Like any small business or sole trader, most IT contractors are acutely aware of the importance of on-time payments to a healthy cash flow. But unfortunately, late payment occurs often. And according to recent research from Sage, more than 10% of invoices issued by SMEs globally are paid late or written off completely. Even a few tardy clients can be enough to send a freelancer’s finances into the red. So how can contractors effectively manage the process while protecting the relationship with the client?
Short of making every single client pay you upfront, it’s difficult to eliminate late payments completely. That said, there are some steps you can take to nudge your clients in the right direction.
Make sure your invoices:
In order to minimise invoice errors and late payments, consider investing in billing software that generates automated invoices to allow your clients to pay you directly online. This can save time on unnecessary paperwork.
It can be tempting to launch straight into chasing a customer when a payment is overdue, but it’s generally a good idea to think of the following first.
There could be all sorts of reasons why the payment is late, so give your customer the benefit of the doubt and take a soft approach to start with at least. Especially if you want to continue doing business with them going forward.
If your invoice contains typos or incorrect information, this could be the reason it has been held up. It could also cause disputes and additional delays if it isn’t addressed before you start chasing, so make sure you double and triple-check it.
If you’re unable to resolve a payment dispute directly with a customer and end up having to take them to court, you’ll have to show that you followed a fair process. As such, it’s important to have a paper trail of your correspondence with the client and what was agreed.
Your client has to pay you within 30 days of receiving your invoice or IT services, unless you’ve agreed on other payment terms with them.
If you find yourself in a situation where you need to chase an unpaid invoice, make sure you are reasonable and diligent in your approach.
2 days after the payment due date:
7 days after the first reminder:
24 hours after the second email:
7 days after the initial phone call:
7 days after your second phone call:
14 days after your formal letter:
Alternatively, you could consider purchasing invoicing software which allows you to schedule invoices in advance so that they are automatically generated and sent out on a specific date, letting your clients pay you directly online. You can also set up automated helpful reminders for customers who haven’t finalised the payment.
If you’ve tried to deal with the client fairly, giving them plenty of options to engage with you, and they still haven’t paid the invoice, there are three debt recovery options to consider:
2. Statutory demand
3. Court action
It’s usually a good idea to look into mediation in the first instance. It’s likely to cost you less than legal action, and could potentially help repair your relationship with the client.
Want to find out more? Have a look at Sage’s guide to following up on unpaid invoices while staying on good terms with your clients.