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One of the biggest causes of stress for small business owners is dealing with late paying clients.

In fact, one of the biggest cause of business failures in the UK is poor credit management resulting in unsustainable cash flow problems.

Successive Experian late payment releases show that the number of days small businesses have to wait for invoices to be paid in full has increased on a quarterly basis from 2009 until late 2011.

Although most contractors work via agencies and rarely suffer from late payment problems, contractors and freelancers who work for clients directly may face problems getting paid on time. Agencies too have been known to pay late.

The Late Payment of Commercial Debts (Interest) Act 1998 was devised to offer some form of protection for smaller firms, initially providing all businesses the right to charge interest on overdue invoices.

In reality, many small businesses are reluctant to charge interest to larger clients, as they may not want to risk losing a potential source of income.

Here are some proactive steps you can take to maximise the chances of getting your invoices paid on time.

Tips for preventing late payment

1. Print your payment terms on all your invoices, and other paperwork. This includes the payment term (7 days, or 30 days are typical terms), your bank details, and your right to charge interest on late payments.

2. You are entitled to charge interest at the Bank of England 'reference rate' (linked to the base rate) + 8% on overdue payments. Unless specified otherwise, the law will consider 30 calendar days to be the deadline before interest can be charged.

3. Make sure you are provided with a contact in the agency or end client accounts department when you start a new contract or are engaged to provide freelance services.

4. If your invoice is not paid on time, you must be proactive. Follow up the accounts department with a polite phone call or email reminder, before becoming more forceful with your request for timely payment.

5. Encourage clients to pay you electronically rather than via cheque (for direct clients). Almost all agencies pay their contractors direct these days.

6. Some businesses offer more favourable rates for prompt payment - consider this option if it is practical to do so. This is more likely to benefit freelancers, as most contractors can only charge a pre-arrange rate for their services.

7. Run a credit check on potential clients if you are not working via a recruitment agency. If you are using a small agency you are unfamiliar with, credit check them as well.

8. Although late payment can be stressful, try to be proportionate when complaining about an unpaid invoices. There may be a good reason why payment has not been made.

9. In extreme cases, you may decide to employ the services of a 'debt management' company who will extract payment on your behalf.

10. You are entitled to bill late paying clients for debt recovery costs too. £40 on debts up to £999.99, £70 from £1,000 to £9,999.99, and £100 for sums of £10,000 or more.

Further Resources

Pay On Time - complete guide to the Late Payment of Commercial Debts (interest) Act 1998

Department of BIS - user's guide to the late payment legislation

Debt Recovery Service

You can also take advantage of our recommended debt recovery service, including preferential rates for Contract Eye visitors.