The Practical Guide to Limited Company Tax
If you have chosen to operate your business as a limited com...
By Jonathan London on 27th February 2015
As a contractor you may from time to time, come up against late-paying clients. If dealt with early, directly and diplomatically, late payments can usually be recovered quickly without recourse to formal measures or damage to your client relationships. The longer the problem goes on however, the more steps you will need to take. Listed here are some precautions you can take against late payment and the options open to you if the problem persists.
Agree payment terms before starting work to avoid misunderstandings state your payment terms clearly in your contract. Ensure that your client knows when your invoices will be issued and when payments are due.
When taking on new clients, credit check them before you sign any agreement. If necessary ask for a percentage up front and regular instalments as the work progresses. This will reduce the risk of over-servicing a late-paying client.
Ensure your invoices restate the payment terms agreed in the contract and consider inserting a form of words that convey a business-like approach to securing payment, such as:
“[Your name] will exercise our/its/my statutory right to claim interest (at 8% over the Bank of England base rate) and compensation for debt recovery costs under the Late Payment legislation if payment is not received within the agreed terms.”
Many big businesses offer a discount for paying within a specified number of days or for setting up a regular payment scheme such as a standing order. There’s no reason why you can’t do this too, however, remember to budget for the potential drop in income.
Many cases of late payments are the result of a simple oversight or unforeseen event. When making your first reminder call, assume this to be the case and give the client the benefit of any doubt. Make that call early to avoid missing the next payment run and ask your client when you can expect the funds to reach you.
If, after several calls you still haven’t been able to secure your payment, send a formal letter reminding your client of your agreed terms. Make an unequivocal demand for payment and set a deadline, stating your intentions in the event that the deadline is not met. These could include withdrawal of services, cancellation of the contract, engaging a debt collector, mediation or legal action. Make sure you adhere to any deadline you set in order to a) increase your chances of getting paid and b) demonstrate your determination to pursue your payment.
This is vital, especially if you engage a third party to help recover the payment. Be ready to demonstrate that you have fully delivered on your promises and have made every effort to avoid formal escalation. Most people find mediation or debt collection agencies quicker and simpler than legal action and small claims courts.
Whatever action you choose, act early. The older the debt, the harder it becomes to recover.
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