Small Business Advice Week: Make sure you get paid on time
This week is Small Business Advice Week. Freelancers and other micro business owners can get lots of useful help and advice by visiting the Small Business Advice Week website and they can join in productive conversations happening on Twitter by using the hashtag #SBAW.
For our part, we want to address one of the biggest issues faced by small business owners – how to make sure they get paid on time.
Zurich estimates that Britain’s SMEs are owed more than £44bn in late payments.
Meanwhile, accounting software company FreeAgent claims that only 51% of micro business invoices are paid on time.
Cash flow is key for long term business sustainability in the world of self-employment. And if you can’t pay your expenses or make mortgage payments then your self-employment adventure will be short lived.
Follow these tips to make sure that your next payment comes in on time.
Vet your clients
The best way to avoid late paying clients is to research them thoroughly before agreeing to any work. Guard against non-payment by only working with reputable companies who are in a good financial position.
Clearly, if you are just starting out, then getting your foot in the door with a big player may be challenging.
But you can perform due diligence on an employer by checking their accounts (and directors) online, speaking to other contractors who have worked for them or scouring news articles to get a sense of their reputation.
Automate your books
If you are a freelancer, managing your finances wholly independently can feel like a mammoth task. To make life easier, many freelancers like to use cloud-based accounting systems like FreeAgent to automate their invoicing and other financial processes.
These systems can cure a lot of the administrative headaches that come along with running your own micro business.
You can also make sure you get paid more promptly by scheduling automatic invoices and reminder emails when it’s time for a company to pay up.
You can also get support from a qualified accountant, who will help manage your books, give you advice and help support you at important junctures, such as in tax season.
Before you start a new freelance assignment, make sure you draw up a contract that lays out the project, payment terms and expectations on both sides. Informal ‘handshake’ agreements can lead to payment problems further down the line – even if you know the client personally.
You can get free contract templates on many freelancing websites.
These will give you some legal protection if the work relationship deteriorates, but for larger jobs it might be worth working with a lawyer to draw up a tighter contract.
Invoice early and often
Your invoices are one of the sharpest weapons in your arsenal for getting a client to pay on time. People like to invoice in different ways. Some choose to do it weekly or monthly or every time the finish a piece of work. Whatever you choose, you need to make sure you do it early and often.
In some industries it is acceptable to invoice for part of the amount (30-50%) before the project has started, as long as this is agreed at the outset. Invoicing regularly and predictably helps establish your professionalism and tells the company that your time is valuable.
Don’t be afraid to send reminders
If your client does not stick to payment terms then you have to make sure you follow up and send payment reminders. Start by sending emails, then phone calls and if that fails then ask to for a face to face meeting.
Understandably, you may be concerned about damaging a relationship with a long-standing client by bothering them.
But it is important to let your client know that your time is valuable and that you expect to be paid on time. One way of minimising any relationship damage is by setting systems like FreeAgent to send automatic reminder emails. The chances are that your client will take these reminders less personally if they are generated automatically.