, but bear in mind the relationship you have with the client would be diminished.

If you would like to speak to someone regarding and questions or queries you may have about making the move to contracting, please contact us on 01253 362062 or email craig.whelan@nixonwilliams.com

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