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As the recession deepens, the number of businesses who have suffered late payment problems has rocketed. What should IT contractors do if their agency or client fails to pay on time?

A recent survey by Bacs showed that the UK's small companies are owed around £26bn in late payments - a 40% rise over the last year.

One of the main worries IT contractors and other small companies have is that they don't want to risk upsetting the relationship between themselves and their clients. Often, small companies will suffer in silence rather than following steps to speed up, or recover delayed payments.

IT contractors working through recruitment agencies are less likely to experience late payment issues than contractors working direct, as the payment process is typically automated in the former case. However, payment-related issues will do occur regardless of whether you work direct or via an agent.

Late payment tips

1. Agree realistic payment terms upfront. Such terms should also be printed on your invoices. If you are working via an agency, you will typically be subject to their payment cycles, so make sure you are happy with the process before signing your contract.

2. Make sure your agent or client can pay you easily. Ensure you provide accurate banking details for Bacs payments direct to your business bank account.

3. If you are going direct, make sure you credit check your client before signing up. You can use a credit checking service such as checkSURE for this purpose.

4. Be efficient with your credit control procedures. Be polite when requesting payment, and issue a gentle reminder before taking things further. Make sure you can contact the accounts department directly.

5. Don't be afraid to take action if a payment becomes significantly late - this is a threat to your business, and should be treated as such. You have the right to charge late payment interest via the Late Payment of Commercial Debts (Interest) Act (1998).

6. If things get worse, you may need to tell your client/agency that you may seek a termination for breach of contract. This is a last resort which is rarely required if you have made fair attempts to secure payment beforehand. You should seek professional advice if you still don't secure payment at this stage.

Also, read these late payment tips for more in-depth ideas on how to protect your cash flow.

Deal with problems early on

James Leckie, founder of small business portal, Bytestart, said:

"IT contractors may feel vulnerable in demanding payment from larger companies, this is very understandable. For this reason, contractors should always aim to politely secure payment before taking further action. In many cases, late payment is due to poor administration, and a word with the accounts department will often result in prompt payment."

Dave Chaplin, author of the Contractors' Handbook, told us that late payment problems are best dealt with at an early stage:

"You should agree upfront payment terms and have it written into the contract. When the client/agent pays you late the first step is to have a chat with their accounts department, express your concern and get reassurance from them that you will get paid straight away and that in future you will be paid on time.

"A few days late is fine of course, but when you start counting the delay in months it can become a major problem. If it starts becoming a problem for you then you should then tell your agent that you consider the late payment a breach of contract and that if you are not paid immediately you will withdraw your services from the client. That will normally solve any issues."