Varying incomes and a lack of financial security can put a strain on the cash flow of some contractors. Things may be even worse if you are stuck with a client who delays payment or even refuses to pay at all.
It seems unthinkable that if you have completed a project or provided a service your client will not hold up their end of the bargain. However, for some contractors and self-employed individuals getting paid can be a challenge.
Chasing payment can be tricky as you don’t want to damage the relationship and jeopardise any potential further work. That being said, a client who doesn’t honour your agreement is probably a client that you don’t want to do repeat business with anyway. Chances are, your client has simply forgotten and a small nudge will see them writing in their cheque books. But for times when this is not the case, these ten tips cover the ways to handle a client who refuses to pay and how to avoid being in this situation in the first place.
Thanks to the team at Nixon Williams for providing these tips.
1. Research new clients
If you haven’t worked with a client before you may want to do some research before you sign any contracts. Most contractors and freelancers won’t have the budget to complete a full credit or background check, and it probably won’t be financially viable to do this regularly anyway. However, a look online to see if they have been referenced in any negative posts or articles could be all that is necessary. If you do come across any press releases or news stories stating that the company is days away from bankruptcy, you may decide to leave this one and move onto your next role.
2. Ask for payment up front
Working for a new client for the first time can be unnerving, but remember that it is standard practice for contractors and freelancers to ask for part payment or even the entire fee upfront when they are dealing with new clients. If the client refuses or gives a feeble excuse as to why they cannot do this, then alarm bells should be ringing and you may want to consider walking away from the project.
3. State payment terms on your invoices
Try and get into the habit of including how and when you expect to get paid whenever you send out an invoice. If a payment date has not been stated then your client should pay you within 30 days of receiving the invoice, but it could be worth spelling it out to them and also stating the actual payment deadline date.
When expressing how you expect to be paid try and make the process as straightforward as possible for your clients. This means including your bank details on invoices so your clients can easily complete a BACS transfer and also listing any other methods of payment that you are willing to accept.
4. Send a project summary
A subtle, but potentially effective way to remind a client of the quality of your work and that you deserve to be paid, is to send a summary of the project that you have completed when you send your invoice. Include the work that you have completed, deadlines that you have met and any ways that you have exceeded your client’s expectations.
5. Follow up email
Once the payment deadline (usually 30 days) has arrived send a reminder email to your main point of contact at the company. Remember, the chances are they have just forgotten or misplaced your invoice and so keep the email friendly and professional; you can always change your tone further on if the client continues to delay payment.
6. Follow up telephone call
If you don’t receive a response from your email after a couple of days, it is time to pick up the phone. The company may be able to dismiss your email, but phone calls are far harder to ignore. You may want to play this one a bit differently by not contacting your regular correspondent as you do not want to ruin the potential for more work in the future. Ask for the finance department instead and in particular the person that is responsible for paying invoices.
If you are given an excuse which will mean that payment is delayed, such as financial troubles, be compassionate and offer alternative payment methods or the chance to pay in instalments. Being flexible will ensure you remain on friendly terms with the client and even if your money is coming to you in small amounts, it is better than not getting anything at all.
7. Stop work
Depending on your situation and relationship with the client in question you could cease working until you are paid what you are owed. If you do decide on this option it is a good idea to be honest and warn your client of your plans, especially if you have any pre-arranged work. The last thing you want is your client chasing you for work you haven’t done and this may also leave them less inclined to pay up.
8. Charge interest
There is government legislation that has been put in place to enable contractors, freelancers and small businesses to charge interest on late payments; this is known as statutory interest. The amount that you can charge in the UK is currently 8% plus the Bank of England base rate for business to business transactions, which is currently 0.5% (figures correct February 2015). If you are going to charge late-paying clients interest, be sure to warn them of your intentions beforehand. This can usually be done when negotiating your contract or as part of the payment terms stated on your invoice.
9. Seek legal assistance
This doesn’t mean to go in all guns blazing; at this stage to try and maintain your relationship it can be as simple enough as asking your lawyer to send a letter to the client on your behalf. The unstated threat of further legal action could be enough to persuade your client to pay their debt. You may also seek the services of a debt recovery provider.
10. Go to a small claims court
This should be your last resort and it is important to make sure that the cost involved will not exceed the amount that you are owed. You should also be aware that if you decide to peruse this option your relationship with this client will most likely be over.