In our last blog, we looked at five ways to protect against last payment when you’re a freelance trainer. As we know this is a big issue for so many businesses, we’ve put together five more ways that you can ensure that your invoices are settled when they should be:
1. Send a friendly reminder before your invoice is due
I know life is busy but it can be helpful to send out a friendly email reminding a client that their invoice will be due in a few days’ time. Sometimes invoices do get mislaid under a pile of paperwork and this gentle approach can help push clients into action.
2. Shorten your payment terms
Although payment terms default to payment within 30 days of the date of an invoice if you don’t set other payment terms, more and more businesses are deciding to request payment within seven or 14 days rather than waiting a full month. After all, if you have delivered a service, it is reasonable to expect payment. The hope is that the client had budgeted for your costs in advance of securing your services. According to Xero, 75% of businesses now give two weeks or less for payment.
3. Charge a late payment and/or interest fee on overdue invoices
In your initial terms and agreements, it is legally permitted to tell clients that you will charge a late payment fee and/or interest on overdue invoices.
You might find the Pay on Time scheme helpful. Under this scheme, you can charge a £40 late payment fee for invoices under £1,000; £70 for invoices between £1,001 and £10,000; and £100.00 on invoices over £10,000. This is in addition to charging interest on late payments and any ‘reasonable’ administrative or legal costs to recover payment, such as enlisting a debt recovery company.
At this point in time, under the Late Payment of Commercial Debts [Interest] Act 1998 as amended and supplemented by the Late Payment of Commercial Debts Regulations 2002, you can charge statutory interest on late payments, which is worked out at 8% plus the Bank of England’s base rate for business to business transactions (0.5% at the time of writing).
Here’s an example:
If you had an outstanding invoice of £2,000, you would work out the annual interest you could charge as
£2,000 x 0.085 (0.5% base rate plus 8%) = £170
As daily interest, this works out as
£170 divided by 365 = £0.46 / day
You would then need to work out the number of days your invoice is overdue. If, for example, it were 60 days, you could charge your client £27.60 (60 x £0.46) in interest, plus the late payment fee mentioned above.
Hopefully, it won’t come to this but, for some clients, knowing that their invoice could increase is incentive enough to pay. You might offer to waive the late payment charges if an invoice is settled on receipt of your reminder letter.
4. Give your clients incentives to pay on time
Another option that works well is to offer a discount to clients who settle their invoices within a certain time frame, such as seven days after receipt. You could, for example, give a five percent discount to fast payers or specify that customers who pay within a specific time period will get preferred payment terms for future contracts.
5. Include electronic payment options
To help speed up clients’ payments, it’s a good idea to provide electronic payment options such as internet banking or PayPal. Services such as Stripe or Wave mean that clients can even pay via mobile invoices or make a credit card payment, as long as you’ve registered with those schemes.
Do let us know how you get on and if any of these – or last week’s – tips make a difference to your cash flow.